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1LtCAP

ROTH IRAs

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someone wanna school me on these? before i contact a financial advisor? i'd like to know at least SOMEthing before i do. and on that vein......anyone got a good recommendation for an advisor in the south jersey area? bear in mind.......i know less about this topic than most people know about their cars.

 

 thanks.

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Pros and cons, depending on your situation. They are great place to park AFTER TAX money, to allow it to grow for the future. Not a short term play. Versus a 401K or Traditional IRA, where you park PRE TAX money. A lot depends on how you pay yourself in your business, based on the corporate structure.

Long term, if you park a lot in a ROTH, there are no minimum withdraws at 70-1/2 like with a 401K or regular IRA.

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https://www.investopedia.com/terms/r/rothira.asp

Cant help you with a financial advisor my guy is a retired family friend and was a senior partner with Price Waterhouse. He said roth IRAs are good for me and I know as much as you about the topic so I just do what he says and it's been working very well for me. 

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39 minutes ago, 1LtCAP said:

someone wanna school me on these? before i contact a financial advisor? i'd like to know at least SOMEthing before i do. and on that vein......anyone got a good recommendation for an advisor in the south jersey area? bear in mind.......i know less about this topic than most people know about their cars.

 

 thanks.

Roth IRA.---

Funded with after tax money. Dividends are not taxed as they occur nor when you withdraw the funds. Gains are never taxed ever.

Direct contributions can be withdrawn at any moment without penalty. Earnings can be withdrawn without taxes and penalties under very narrow conditions but, generally early withdrawals are subject to tax and penalties if done before the age of 59 1/2.

There's no minimum required distribution at any age.

For 2020 the contribution limits are 6K or $7 if you are over 50 years old.

 

It all comes down to do whether or not you believe your personal tax rate will be lower now or in retirement.

If you believe your tax rate will be lower now, invest on a Roth. In essence you are paying the tax now.

If you believe your tax rate will be higher now, invest on a pre tax retirement investment vehicle  (401K, 403b, SEP)

Personally I'm a yuuge believer in low cost, broad based market index funds to fund any type of investment vehicles. Funds like VIFNX or VTSAX from Vanguard or similar funds from other investment house are good option. NEVER, EVER pay a broker/adviser to buy those funds; this is a do it yourself deal. Download the forms, mail them in with a check and done.

 

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Also to add...Roth is good if the  market continues to rise until  the time you would like to draw down, since you already paid the tax upfront.  If the market tanks (assuming whatever individual investments along with it), you will get hit on both ends.  No way to tell without the old crystal ball.  But keep in mind, the market is basically a giant legal Ponzi scheme unless the invested items pay dividends.

Going back to my days as a stockbroker (think red suspenders, gordon gecko, and loads of white powder), the value of a stock share includes the present value of future distributions (dividends), among other variables.  We had to calculate this on paper before they told us to just hit these 3 buttons on your calculator, lol.  In my opinion, any investment (especially stocks) that does not (or do not) pay dividends are merely going to rise and fall purely based on the same principles of demand.  The original theory was that fledgling companies would plow their net profits back into capital investment, and the returns would come later.  But that morphed into a pure speculation play over time, so any price gains are based on whether or not another person is willing to buy your shares, and someone else theirs, and so on...similar to bitcoin.  Microsoft, for one example, has never paid a dividend, so why does it rise in value?

But I'm cynical that way.

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29 minutes ago, AlDente67 said:

Microsoft, for one example, has never paid a dividend

MSFT (Microsoft) has been paying steady quarterly dividends since 2003 or 2004. This includes a one time "special" dividend of $3.00 per share because they had so much cash on hand.

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14 minutes ago, GrumpyOldRetiree said:

MSFT (Microsoft) has been paying steady quarterly dividends since 2003 or 2004. This includes a one time "special" dividend of $3.00 per share because they had so much cash on hand.

You are right, lol.  I was working from memory.  D'oh!

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6 hours ago, 1LtCAP said:

i should have added....i turn 58 next month. so i feel i have some time....but not a bunch of time. i'm not sure what is meant by short term vs long term? are we talking 10 vs 30 years?

So what exactly is your question?

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8 hours ago, WP22 said:

Roth IRA.---

Funded with after tax money. Dividends are not taxed as they occur nor when you withdraw the funds. Gains are never taxed ever.

Direct contributions can be withdrawn at any moment without penalty. Earnings can be withdrawn without taxes and penalties under very narrow conditions but, generally early withdrawals are subject to tax and penalties if done before the age of 59 1/2.

There's no minimum required distribution at any age.

For 2020 the contribution limits are 6K or $7 if you are over 50 years old.

 

It all comes down to do whether or not you believe your personal tax rate will be lower now or in retirement.

