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I haven't yet set up a Roth, primarily due to laziness. But now that I no longer contribute to my 401k (because the evil Fifth Third Bank runs it, and my company doesn't match funds) I plan on opening a Roth soon.
One of the nice things about a Roth is that after a certain period of time one can withdraw the money put in (but not the interest or capital gains earned on it), so there is that added feature of liquidity.
<font size="2" face="Verdana, Helvetica, sans-serif">Five years.Quote:
Originally posted by reason:
I haven't yet set up a Roth, primarily due to laziness. But now that I no longer contribute to my 401k (because the evil Fifth Third Bank runs it, and my company doesn't match funds) I plan on opening a Roth soon.
One of the nice things about a Roth is that after a certain period of time one can withdraw the money put in (but not the interest or capital gains earned on it), so there is that added feature of liquidity.
<font size="2" face="Verdana, Helvetica, sans-serif">Five years.</font><hr /></blockquote><font size="2" face="Verdana, Helvetica, sans-serif">Thanks. I couldn't remember off the top of my head.Quote:
Originally posted by gae:
</font><blockquote><font size="1" face="Verdana, Helvetica, sans-serif">quote:</font><hr /><font size="2" face="Verdana, Helvetica, sans-serif">Originally posted by reason:
I haven't yet set up a Roth, primarily due to laziness. But now that I no longer contribute to my 401k (because the evil Fifth Third Bank runs it, and my company doesn't match funds) I plan on opening a Roth soon.
One of the nice things about a Roth is that after a certain period of time one can withdraw the money put in (but not the interest or capital gains earned on it), so there is that added feature of liquidity.
I'm thinking I contribute to a Roth for about 5-7 years, then remove my contribution to exercise options of my company stock before they expire (I have 10 years to exercise). That way I get the Roth thing rolling, and I have the funds available to invest in what should be stocks with at least a 5% dividend yield as the options expire.
It's just a way to keep my options open (pun intended). Usually liquidity comes at a price. This way, one can maintain liquidity and not necessarily pay the price...
Though I'm not sure what happens if you take a loss on the sale of stocks in an IRA(something I probably wouldn't do anyway).
Please feel free to correct my line of thinking if I'm wrong.
<font color="#000002" size="1">[ July 02, 2004 08:33 AM: Message edited by: reason ]</font>
if you look at the left collomn of the site you will find access to calculators for all kinds of investments.
With Grennspans slight interest rate bump, and the forecast for a gradual climb in that area, it may make more sense fopr those who have been "puting things off a bit" to become players in this area.
Plus, it's kinda [img]cool.gif[/img] to see where you will be fiancially when it's all said and done.
[img]tongue.gif[/img] [img]cool.gif[/img] [img]smile.gif[/img]
<font size="2" face="Verdana, Helvetica, sans-serif">That made no sense.Quote:
With Grennspans slight interest rate bump, and the forecast for a gradual climb in that area, it may make more sense fopr those who have been "puting things off a bit" to become players in this area.
A ROTH IRA calculator.
Same one the use on the US Chamber site. (easier link)
IRA CALCULATOR
You'll be surprised how a small adjustment in what you put in can make a HUGE DIFFERENCE in what you get out of it.
[img]tongue.gif[/img] [img]cool.gif[/img] [img]smile.gif[/img]
Your thinking makes sense to me, reason. If you want, I can hook you up with Trav's financial advisor (and now mine); I'm sure he'd be glad to answer questions.
<font size="2" face="Verdana, Helvetica, sans-serif">I know some of what I said didn't make sense, but that's partially because I'm still thinking the whole thing through.Quote:
Originally posted by gae:
Your thinking makes sense to me, reason. If you want, I can hook you up with Trav's financial advisor (and now mine); I'm sure he'd be glad to answer questions.
I don't like my 401k because 1) it's through 5/3, 2) my investment options suck, 3) I can't move the money as long as I'm with my company.
So I'm thinking the Roth is a good way to build some tax free income yet still have the monies available to exercise the options at the most optimal point. At 10yrs the dividend yield on the exercise price should generally be around 5% at least.
As I said, I'm not sure how losses and gains on sale of securities are accounted for in the Roth. This is me being stupid here - is it a net basis of all securities in the Roth or is it done on a security by security basis?
