PBS Frontline : The Retirement Gamble, sorta Must See (1 Viewer)

[Chadstroma]

Not trying to turn this into a car thread, but cheap cars are a crucial part of funding retirement accounts IMHO.  Toyota, Honda, Oldsmobile Aurora, etc. 

I have no problem with someone who likes cars and gets enjoyment out of it- spending more on a car. The major point is to not spend all your money. The tendency thought is buy the luxury car or sports car or all options blah blah car because well.... I can afford it. Then every bottle of wine you drink is $100 and you eat out for lunch and dinner at nice places and take three vacations a year to tropical places.... etc.

Perfect example of not getting fixated on cars. My FIL, a Doctor, is loath to spend money on pretty much anything. He fixes everything (car, house, household appliances etc). Literally, there is pretty much nothing that he does not penny pinch on to an extreme level. I only know of two things he has been willing to spend a little more on: education for his kids (and now grandchildren) and cars. Even with the cars though he never buys new and would only buy cars he could work on (German cars, for example, are too computerized). So, he has a couple of Lexus, an aging Caddy and a classic Caddy.

Again, the point is never spend money on this but rather find the one or two things you really get a bang out of your buck- spend a tad more on it than other things and then be smart with the rest of your money and put a good amount away. Enjoy life now but be smart so you are not working at age 85 doing a job a high school kid should do for min wage and trying to figure out if you will have enough money for food and meds this week.  

 

[kutta]

I spend a lot of time in my car, in bed, and watching sports. So I have a nice car, a nice bed, and a nice TV. 

 

[Warrior]

Money well spent if you ever need it. 

Isn't this the definition of insurance? It's likely NOT worth it unless you actually need it?

 

[kutta]

Isn't this the definition of insurance? It's likely NOT worth it unless you actually need it?

I disagree. The peace of mind it brings knowing you won't be bankrupt if something does happen is worth the price of the insurance. It's just a bonus if you don't need it.

 

[Warrior]

I disagree. The peace of mind it brings knowing you won't be bankrupt if something does happen is worth the price of the insurance. It's just a bonus if you don't need it.

In that case, you better buy a $10m umbrella. $1-2m isn't enough if you get hit will a $10m lawsuit. On second thought, better make it $100m just in case...don't want to go bankrupt. Gotta have that sweet, sweet peace of mind in case there's a $98m lawsuit.



Directly from the horse's mouth: an insurance broker without umbrella insurance:

"Part of what went into that decision is knowing how incredibly profitable umbrella policies are for insurance carriers. Really, really profitable. Stupid profitable. Like printing money profitable.

Insurance companies measure their profitability by something called a "combined ratio". The combined ratio is the loss ratio (losses paid out over premiums received) plus the expense ratio (business expenses over premiums). For simplicity, we can assume that if the combined ratio is 100%, the insurance company is breaking even. (This isn't quite true because it doesn't contemplate investment returns on the premiums received before the losses are paid, but in today's low interest rate environment, it's close to true.)

Across the insurance industry, combined ratios on personal auto are running in the low 100%s. Meaning, insurance companies are LOSING MONEY on personal auto coverage. Like most things, if you're buying something that the company selling is losing money on, you're probably getting a good deal.

Combined ratios on personal umbrellas? 80%. 20% profit, on average. AND, that's even ignoring that we as consumers are far more interested in the loss ratio, as that's what represents the part of insurance that actually benefits us. Industry-wide, loss ratios on personal umbrellas are below 50%. For every dollar paid in umbrella premium, only $0.50 is actually paid out in losses. That implies that the actual value of an umbrella that costs you $200/year is only $100/year. The other $100 you're paying is for peace of mind."

 

[kutta]

In that case, you better buy a $10m umbrella. $1-2m isn't enough if you get hit will a $10m lawsuit. On second thought, better make it $100m just in case...don't want to go bankrupt. Gotta have that sweet, sweet peace of mind in case there's a $98m lawsuit.



Directly from the horse's mouth: an insurance broker without umbrella insurance:

"Part of what went into that decision is knowing how incredibly profitable umbrella policies are for insurance carriers. Really, really profitable. Stupid profitable. Like printing money profitable.