If you believe your tax rate will be lower now, invest on a Roth. In essence you are paying the tax now.

If you believe your tax rate will be higher now, invest on a pre tax retirement investment vehicle  (401K, 403b, SEP)

Personally I'm a yuuge believer in low cost, broad based market index funds to fund any type of investment vehicles. Funds like VIFNX or VTSAX from Vanguard or similar funds from other investment house are good option. NEVER, EVER pay a broker/adviser to buy those funds; this is a do it yourself deal. Download the forms, mail them in with a check and done.

 

A lot of places like Schwab allow you to manage all of this yourself with little or no transaction fees.

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On 2/19/2020 at 10:44 AM, 1LtCAP said:

someone wanna school me on these?

Here's an article that goes over a bunch of info on them:

https://www.cnbc.com/2020/02/20/the-biggest-things-you-probably-dont-know-about-roth-iras.html

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On 2/19/2020 at 12:38 PM, 1LtCAP said:

i should have added....i turn 58 next month. so i feel i have some time....but not a bunch of time. i'm not sure what is meant by short term vs long term? are we talking 10 vs 30 years?

Put 6k in. Do it every year for 11 years. At 7% that 66k will be 110-115k. Tax free. Decent little egg for ya. Enough for a summertime's worth of strippers and Cocaine.  ;)

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12 hours ago, 1LtCAP said:

concerning what you quoted........what is meant by long term? 20 years? 30 years? 10 years?

This article should answer the question. But it really depends on your current age, life expectancy and risk tolerance.

But personally any money I won't need for at least five to ten years gets invested on the market.

When I was saving for a down payment for the house I kept that money on a savings account. First because I was going to need that money on a short time frame. Second I didn't want to take a chance of a market dip and having to sell at loss. Principal preservation was essential.

 

https://wealthpilgrim.com/what-is-a-long-term-investment/

 

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On 2/19/2020 at 1:03 PM, GrumpyOldRetiree said:

FYI...If you turn 70 1/2 after 1/1/2020 the age where you have to take a required minimum distribution is now 72.

 

For further info see:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

 

No minimum required distribution (MRD) with Roth IRA.

 

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On 2/19/2020 at 11:23 AM, WP22 said:

It all comes down to do whether or not you believe your personal tax rate will be lower now or in retirement.

If you believe your tax rate will be lower now, invest on a Roth. In essence you are paying the tax now.

If you believe your tax rate will be higher now, invest on a pre tax retirement investment vehicle  (401K, 403b, SEP)

This is the best way to break it down. You'll be paying taxes on the money no matter what. Just a matter of strategically choosing when it'll get taxed less.

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Think of a Roth IRA as a car body or a box (account). You can but pretty much any financial type inherent in that box.  CDS, mutual funds, individual stocks and bonds, etc, etc.  Much the same way you can put different types of engines or transmissions into / into a car.  It  all depends what you want thst car to do.  Are you putting a big poeerful.engine in there which may need lots of maintenance/ tuning and time in maintenance or repairs or are you putting a trusted, boring reliable engine in that is good on gas?

You put your money into the box on an after tax basis.  Meaning you already paid taxes on it and do not get a deduction for your contribution at tax time as you would with a regular IRA.

Once you put your money in the box you or your advisor picks what engine/ transmission you want to.buy depending on your risk tolerance, time horizon and financial needs.  

What ever investments you choice grow tax free and are not taxed when you make withdraws after 59.5 years old (they may have raised she, not sure). 

That in a nutshell is a very basic description of a Roth IRA.

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Regular IRA, Roth IRA, 401k, etc are just types of accounts.

Regular IRA, you put money in, get to deduct your contribution when doing current year taxes.  Grows tax deferred.  Meaning you pay taxes at your normal tsx bracket when you make withdraws.   Thinking being as described above thst you'll be at lower tax bracket.

Roth IRA - money goes in thst you paid taxes on already, no deductions, grows tax free and not taxed when you make withdraws after min age of 59.5 yrs old (I think that the age).

In both IRAs you have a VERY wide range of what you can invest in.

401k is sponsored by an employer.  Most generally match your contribution up to "x"%. Let's say the employer matches 5%. If you make $100k a year and but in 5% ($5k) every year then your employer matches it dollar for dollar (generally) and just in $5k.  So you are putting away $10k every year.  There are Regular and Roth 401ks.  They act as above BUT you are limited to what your employer choices as investment options.  Generally it's several different mutual funds and maybethst company's stock.

The sooner you start saving the better.  Compound interest is a magical thing.

Also best to put it on somewhat of an auto-pilot.  Invest a set amount each pay period.

