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2023 Stock Market / Investments Thread


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#41 maddog

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Posted 10 January 2023 - 09:02 AM

You put money in pre tax. You convert to Roth and pay taxes. Growth and withdrawls are tax-free.  IIRC.

 

edit: I don't think about this much, so I'm not sue I have all the details right in my head


Edited by maddog, 10 January 2023 - 09:06 AM.


#42 Stains_not_here_man

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Posted 10 January 2023 - 09:07 AM

Isn't all growth tax free until you realize it? If I'm taxed on the withdrawals I make of the money that has grown, or I'm taxed on the income from the sale of personally held stocks, isn't that basically the same thing? Is the point that I can withdraw money without "selling" shares?

And At what point does the Roth conversion happen? Like is it a one time thing when I'm 59 or something?

#43 Stains_not_here_man

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Posted 10 January 2023 - 09:10 AM

To be clear, I have (through Fidelity) a traditional IRA with exactly $0 in it, having only recently started maxing out my 401k contributions I didn't see the point in contributing to it, and then by the time my 401k contributions were maxing out I no longer qualify for deducting my contributions.

It would be trivial to put $6k a year in there or whatever but it would likely be instead of putting the same amount in my brokerage account (not in addition to), but I'm not clear on why or whether that gets me any advantages over the brokerage account since it's not tax free contributions either way.

Edited by Stains_not_here_man, 10 January 2023 - 09:10 AM.


#44 maddog

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Posted 10 January 2023 - 09:11 AM

Because if you do the Roth conversion you don't pay taxes on the funds you draw in retirement. 



#45 maddog

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Posted 10 January 2023 - 09:14 AM

As is often the case, your current tax bracket and whether tax rates will be higher or lower in retirement are important factors to consider in determining what is the optimal strategy.

 

We've discussed this with regards to traditional vs Roth several times over the years. 



#46 Stains_not_here_man

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Posted 10 January 2023 - 09:15 AM

Because if you do the Roth conversion you don't pay taxes on the funds you draw in retirement.


Ok, so like I said, when does that conversion take place? I've got nothing to convert... Right?

#47 maddog

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Posted 10 January 2023 - 09:20 AM

You have to have funds in the IRA to convert them.

I know folks have careful tax mitigation strategies with conversion, but I don't have any experience with that.

#48 Stains_not_here_man

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Posted 10 January 2023 - 09:29 AM

You have to have funds in the IRA to convert them.

I know folks have careful tax mitigation strategies with conversion, but I don't have any experience with that.


Ok, that's what I thought.

So if they're going to "take away" the backdoor conversion in the near future and I have nothing in there now it seems like there's no point. Any amount I can contribute between now and the time that happens would be trivial. I guess I could contribute for a couple years hoping that I'll have something to convert by the time it happens but it seems pretty late in the game to start newly contributing to an IRA. What am I missing?

#49 maddog

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Posted 10 January 2023 - 09:34 AM

Nobody knows if they'll get rid of the Roth conversion loophole. They've had a couple of opportunities to do so in recent years and haven't.

#50 deejaydan

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Posted 10 January 2023 - 09:36 AM

Ok, that's what I thought.

So if they're going to "take away" the backdoor conversion in the near future and I have nothing in there now it seems like there's no point. Any amount I can contribute between now and the time that happens would be trivial. I guess I could contribute for a couple years hoping that I'll have something to convert by the time it happens but it seems pretty late in the game to start newly contributing to an IRA. What am I missing?

Nah, I'd still take advantage of it.  The limit, $6500 or whatever the limit is.. put that in a traditional IRA today.  Tomorrow, convert it to a Roth.  Your 60 something year old self will thank you, as that $6500 today becomes $15,000 or $20,000 that isn't taxable, assuming historic stock market returns, etc.



#51 Stains_not_here_man

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Posted 10 January 2023 - 09:45 AM

Nah, I'd still take advantage of it. The limit, $6500 or whatever the limit is.. put that in a traditional IRA today. Tomorrow, convert it to a Roth. Your 60 something year old self will thank you, as that $6500 today becomes $15,000 or $20,000 that isn't taxable, assuming historic stock market returns, etc.


I guess. Maybe it's a function of my current income and lifestyle that I am having a hard time considering that the tax on $20k is going to make a big difference to my retirement. Compared to my living expenses it seems like pocket change.

#52 maddog

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Posted 10 January 2023 - 09:49 AM

Nah, I'd still take advantage of it. The limit, $6500 or whatever the limit is.. put that in a traditional IRA today. Tomorrow, convert it to a Roth. Your 60 something year old self will thank you, as that $6500 today becomes $15,000 or $20,000 that isn't taxable, assuming historic stock market returns, etc.