Insurance companies measure their profitability by something called a "combined ratio". The combined ratio is the loss ratio (losses paid out over premiums received) plus the expense ratio (business expenses over premiums). For simplicity, we can assume that if the combined ratio is 100%, the insurance company is breaking even. (This isn't quite true because it doesn't contemplate investment returns on the premiums received before the losses are paid, but in today's low interest rate environment, it's close to true.)

Across the insurance industry, combined ratios on personal auto are running in the low 100%s. Meaning, insurance companies are LOSING MONEY on personal auto coverage. Like most things, if you're buying something that the company selling is losing money on, you're probably getting a good deal.

Combined ratios on personal umbrellas? 80%. 20% profit, on average. AND, that's even ignoring that we as consumers are far more interested in the loss ratio, as that's what represents the part of insurance that actually benefits us. Industry-wide, loss ratios on personal umbrellas are below 50%. For every dollar paid in umbrella premium, only $0.50 is actually paid out in losses. That implies that the actual value of an umbrella that costs you $200/year is only $100/year. The other $100 you're paying is for peace of mind."

Well, seeing that I'm going to have to tap into my umbrella for about $300K that I would be responsible for myself because of my daughter's car accident, I'd say the money I spent on a $3M umbrella policy was money well spent.

There's sensible limits for an umbrella. I just know that I don't want to lose my assets over something that happens in a split second. I'm covered to where I think I need to be, and I sleep a LOT better knowing it's going to take something completely outrageous to wipe out the money I've worked my whole life to accumulate.

Edit to add: if I didn't have the assets I do, I wouldn't worry too much about an umbrella. If I had next to nothing to lose, then who cares? But I actually do have something to lose, and I'm not going to lose it over something I don't have much control over.

 

[ghostguy123]

Not trying to turn this into a car thread, but cheap cars are a crucial part of funding retirement accounts IMHO.  Toyota, Honda, Oldsmobile Aurora, etc. 

Autmobile choices are something that seems to be a perfect fit for this thread.  

 

[Instinctive]

Well, seeing that I'm going to have to tap into my umbrella for about $300K that I would be responsible for myself because of my daughter's car accident, I'd say the money I spent on a $3M umbrella policy was money well spent.

There's sensible limits for an umbrella. I just know that I don't want to lose my assets over something that happens in a split second. I'm covered to where I think I need to be, and I sleep a LOT better knowing it's going to take something completely outrageous to wipe out the money I've worked my whole life to accumulate.

Edit to add: if I didn't have the assets I do, I wouldn't worry too much about an umbrella. If I had next to nothing to lose, then who cares? But I actually do have something to lose, and I'm not going to lose it over something I don't have much control over.

I think the key is what you bolded about price for peace of mind. 

There is a reasonable price for piece of mind. Each of us has to determine what that is. It's definitely out there.

 

[Sand]

I spend a lot of time in my car, in bed, and watching sports. So I have a nice car, a nice bed, and a nice TV. 

Kiyosaki (Rich Dad, Poor Dad), if I remember the attribution right, said "Spend lavishly on things you love and cut mercilessly the things you don't." 

Right now my bicycle is likely worth about as much as my car.  I haven't read his book, but this bit of advice makes a ton of sense.

Autmobile choices are something that seems to be a perfect fit for this thread.  

My criteria was easy when I got mine - good gas mileage and fits a bike on the inside (so a thief would have to break into the car, at least, to boost it).  Ended up with a Fit (and traded in a cash for clunker, so netted at least 3k in trade in value there).  Man, what an awesome boondoggle that was.

 

[D-Day]

In that case, you better buy a $10m umbrella. $1-2m isn't enough if you get hit will a $10m lawsuit. On second thought, better make it $100m just in case...don't want to go bankrupt. Gotta have that sweet, sweet peace of mind in case there's a $98m lawsuit.



Directly from the horse's mouth: an insurance broker without umbrella insurance:

"Part of what went into that decision is knowing how incredibly profitable umbrella policies are for insurance carriers. Really, really profitable. Stupid profitable. Like printing money profitable.