Who is your financial advisor? Just curious. I have 4 CFAs and a CFP at my immediate disposal every day, plus a ChFc, but it's always nice to get outside opinions.
For the record, I am so *not* high net worth.
To the best of my knowledge (limited), the cost basis is on a security by security basis. Just like anything else.
I'll pop you an email with the FA info.
Roth IRA 101
<font size="2" face="Verdana, Helvetica, sans-serif">Thanks for the info. It's about time I sat down and read up on it.Quote:
Originally posted by gae:
To the best of my knowledge (limited), the cost basis is on a security by security basis. Just like anything else.
I'll pop you an email with the FA info.
Roth IRA 101
After going through that info, I've come to the conclusion that one can withdraw up to the net cost basis of all the securities owned without suffering any tax penalties.
The reason I read it that way is because an example was given of one person who owns two Roth IRAs. It is possible to for one to use combined net cost basis of two Roth IRA's but withdraw within that combined limit out of just one IRA, even if it violates the limit within that one IRA.
Of course, that changes the amount one can take out of the untouched IRA...or so that's the way I see it.
I'm just wondering if I'm organized to keep track of all that. My desk is one big stack of paper that I never look at...
<font size="2" face="Verdana, Helvetica, sans-serif">That is also my understanding, after the five year mark.Quote:
After going through that info, I've come to the conclusion that one can withdraw up to the net cost basis of all the securities owned without suffering any tax penalties.
I wonder, though, why anyone would have more than one Roth. It's not like rollover IRAs from multiple employers; why not just put all the bucks into the same account?
The other thing to keep in mind about Roths is that at retirement, the distributions are tax free, since the tax was paid up front. That can be significant.
But there's something... just scratching at my brain about Roths. Seems I read something SOMEWHERE that a Roth isn't a good idea unless you plan to with more than your current income, adjusted for inflation, a Roth isn't a good idea.
Let me see what I can find.
note to reason: the bank of gae will take very good care of your money.
Just curious about the logic, you don't need the tax avoidance from a regular IRA? Lower your taxes now, but pay them later when income is presumably lower during retirement?
Edit: Oh, I see, I just looked at the calculator. Well, it seems to go against the advice I've heard as GAE was wondering. Seems like a Roth would be better for someone who isn't paying a lot of taxes now, but if you are, a traditional IRA would be better. [img]confused.gif[/img]
<font color="#000002" size="1">[ July 02, 2004 09:46 PM: Message edited by: LanDroid ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">Lan,Quote:
Originally posted by LanDroid:
Just curious about the logic, you don't need the tax avoidance from a regular IRA? Lower your taxes now, but pay them later when income is presumably lower during retirement?
Edit: Oh, I see, I just looked at the calculator. Well, it seems to go against the advice I've heard as GAE was wondering. Seems like a Roth would be better for someone who isn't paying a lot of taxes now, but if you are, a traditional IRA would be better. [img]confused.gif[/img]
<font color="#000002"><font size="1">[ July 02, 2004 09:46 PM: Message edited by: LanDroid ]</font></font>
There's a funny little rule in the IRS regs about regular IRAs. If you participate in an employer sponsored retirement plan, and earn more than a certain amount of money, you're prohibited from contributing to a traditional IRA. I can find the limits for you, if you want, but they're low.
More proof that the government does not in any way encourage saving.
OK, but I thought Reason wasn't interested in his employer's 401K?
Simply put Reason, the economy is looking much better these days and appears to have turned the corner.
I was merely trying to point out that if Greenspan feels secure enough to mraise interest rates even by a little, then things must be going well.
Unemeployment has not risen in months.
Home slaes are at an all time high.
Interest rates in CD's and Annuitites are the highest they've been in years.
It's just a good time to get started on things if you havent yet.
<font size="2" face="Verdana, Helvetica, sans-serif">I can well understand why he isn't, since it's administered by 5/3 Bank. (A subject for another thread.) However, reason is smart, (that's why I like reason) and it's in his best interest to max out his 401(k) contribution, even without the employer match.Quote:
Originally posted by LanDroid:
OK, but I thought Reason wasn't interested in his employer's 401K?
