Friday, October 12, 2018

Which tax-advantaged account is best?

Which tax-advantaged account is best?
IRA postpones your income tax until age 70.5 Roth IRA allows after-tax income to grow with no tax ever. Which is best for you? Clearly, if you begin with your first job, say age 20, you can end up with a lot more if you invest in stocks with no taxes. The long-term growth of your low-cost stock index fund is 10-12%. Assuming you invest $250 a month for 50 years, you will have over $6.5 million. Of course inflation will reduce that to about $2 million in today’s value. But $2 million tax-free is worth another 22% because you avoid income taxes. You spend all the money. Traditional 401ks and IRAs let you avoid taxes now but your income is lower now so it hurts less. Plus as the deficit gets larger income taxes will only go up. Unless you have your legal tax avoidance strategy, we working folks will pay for it. If you have IRAs already, you can convert part of them as you go paying taxes as you can afford it.

How do you save for the future?
Only 14% of all employers offer a 401(k) or defined contribution plan to their workers. That 14% includes a huge swath of small employers with fewer than ten employees, according to 2017 research from the U.S. Census Bureau. Among the 1,825 employers surveyed by Transamerica, 1,512 companies employed 10 or more people and 72% offered a 401(k) or similar plan. So if you do not have a tax-advantaged plan at work, what can you use to save for the future? As with a 401k, you can have your contributions go automatically to your tax-advantaged account. This makes saving a ‘no brainer’—the trustee of your account makes the investments for you. In fact, with certain mutual fund trustee companies, you can avoid the high-cost funds your employer may offer. And you can choose to have your savings avoid taxes now or later when you retire. And you save without a brokerage fee—you buy directly from the largest providers of employer plans. You don’t need a salesperson since you are using Warren Buffett’s advice.

Your legal will doesn’t tell where most of your assets go
When we die, most of our money goes to those NOT specified in our will. That’s right, all of our common documents: life insurance policies, bank accounts, brokerage firm accounts, retirement accounts, and home go to those designated in the documents years ago. Better check them NOW before you die and the wrong folks get your money.That is why many people don’t have a will. Some assets like your home, bank accounts and brokerage accounts are held jointly. In fact, brokerage accounts are titled joint tenants with right of survivorship (JTWROS). When one co-owner dies, the survivor inherits. Life insurance and retirement accounts have a primary beneficiary or many prime ‘benes.’ If that person or entity is not around, the ‘contingent’ inherits. The money does NOT go to those named in the will. Retirement accounts have complicated rules after the owner’s death. The IRS has a book on it:

Tax law changes mean check NOW before 2019
Trump’s new tax breaks for the rich mean you need to take advantage of what you can before the end of the year. For instance, if you must take an RMD by year-end and you don’t get to itemize anymore, you can use the qualified charitable distribution (QCD) provision and make your contribution directly from your IRA and still take the tax benefit as a reduction of income. This could put you in a lower tax bracket. A Roth conversion gets money out of your IRA but it must be done by year’s end. The conversion taxes this year may save you future tax headaches. Converting when your taxes are low means no tax when your nest egg grows huge. For your business, check the effect a conversion of a Roth might have on the new 20% deduction for qualified business income. You can avoid your tax due in April (possible penalty) if you have withholding taken from your year-end RMD distribution. You also avoid the 4 quarter estimated payment burden.

Are you moving money to try to time the end of the Bull?
Legendary investor Peter Lynch said: Far more money has been lost by investors trying to anticipate corrections, than has been lost in the corrections themselves.” Those who exited the markets in 2007-8 are unhappy they missed the run so far. Depending on where you are in your retirement saving or spending, you should “take the fork in the road”: do both. Instead of trying to time the market, own the whole thing—growth and income stocks and bonds. How? Take Warren Buffett’s advice: His advice when the future is NOT certain: ‘buy hold’ 2 low-cost funds. No timing, trading, sector rotation, no BS.

Younger generation does not need financial industry any more
Survey respondents were risk averse and skeptical of the financial planning and investment industries in a survey of 1,000 affluent millennials with at least $50,000 in net worth or $100,000 in annual income. Why? Affluent millennials are still most likely to be do-it-yourself investors, with 35% claiming that they make all their own financial decisions without any help or advice. Another 27% said they consult financial professionals for affirmation, but continue to make their own decisions. Only 15% of affluent millennials retain a professional money manager. According to the survey, 77% view the financial system as rigged to favor the rich and powerful at the expense of ordinary people like them. Millennials also don’t trust recommendations from advisors working on commission: 80% said that they were suspicious of the commission revenue model in the financial services industry. Things have changed since I was at firm—good!

Manage your money stress easily
You getting nickel d and dime d at your bank? Consider $0 fees at a Credit union. $0 fees require you to plan purchases so there is no panic at the unexpected. You can learn to manage money without the stress. No sweat money is now being taught to bank employees because they have to give customers confidence. Once you know what your plan is—how much to save, invest, spend, charge on credit, and hold as reserve, you can make decisions without the stress. Leah learned to manage her own money by living on a small income in New York City. When money obligations are tight, she learned to plan ahead—get money at the bank in advance so no ATM fees. Use the free services by smart phone. Put money aside in time for special expenses like courses. She learned that credit cards are the convenient way to fall into the debt hole that’s hard to climb out of.

How much does that 401k LOAN really cost?
40% of 401(k) plan participants have taken advantage of a loan to finance their current consumption. Approximately 10% of 401(k) loans default each year on average. That means $ TRILLIONS lost in potential future retirement money. Everyone needs emergency money in a hurry and we don’t all qualify for a loan. However, we usually don’t calculate what we are giving up when we take money from our future. A $20,000 loan from your retirement account means you will have $400,000 (stock fund) less 30 years later when you need it. If you are smart and pay it back within 10 years, you still will have about $150,000 in 20 years. But that is a huge bite out of your future--$20,000 now costs you $250,000 later. You may have to work longer when you don’t want to. Also business is changing so fast, you may not be able to work.

Grieving spouse—what this woman learned in re-making her life
Many spouses have no firm hold on family finances so when the money-conscious spouse passes, there is a crisis. “There were dozens of little things concerning our finances that we never discussed.” Life happens and all of a sudden, you have no idea how to deal. A lawyer can’t help you find passwords or legal paperwork in your home. Do you know what happens to your credit and ownership accounts? Can you answer the 10 steps for spouse questions?


Make America, “The Don”, Great Again

Two Americas: A Banana Republic? Do we really want an infant king? Daddy Putin!


Congress does believe in warming: funds to safeguard bases from climate change

Caller scam claims they need your PIN to fix your account then takes your money
Guaranteed 15% interest multiplier helps power your retirement goals’

TrumpCare not really working out GOP discovers while talking to their voters.
Record 3.4 billion robocalls were placed in April of 2018. Don’t answer your phone.

Why do scammers call you? How much do they profit? The easy answer to scam calls.

The Mob Boss can never go to jail: Trump has Kava as Supreme so no indicted.
‘No man is above the law’ … well up till now. Dictators nullify courts first, then votes.

Women business owners thrive but have to work hard. Immigrants work harder.

Who owns your account now?
Medicare open enrollment runs from Oct. 15 through Dec. 7: Pick your best choice.

She has an extended ‘family’ now. Quick action saves a life.

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