Insurance companies measure their profitability by something called a "combined ratio". The combined ratio is the loss ratio (losses paid out over premiums received) plus the expense ratio (business expenses over premiums). For simplicity, we can assume that if the combined ratio is 100%, the insurance company is breaking even. (This isn't quite true because it doesn't contemplate investment returns on the premiums received before the losses are paid, but in today's low interest rate environment, it's close to true.)

Across the insurance industry, combined ratios on personal auto are running in the low 100%s. Meaning, insurance companies are LOSING MONEY on personal auto coverage. Like most things, if you're buying something that the company selling is losing money on, you're probably getting a good deal.

Combined ratios on personal umbrellas? 80%. 20% profit, on average. AND, that's even ignoring that we as consumers are far more interested in the loss ratio, as that's what represents the part of insurance that actually benefits us. Industry-wide, loss ratios on personal umbrellas are below 50%. For every dollar paid in umbrella premium, only $0.50 is actually paid out in losses. That implies that the actual value of an umbrella that costs you $200/year is only $100/year. The other $100 you're paying is for peace of mind."

That is a stupid insurance broker.  He's not arguing the NEED of the coverage.  He's complaining about the pricing.

 

[Sand]

Combined ratios on personal umbrellas? 80%. 20% profit, on average. AND, that's even ignoring that we as consumers are far more interested in the loss ratio, as that's what represents the part of insurance that actually benefits us. Industry-wide, loss ratios on personal umbrellas are below 50%. For every dollar paid in umbrella premium, only $0.50 is actually paid out in losses. That implies that the actual value of an umbrella that costs you $200/year is only $100/year. The other $100 you're paying is for peace of mind."

This bothers me not at all, to be honest.  

 

[xulf]

This bothers me not at all, to be honest.  

Agreed...its catastrophe insurance more or less.  No different than deciding on how much out of pocket you want to pay on healthcare (you know minus the multiples of 10).

 

[Doctor Detroit]

$26 in my Acorns account!!!!!

I haven’t checked the balance of this thing in a long time. $940!!!!

 

[Chadstroma]

I haven’t checked the balance of this thing in a long time. $940!!!!

Acorns is cool but I use my rewards cards for all purchases. I would do this for sure if I was a big debit card user. Debating on whether it makes cents (hee hee) to do it with my credit cards.

 

[wilked]

Just rolled all of my pre-tax IRA (essentially 401ks from previous companies) into my existing 401K.  Think this paves the way for a backdoor Roth

I could prob look it up but...  Are those things still active?  Did Trump Tax law kill em or are we good to go?

 

[Gawain]

Good to go

 

[Steve Tasker]

Just rolled all of my pre-tax IRA (essentially 401ks from previous companies) into my existing 401K.  Think this paves the way for a backdoor Roth

I could prob look it up but...  Are those things still active?  Did Trump Tax law kill em or are we good to go?

Still good.

 

[Slapdash]

Just rolled all of my pre-tax IRA (essentially 401ks from previous companies) into my existing 401K.  Think this paves the way for a backdoor Roth

I could prob look it up but...  Are those things still active?  Did Trump Tax law kill em or are we good to go?

Still time to do this for tax year 2017?  I have been very lazy recently.

 

[Tiger Fan]

Still time to do this for tax year 2017?  I have been very lazy recently.

yep

 

[wilked]

Thanks 

 

[-OZ-]

I haven’t checked the balance of this thing in a long time. $940!!!!

Acorns is cool but I use my rewards cards for all purchases. I would do this for sure if I was a big debit card user. Debating on whether it makes cents (hee hee) to do it with my credit cards.

You're both smart guys so maybe I'm missing something. 

You pay $1/month or .25% if over $5,000 for the privilege of someone else taking your money and investing it? Why not just put $50 automatically into an account each month?

 

[SouthJersey]

For backdoor can you roll over ritual IRA from previous years and still do the backdoor or does the rollover have to happen in one year and you start the backdoor fresh in a new year?

 

[Chadstroma]

You're both smart guys so maybe I'm missing something. 