What you need to understand, Lan, is that reason is a rich, white republican, and as such, he's taking his retirement into his own hands.
First mother earth and now personal responsiblity. Where will it end?
Huh. I thought Reason said he was not rich, would no longer contribute to his 401K, and would probably vote for Mickey Mouse again this year.
<font color="#000002" size="1">[ July 03, 2004 08:44 PM: Message edited by: LanDroid ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">That's the problem: Reason is not rich. Or else Reason wouldn't live three blocks from gae and trav.Quote:
Originally posted by LanDroid:
Huh. I thought Reason said he was not rich, would no longer contribute to his 401K, and would probably vote for Mickey Mouse again this year.
<font color="#000002"><font size="1">[ July 03, 2004 08:44 PM: Message edited by: LanDroid ]</font></font>
And reason will probably vote for Mickey Mouse this year, except Mickey's real name is John Kerry. How exceptionally painful this vote will be.
As far as gae's comment that I should still contribute to my company's 401k, even without the matching, the web link she provided suggested otherwise.
I will provide the reasons why I prefer to avoid my 401k:
1. 5/3 bank runs it. I hate 5/3 bank. I absolutely refuse to do business with them. This is for moral reasons and has nothing to do with optimal investment strategy.
2. My limited investment options in my 401k suck. Only recently have they offered mutual funds not run by 5/3. The ones run by 5/3 uniformly suck and dominate my investment options.
3. I cannot move my money out of the 5/3 401k until I retire or quit my job. In my IRA, I roll over from brokerage to brokerage if I so chose.
4. In my Fidelity account I have the exponentially more investment options in mutual funds than I do in my 5/3 401k. I can also purchase individual stocks, which I have.
5. Over the years, I've become less and less of a believer in the value of mutual funds. Most of them don't beat the S&P 500 index, so you'd be better served to put your money into a low cost index fund (like Vanguard).
6. Mutual funds are expensive. People seem to think no load funds are free. Now don't get me wrong, I have money in no load mutual funds for diversification purposes, but start doing a little number crunching and you'll see there's a lot of money being taken out. Let's just say there's no load fee. You've still got management fees. Then you've got expenses. Over time, skimming 2% off the top no matter how the fund performs adds up in ways you can't imagine.
I understand the argument that all one should worry about is how much you earn and not worry about the fees, and that's a good argument. But I think it's fairly easy to pick out a solid dividend paying stock, hold onto it and get your 8% return and eliminate the expenses and fees.
<font color="#000002"><font size="1">[ July 06, 2004 08:32 AM: Message edited by: reason ]</font></font>
<font color="#000002" size="1">[ July 06, 2004 09:21 AM: Message edited by: reason ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">The recently announced employment figures had pundits second guessing the strength of the rebound.Quote:
Originally posted by cincygreg:
Simply put Reason, the economy is looking much better these days and appears to have turned the corner.
I was merely trying to point out that if Greenspan feels secure enough to mraise interest rates even by a little, then things must be going well.
Unemeployment has not risen in months.
Home slaes are at an all time high.
Interest rates in CD's and Annuitites are the highest they've been in years.
It's just a good time to get started on things if you havent yet.
Higher interest rates tend to have a negative effect on stock prices.
About those home sales. This is just me talking, but if there's one fear I have it's that the housing market will tank. Low interest rates drove the housing market. With funky, new mortgage programs, some of which lure people in with low teaser rates, people moved out of apartments in droves and into new homes. Those with homes stepped up.
I'm thinking that Greenspan knows he has to be exceptionally cautious about raising rates. We became addicted to low rates and the debt attached to it.
If inflation gets out of hand and interest rates rise, I can see a boatload of foreclosures on homes bought with low teaser rates and ARMs (though the use of ARMs was understandably slow when rates were at their lowest). All those foreclosers will increase the supply of homes on the secondary market. More supply means lower prices. This could spell trouble for home builders and financial institutions that are heavily involved with mortgage banking.
Oh, and another reason why I don't like mutual funds. On top of the potential load fees, management fees, and expenses deducted from the returns, the straw that breaks the camel's back is getting hit with capital gains when the returns are down on the year! Yes, it happens.
That really steams me. So while you're paying taxes on gains that appear to you as losses, you're still paying them to manage the loss.