IMHO low load mutual funds are the way to go.  Open an acct with Vanguard or.similusr low load fund family.  Invest every month.  Divide it up into 4-5 diff types of mutual funds.

Financial advisors are good if you don't want to deal with it.  But they aren't working for free. 

The most important thing is to start doing something now.  You can learn about mutual funds by watching YouTube videos or reading some simple to understand books.  It's not rocket science.  And once you realize how easy it is you'll get more comfortable doing it.

It's like paying someone to put new rotors and brske pads on your vehicle.  If you have no experience doing it and no knowledge about how brakes work it just makes sense for you to pay someone to do it.  But once you realize how easy it is you'll wonder why you didn't do it from the get go.  And soon after doing your own brakes you'll slowly start moving on to other parts of the car that used to mystify you.  Next thing you know you are tearing engines down.

Good luck.

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Some basic investments:

Individual Stocks - you buy 100 shares of XYZ Company.  You a very small piece of that company.  Your price rises and falls and you may receive dividends.  Hard to diversify with first starting out and can be expensive & time consuming to watch.  Individual stock could go to zero and your fortune is tied to date/ performance of individual company.

Bonds - you mske a loan to XYX Company.  They promise to pay you "x'% (interest) and you'll get your initial investment back when bond matures.  The interest you receive is based on how risky the company is.   Riskier company then they have to offer more interest to attract investors.  If company goes under or stops paying interest your bonds are worthless.

Mutual Funds - for very little money you buy a pool of stocks, bonds or mix of the two.  You spread you your risk out.  There are different types and classes of mutual funds.  You pay the fund manager and your advisor if you are using one based on the "load" of the mutual funds.  The load is the fee.  All mutual funds have fees.  

There are literally more mutual funds than there are publicly traded companies.  It can be confusing but once you learn some basic info / lingo.it gets clearer.

Load - how are you paying for the fund.  Is it front loaded (Class A generally), deferred payment (Class B) or same amount every year (Class C).

Class A / Front Load - charge you "x"% up front.  If it's 5% and you give the advisor $100k then only $95k goes to work for you.  You paid $5k in an upfront fee.

Class B / Deferred Load - Each year you hold on to mutual fund shares the fee decreases if you sell.  1st year it may be 5% IF you sell.  2nd year 4% IF you sell.  3rd year 3% IF you sell, etc until.fee is zero IF you sell generally around 5 -7 years.

Class C - you pay "X" percent of your balance EVERY year.  

The above are generally associated with mutual funds when you buy from an advisor.

Also - ALL mutual.funds have additional.annual fees.  Used to be called 12B-1 fees.  They have range from very little to a lot.

No Load or Low Load Mutual Funds you do all your own work but are charged less.  Some times as little as 10% of 1% or .10%. 

As you can see, you have to be VERY careful of mutual fund fee structures.

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If you use an advisor many may offer a "wrap account". Essentially they'll charge you "x"% of your entire portfolio balance very year.  In theory this puts their goals (making you money) in line with your goals (making money). 

In theory it avoids or loiwes transaction costs.  Back in the day unscrupulous brokers would "churn & burm" clients.  Selling them one fund then selling them out of that fund to buy a different fund, etc, etc so they could generate fees for themselves.

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If you have any questions, ask away.  Or IM me.

Really it's not difficult once you learn the jargon and some basics.  It's like learning about cars.  You start VERY simple (brake job, putting on shocks, etc) and as you learn it demystifies things and you gain confidence.  Or like shooting, you start with a 22 bolt action and as you become more familiar with firearms you work your way up.

Again, most important thing is to simply start doing it..  You can open a Roth IRA at Vanguard online or go to Schwab office and open an accounr if you don't want to do online.  

Start with $500 or a thousand dollars.  Pick 4-5 different mutiual funds and allocate "x" amount of dollars to each one.  Them set up monthly purchased and set it on auto pilot.

Good luck.

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3 minutes ago, gleninjersey said:

No Load or Low Load Mutual Funds you do all your own work but are charged less.  Some times as little as 10% of 1% or .10%. 

You didn't mention ETFs. ETFs are also a pool of stocks versus individual stocks, so they reduce risk, but they trade like individual stocks immediately, not waiting for the close of the market for the day. Many can be bought for zero commission, and have low fees or expense ratios.

The ETFs can be structured around a industry (utilities, technology, financials, etc.) or structured around themes (pot stocks, retail, medical, auto industry, pets, etc.), or even around market indexes. I have a couple built around the defense industry that are kicking butt.

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Morning star review is a great place to start once you know what your looking at, also a great place to double check if using an advisor...

 

I tried the adviser route for a couple years, complete waste of money.. these guys were taking fees and charging me just to invest the money.. and they didnt even invest it well.

 

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