You pay $1/month or .25% if over $5,000 for the privilege of someone else taking your money and investing it? Why not just put $50 automatically into an account each month?

You are right, paying yourself first is the best way to go. And I do.

I think for most people the plus is that it is easy and does not noticeably impact their lives. I love this for the tons of people I see all the time who have nadda in terms of real savings or investments. For so many Americans the $12 a year to take money and start investing it is money well spent. You say "put 5% of your pay in a retirement account" (and 5% into retirement and no other savings/investments is woefully inadequate) and people freak. You say "round up your purchases on your cards and throw the remainder in an investment account" people are cool with it.

For me, I saw Acorns before and never considered it for myself for the reason you say. When I saw DD's post, it reminded me of how back in the day when people still used cash.... you would be washing your pants and before or after found a $20 bill in the pocket. WAHHHOOO! It was exciting. Nevermind the fact that it was $20 you 'lost but never lost' before but it was just cool to find that $20. As stupid as it was, simply being forgotten money, it was a good feeling. For that silly reason, I thought about it for myself but as I only use credit cards, I think I will pass.

If you are smart enough, not lazy and disciplined to put money away into savings/investments per paycheck or monthly or whatever. No, there is no need for this. For so many Americans who are not- this is awesome. For someone like me (maybe DD but I won't speak for him) doing it as another little way to throw some money away and not think about it for a "cool, I have $900 now!" is fun and perhaps worth the $12 a year.

That's my  or perhaps more depending on what you are buying. (hee hee)

 

[Chadstroma]

For backdoor can you roll over ritual IRA from previous years and still do the backdoor or does the rollover have to happen in one year and you start the backdoor fresh in a new year?

Ritual IRA? You should consult your Voodoo priestess before doing anything with it.

 

[Random]

I disagree. The peace of mind it brings knowing you won't be bankrupt if something does happen is worth the price of the insurance. It's just a bonus if you don't need it.

Just rolled all of my pre-tax IRA (essentially 401ks from previous companies) into my existing 401K.  Think this paves the way for a backdoor Roth

I could prob look it up but...  Are those things still active?  Did Trump Tax law kill em or are we good to go?

I have a sizable Rollover IRA from a previous 401K.  What are the advantages to a backdoor Roth?

 

[-OZ-]

@Chadstroma

That's pretty much what I was thinking and I do understand fun part of it - not a horrible way to hide some cash, if you need that, too. You're right about finding the $20 too, when I was a kid I actually intentionally hid money in my winter jacket one year, so I could find it the next winter

 

[Chadstroma]

@Chadstroma

That's pretty much what I was thinking and I do understand fun part of it - not a horrible way to hide some cash, if you need that, too. You're right about finding the $20 too, when I was a kid I actually intentionally hid money in my winter jacket one year, so I could find it the next winter

That's funny. I don't recall intentionally putting away money but I feel like I did... but then again.... the whole purpose was to 'forget' about the money so you find it is a total surprise so maybe I did and was just real good at the forgetting about it part.

 

[Buck Bradcanon]

When does an umbrella policy make sense?  We have say $100k in home equity and decent retirement accounts, and maybe 3-6 months of emergency cash.

Asked a different way, can someone come after 401k money and does an umbrella protect that?

 

[Binky The Doormat]

Anyone else still mainly use cash for everyday things and groceries?  I pay my bills and buy gas with VISA, and most of the time when we go out to eat.

I put $500 cash in an envelope every 2 weeks and we live off of that for groceries, household items, fast food, school game tickets, etc.  I have only run short a handful of times in several years.  It takes a little planning, but not a lot.  

 

[wilked]

When does an umbrella policy make sense?  We have say $100k in home equity and decent retirement accounts, and maybe 3-6 months of emergency cash.

Asked a different way, can someone come after 401k money and does an umbrella protect that?

401K should be protected by law

Don't forget though that lawsuits can go after 'future earnings'.

As I mentioned earlier, if you have $500K in assets it's a good idea.  If you have less I wouldn't worry about it for now

 

[wilked]

I have a sizable Rollover IRA from a previous 401K.  What are the advantages to a backdoor Roth?