I read something in the Wall Street Journal that I thought was scary. I can't remember the exact number, but it listed the average net worth by age group.
Naturally, those in the age group immediately preceding retirement had the highest average net worth. What really threw me for a loop is how low that number is. It's something like $128,000!
$128,000 is so remarkably paltry for someone about to enter retirement. Since the majority of Americans own their own homes, this low number tells me the average American is over their heads in debt.
I should qualify that last post by saying that the net worth number *might not* include the equity in one's house.
Even so, a very low number.
Oh fer cryin' out loud, how in the heck can anyone retire on $138K??? [img]confused.gif[/img]
Agree with some of the stuff you say against mutual funds. The capital gains problem is one reason why most experts recommend owning them in a tax sheltered IRA or 401K, and owning individual stocks outside of that - you have more control over the gains or losses.
What is your moral objection to 5/3rd? [img]graemlins/rainbow.gif[/img] ?
Rates on CD's and Annuities are at a 5 year high right now. Home sales are at an all time high as well. If consumer confidence continues to grow, unemployment numbers will fall.
People feel confident in going out to spend money, creating business which in tuirn creates more job possabilities.
I've found that getting a good rate on an investment can give someone an extra feeling of security tword possibly shopping and spending.
If you are getting .7% or even .2% return on a saving account, why not go for 3% or 4% on a CD?
Or maybe even more in an anuuity.
I know it's sometimes tough to come up with the money to get into something like this, but many banks and institutions can get you in at as little as $500.
<font size="2" face="Verdana, Helvetica, sans-serif">You are correct.Quote:
Originally posted by LanDroid:
Oh fer cryin' out loud, how in the heck can anyone retire on $138K??? [img]confused.gif[/img]
Agree with some of the stuff you say against mutual funds. The capital gains problem is one reason why most experts recommend owning them in a tax sheltered IRA or 401K, and owning individual stocks outside of that - you have more control over the gains or losses.
What is your moral objection to 5/3rd? [img]graemlins/rainbow.gif[/img] ?
That whole flip flopping on what should be a no brainer just really steams me.
The price of 5/3 stock affects my personal wealth. That 5/3 would stumble over an employment policy that would expand their pool of qualified employees makes no sense. Secondly, not employing a nondiscrimination policy for gays pretty much guarantees this very attractive demographic will not do business with that bank.
What kind of business willingly turns away millions of dollars of business over such a stupid reason?
5/3 does. As I mentioned, I find their actions in all of this morally reprehensible.
I switched everything I possibly could over to USBank, who appears at this point to not only be gay friendly, but has better customer service and fees that don't screw you over if you make one little mistake. Overdraft fees are a fraction of 5/3's, and because of my good credit rating, I got a nice line of credit attached to my checking account, right on the spot as I stood at Meijer opening my account.
I should also point out that pretty much all of 5/3's larger competitors have gay nondiscrimination clauses in the employment policies. Besides USBank, JPMorgan (Bank One), Citibank, National City (Provident), Wells Fargo, etc.
What do these more successful banks know that 5/3 doesn't?
<font color="#000002" size="1">[ July 08, 2004 09:10 AM: Message edited by: reason ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">Agreed. It's remarkable what poor savers Americans are.Quote:
Originally posted by LanDroid:
[QB]Oh fer cryin' out loud, how in the heck can anyone retire on $138K??? [img]confused.gif[/img]
[QB]
Wish I saved that article.
<font size="2" face="Verdana, Helvetica, sans-serif">Rates on cds are still remarkably low.Quote:
Originally posted by cincygreg:
Rates on CD's and Annuities are at a 5 year high right now. Home sales are at an all time high as well. If consumer confidence continues to grow, unemployment numbers will fall.
People feel confident in going out to spend money, creating business which in tuirn creates more job possabilities.
I've found that getting a good rate on an investment can give someone an extra feeling of security tword possibly shopping and spending.
If you are getting .7% or even .2% return on a saving account, why not go for 3% or 4% on a CD?
Or maybe even more in an anuuity.
I know it's sometimes tough to come up with the money to get into something like this, but many banks and institutions can get you in at as little as $500.