To highlight your point, you can make your 2022 contributions up until tax day. One could make 2022 and 2023 contributions today.

So I think you can double your estimates.

I guess. Maybe it's a function of my current income and lifestyle that I am having a hard time considering that the tax on $20k is going to make a big difference to my retirement. Compared to my living expenses it seems like pocket change.


Tax advantaged inheritance for your son?

#53 Stains_not_here_man

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Posted 10 January 2023 - 09:59 AM

Given how late in life I started, I'm not entirely sure I'll be able to afford to retire in the first place, so I guess inheritance isn't something I've thought much about yet, but maybe.

I'm already 47 and I have only about 1.5x my annual salary saved for retirement...

#54 Patrick C.

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Posted 10 January 2023 - 10:03 AM

If you decide you want to move money to a Roth, you can roll over money from the 401k to a regular IRA.  Both are pre-tax, so there's no hit there. 

 

You're correct on the 'tax me now' versus 'tax me later' effect- if you are in a higher bracket now, you'll wind up paying more in taxes than you would later if you're in a low tax bracket (i.e. drawing out less than you make now).  The Roth does have an advantage versus just putting money in a regular brokerage account, so if you're putting after-tax money in for retirement it makes sense to put it in a Roth.  The Roth has restrictions on when you can take it out, but after 5 years you can withdraw what you put in (not the gains) without penalty.

 

Check the contribution limits- the numbers Dave posted above are the single limits.  This is where it "pays" to have a spouse with no income.  



#55 porter

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Posted 10 January 2023 - 10:19 AM

If you think you might not have enough to retire I'm confused on why you wouldn't take advantage of opportunities to reduce future taxes.

Let's say you put $6k in that backdoor Roth. Sticking to today's dollars, say it doubles in value by the time you retire (could easily be more). Say you're paying 15% in taxes in retirement. You save $1800 in taxes if you withdraw it lump sum, more of you do a steady draw over time. Given the minimal amount of effort, why not do this?

Obviously the big fish is your current savings rate, but the small fry like expense ratios, tax savings add up as well.

#56 Stains_not_here_man

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Posted 10 January 2023 - 10:23 AM

If you think you might not have enough to retire I'm confused on why you wouldn't take advantage of opportunities to reduce future taxes.

Let's say you put $6k in that backdoor Roth. Sticking to today's dollars, say it doubles in value by the time you retire (could easily be more). Say you're paying 15% in taxes in retirement. You save $1800 in taxes if you withdraw it lump sum, more of you do a steady draw over time. Given the minimal amount of effort, why not do this?


Will it make my taxes more complicated? Will it require more time and paperwork? 1800 bucks is like two weeks of living expenses. So I'll either have enough to retire for about six months or enough to retire for six and a half months. At some point "how much hassle will I need to put in to get that extra 2 weeks" becomes relevant :D

Also, I know this is not really true but in some ways "not having enough to retire" and "not having anything to retire" might as well be the same thing. If I'm already screwed, being screwed a tiny bit less isn't super helpful :D

#57 maddog

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Posted 10 January 2023 - 11:13 AM

$1800 is kind of a worst case 'what if'


The real savings is reasonably likely to be an order of magnitude higher, or more.

What's an amount that matters?

#58 Stains_not_here_man

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Posted 10 January 2023 - 11:21 AM

Well, I'm about 1.9 million short of what I think I'll need for retirement so, whatever's closest to that number

All joking aside I guess I might as well check it out.

#59 porter

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Posted 10 January 2023 - 11:25 AM

Being a stick in the mud about financial advice that's likely to help you significantly (as maddog noted, I basically used every assumption to make the amount basically an underestimate) is not going to help.

Never retiring is not a good plan. Your body or the job market might decide you're done working in 15 years. Then $1.8k or $5k or $20k becomes very significant. No way to know what will happen.

#60 Patrick C.

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Posted 10 January 2023 - 11:57 AM

Stain, assuming you are in a middle-high tax bracket now and will be in a lower-middle bracket in retirement, it makes sense to max out the pre-tax savings now.  If you have more that you want to save for retirement, put it in a Roth.  

 

A large Roth conversion may not make sense for you now, since that will all be taxed at a high rate.  You can't know what the future tax brackets will be, but using today's is probably your best guideline.  With a standard deduction of $27,700 for married filing jointly, you could withdraw around $120k and stay in the 12% tax bracket.  A big rollover today is going to be in the 22%, 24%, or higher brackets.  

 

 

 

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