Well for the backdoor it's the only way to do a Roth if you make more than the limit.  Not exactly sure what you are asking...

Are you asking:

1. Why are Roth IRAs a good idea?

or

2. If I want to do a Roth and max more than the max, why do I need to roll my IRA into my 401k first?

 

[Chadstroma]

Anyone else still mainly use cash for everyday things and groceries?  I pay my bills and buy gas with VISA, and most of the time when we go out to eat.

I put $500 cash in an envelope every 2 weeks and we live off of that for groceries, household items, fast food, school game tickets, etc.  I have only run short a handful of times in several years.  It takes a little planning, but not a lot.  

I pay using my rewards cards for pretty much everything. Besides bills I use to have three things I didn't pay because I couldn't: Costco, Aldi and Lotto. Well, Costco switched to Visa, Aldi takes CC now and I can use the card to buy lotto online. I don't carry cash.

I happened to see one of my cards had a lifetime rewards count on it when I redeemed cash. It showed around $750ish. I think I have had it 3 years or so. Money back I otherwise would not have got back using cash.

Plus, time of using cash vs card.

Plus, losing cash vs card.

Plus, dealing with the change using cash.

Yuck. No thanks.

 

[Binky The Doormat]

I pay using my rewards cards for pretty much everything. Besides bills I use to have three things I didn't pay because I couldn't: Costco, Aldi and Lotto. Well, Costco switched to Visa, Aldi takes CC now and I can use the card to buy lotto online. I don't carry cash.

I happened to see one of my cards had a lifetime rewards count on it when I redeemed cash. It showed around $750ish. I think I have had it 3 years or so. Money back I otherwise would not have got back using cash.

Plus, time of using cash vs card.

Plus, losing cash vs card.

Plus, dealing with the change using cash.

Yuck. No thanks.

Yeah, I understand.  I have $12K/yr that could be put towards the rewards card that I am losing out on.  I use cash as a way to more closely manage our money.  It's certainly not more convenient but the money management is easier for me.  Just the emotional side of pulling that cash out and seeing it dwindle makes a difference.  

Plus I "acorns" my change  .  I still roll my change up and take it to the bank - that's right, you heard me.  I put it towards vacation money.  It adds up.  

BTW - there is something about rolling change that is satisfying ...don't get me wrong, I wouldn't want to do it for hours.  #scroogemcduck

 

[Chadstroma]

Yeah, I understand.  I have $12K/yr that could be put towards the rewards card that I am losing out on.  I use cash as a way to more closely manage our money.  It's certainly not more convenient but the money management is easier for me.  Just the emotional side of pulling that cash out and seeing it dwindle makes a difference.  

Plus I "acorns" my change  .  I still roll my change up and take it to the bank - that's right, you heard me.  I put it towards vacation money.  It adds up.  

BTW - there is something about rolling change that is satisfying ...don't get me wrong, I wouldn't want to do it for hours.  #scroogemcduck

I work for a bank that still counts change for it's customers (free of charge). Tons of our customers are like you.... except the rolling part.... if it works then it works for you. I'm a huge believer in there NOT being a one size fits all for personal finance.

ETA: I really should not say 'tons' because they are a small portion of our customers but they are among the ones we see the most because they are always needing to do old fashioned banking.

 

[KCitons]

Yeah, I understand.  I have $12K/yr that could be put towards the rewards card that I am losing out on.  I use cash as a way to more closely manage our money.  It's certainly not more convenient but the money management is easier for me.  Just the emotional side of pulling that cash out and seeing it dwindle makes a difference.  

Plus I "acorns" my change  .  I still roll my change up and take it to the bank - that's right, you heard me.  I put it towards vacation money.  It adds up.  

BTW - there is something about rolling change that is satisfying ...don't get me wrong, I wouldn't want to do it for hours.  #scroogemcduck

I had a pop and snack vending business on the side for about 5 years. Hated dealing with the coins. Lugging around a bag like it was a dead body. And half the time my bank's coin counter was broken. I'd have to lug it to another branch. 