Consumer spending is what carried us through the recent downturn, primarily through home buying, which in turn spawned increased consumer spending for other household products.
Consumer debt is at an all time high. Higher interest rates will zap those with all that debt, both on credit cards, and those who latched into ultra low rates through ARMs and other teaser programs to get people to buy homes.
I'm telling you, we're in a catch 22 situation. If inflation gets out of hand, the Fed will have to raise rates. Raising rates will have enormous economic effects on those who who took on that debt. Growth of debt has been outpacing growth of income.
<font color="#000002" size="1">[ July 08, 2004 10:10 AM: Message edited by: reason ]</font>
That's what happens when we run a debt based economy.
<font size="2" face="Verdana, Helvetica, sans-serif">I confess that I eagerly latched on to the low interest rates. At one time I had significant 5 figure home improvement debt I rolled over from 0% credit card to 0% credit card.Quote:
Originally posted by Jumper69:
That's what happens when we run a debt based economy.
Now that rates will rise - barring another terrorist attack or some other unfortunate event - I have been on an austerity program to have all debt eliminated (other than mortgage debt) by February or March. No car debt. No home improvement debt. All my interest charging credit cards are and will be paid off monthly.
Not to get on a tangent here, but one thing that really scares me - and people seem to ignore - is that it is widely accepted that we will have another terrorist attack. An attack along the lines of a dirty bomb is a very real possibility in a major American city. Many credible people say it's a matter of not if, but when. The same ominous predictions were made about terrorist attacks years before 9-11.
If something like this happens, I cannot imagine what would happen to the stock market. Just look what blowing up two buildings in New York City did.
I just see debt as a very very very bad thing to have at this point in time. Unless it can make me money, I will not add debt. And against sound economic advice of not paying off a low interest mortgage early(14yr, 4.875%), I plan on having no mortgage debt in 7 years.
I know this sounds reactionary, but these are uncertain times and we must adjust accordingly.
The accumulation of consumer debt in the United States will end up being a huge barrier to economic growth.
Still not sky high, but they are indeed the highest they have been in years.
If you have the dough rey me and are in a possition where you can handle putting some away where you cant touch it for a while, it makes absolutley no sense not to go for higher yields.
They may not be sky high, but 4% is higher than .5% no matter how you spin it.
<font size="2" face="Verdana, Helvetica, sans-serif">Accumulating debt on depreciating assets (ie cars, appliances, etc) is stupid. Unless it can be seen as an investment of sorts, or something that can create wealth debt accumulation is a bad thing.Quote:
Originally posted by Jumper69:
That's what happens when we run a debt based economy.
I've decided I'm going to run my current car into the ground. When I absolutely have to buy another one, I will. But until then I plan on being disciplined, making a "car payment" to myself every month. When I have to buy a car, I will buy what I can afford, based on what I've saved.
I will take on debt to buy a car if the debt is very low cost and doesn't add to the price of the car.
I figure if I can hypothetically earn 3% on a liquid, low interest bearing account over the course of 5 years as opposed to paying 4% on a car loan, that ends up being a nice swing in wealth.
<font size="2" face="Verdana, Helvetica, sans-serif">Exactly and this goes back to your catch-22 theory. We need to keep buying in order for the economy to keep growing. If we keep buying, however, we accumulate more debt. The more debt we accumulate the harder it will be for our economy to grow.Quote:
The accumulation of consumer debt in the United States will end up being a huge barrier to economic growth.
At some point our system will implode.
D2 & I will not finance a car for more than 3 yeras. We ALWAYS put AT LEAST 20% down to avoid being upside down.
We have a 15 year mortgage that we expect to be paid off in less than 10 years.
Contrast that with others I know who have bought the latest McMansion in West Chester, have 2.5 kids, 2 leased SUV's and are generally everything I detest about people. Their credit cards are pretty much maxed. But HEY, at least it looks like they live the good life. [img]graemlins/whatever.gif[/img]
<font size="2" face="Verdana, Helvetica, sans-serif">I don't see locking yourself in to a 5 year cd to get 4.4% as such a good idea right now. Particularly with the expectation of yields rising.Quote:
Originally posted by cincygreg:
Still not sky high, but they are indeed the highest they have been in years.
If you have the dough rey me and are in a possition where you can handle putting some away where you cant touch it for a while, it makes absolutley no sense not to go for higher yields.
They may not be sky high, but 4% is higher than .5% no matter how you spin it.
I'm just blowing this out my ass, but I say go find yourself a nice medium sized, well-run regional bank that pays a 3% dividend, low payout ratio, and a history of dividend increases in a geographic hot spot - and buy their stock.
The taxation on dividends is advantageous compared to the interest on cds, and if you pick your spot right you can experience capital gains, or potentially a reap the benefits of the takeover in this rapidly consolidating business.
I have no immediate recommendations, but I have a list I want to look at: Colonial, Synovus, and a number of "smaller" banks, particulary in the South.
I just had some luck with Southtrust, which is in the process of being bought by Wachovia.
<font color="#000002" size="1">[ July 08, 2004 10:50 AM: Message edited by: reason ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">Exactly and this goes back to your catch-22 theory. We need to keep buying in order for the economy to keep growing. If we keep buying, however, we accumulate more debt. The more debt we accumulate the harder it will be for our economy to grow.Quote:
Originally posted by Jumper69:
</font><blockquote><font size="1" face="Verdana, Helvetica, sans-serif">quote:</font><hr /><font size="2" face="Verdana, Helvetica, sans-serif"> The accumulation of consumer debt in the United States will end up being a huge barrier to economic growth.
At some point our system will implode.
D2 & I will not finance a car for more than 3 yeras. We ALWAYS put AT LEAST 20% down to avoid being upside down.
We have a 15 year mortgage that we expect to be paid off in less than 10 years.
Contrast that with others I know who have bought the latest McMansion in West Chester, have 2.5 kids, 2 leased SUV's and are generally everything I detest about people. Their credit cards are pretty much maxed. But HEY, at least it looks like they live the good life. [img]graemlins/whatever.gif[/img] </font><hr /></blockquote><font size="2" face="Verdana, Helvetica, sans-serif">You just described my brother and his wife. Except he lives in Burlington. Just built a nice house that would sell in the $350,000 range. All new furniture. New cars every two or three years.
While he has caused me to wonder if depriving myself of the nice things in life is causing me to not live life to the fullest, I look at him and think he'll be in debt for the rest of his life.
Because, as I told my Mom, he'll be unhappy with the small dining room he designed, the small living area (He built an ego house, designed for large personal space, small communal space. His walk in closet is bigger than his breakfast nook.) The furniture will all be replaced in 3 years, as it has been several times before. The cars will disappear and be replaced by new ones.
I'm sure he does well, but he'll always be slave to a bank.
When I'm 55, my goal is to not need a job.
<font color="#000002" size="1">[ July 08, 2004 01:44 PM: Message edited by: reason ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">I refinanced from a 30 year 7% loan to a 15 year, 4.875% loan. The breakeven is about two years into the new loan. The savings in interest payments is substantial, and my monthly payment only increased maybe $30.Quote:
We have a 15 year mortgage that we expect to be paid off in less than 10 years.
There are two schools of thought about paying off a mortgage. One is to make your house as "liquid" as possible. Don't pay off the mortgage early. Instead, use excess cash flow to invest. The argument is that once you have bought a house, it is in your possession even though you don't truly own all of it. The beauty of real estate is that you only put 5%-20% down yet get the benefit of return on 100% of the value. Paying it off early negates that benefit and reduces the return on investment. Plus, once it's paid off the you can't truly release the value unless you sell the thing.
The other school of thought is promoted by Suzie Ormond (sp?), the financial guru. I think she has a tv show or talk show or something. I've only read about her, not seen or heard her. She recommends paying off the home as quickly as possible. The logic is that stocks and other investments are just paper. A home is real. IF things head south, if your home is paid off, you still have a roof over your head, and you more quickly build equity. Plus if your mortgage rate is 4.875% (or whatever), you can look at that as your built-in guaranteed return on investment (times 1 minus your tax rate)
It's kind of a Maslow's Hierarchy of Needs kind of thing. Take care of your basic needs first, then work down from there. Right now I'm obviously more inclined to take the Suzie Ormond approach.
<font color="#000002" size="1">[ July 08, 2004 02:10 PM: Message edited by: reason ]</font>