I sold it and transitioned to prepaid phone cards. Much more fun banding bills. And it looks cooler when you drop bundles of cash on the bank counter. (except for filling out the 8300 form)

 

[Chadstroma]

I had a pop and snack vending business on the side for about 5 years. Hated dealing with the coins. Lugging around a bag like it was a dead body. And half the time my bank's coin counter was broken. I'd have to lug it to another branch. 

I sold it and transitioned to prepaid phone cards. Much more fun banding bills. And it looks cooler when you drop bundles of cash on the bank counter. (except for filling out the 8300 form)

Coin counters are ALWAYS breaking down. They are very high maintenance. Crap from just dust/dirt to nuts and bolts.... find there way in and break the machines. Just like safe boxes- more and more banks do not offer them anymore. Cost is too much and customers expect them for free.

I work for a small regional now so we still have them and will continue to do so as a way to differentiate ourselves from the Chase's of the world but they are a pain in the rear and gawd knows how much money it ends up costing the bank.

OH! And I forgot... a few enterprising lawyers thought it would be fun to sue some banks saying the coin counts were off. So, that further has put pressure on banks to get rid of them. Not only are they a pain the rear, cost a lot to have but they are apparently a lawsuit liability now as well.

 

[KCitons]

So, how does this work? 

Which part?

 

[KCitons]

Coin counters are ALWAYS breaking down. They are very high maintenance. Crap from just dust/dirt to nuts and bolts.... find there way in and break the machines. Just like safe boxes- more and more banks do not offer them anymore. Cost is too much and customers expect them for free.

I work for a small regional now so we still have them and will continue to do so as a way to differentiate ourselves from the Chase's of the world but they are a pain in the rear and gawd knows how much money it ends up costing the bank.

OH! And I forgot... a few enterprising lawyers thought it would be fun to sue some banks saying the coin counts were off. So, that further has put pressure on banks to get rid of them. Not only are they a pain the rear, cost a lot to have but they are apparently a lawsuit liability now as well.

Is it possible to just have a coin sorter and then weight nickels, quarters, pennies? Or is that not accurate enough? I know some retail places transition to this for bills. 

 

[KCitons]

I'm just curious. Like, I know how a vending business works. How does a pre-paid phone card business work?

You probably don't see too many of them around anymore. They're a machine about the size of a dorm fridge on a metal base. They would have have up 8 different types of cards ranging from $5 -$20 each. In the early days I bought from distributors, paying up front and not collecting the profits until I sold them (which meant I had to monitor overhead closely). Towards the end, I had my own card with my own branding. The cards didn't go active until I someone used them. Then I was billed. This allowed me to fill the machines as full as I wanted. Most machines would hold between 100-250 cards per slot. 

At the peak of my business, I had over 100 accounts in 5 states. They were placed in grocery stores, airports, college bookstores, hotels, and gas stations. I had it set up where I would run one direction every 2 weeks to a month to restock cards and collect cash. In order to place a machine, I would need to give a cut to the business, usually between 10-20%. My mark up was between 80-100%. I had about a dozen places that didn't want a machine, so they used a small plexi glass display case behind the counter. I would leave them 50 of each card and they would pay me for whatever sold when I came back to restock. The machines were an easy sell for businesses. All profit per square footage and they didn' have to do anything. 

The biggest pain was dealing with permits and sales tax across the different states. Permits were annual, usually just a few bucks per machine to acquire the vending sticker. The taxes were paid quarterly depending on the amount of total sales. (sometimes I would be able to pay it annually) 

Ultimately cell phones put me out of business. People didn't need to call from land lines and cell phone companies were offering free long distance calling. I had a two car garage full of phone card vending machines. The only thing of value was the bill accepters and some of the high security locks. The rest went to a local scrap metal guy. 

I'd still be doing it today if I could. Very profitable, easy to move the machines (unlike full size pop machines), and I set my own schedule for the most part. But, nothing lasts forever.

 

[Binky The Doormat]

Coin counters are ALWAYS breaking down. They are very high maintenance. Crap from just dust/dirt to nuts and bolts.... find there way in and break the machines. Just like safe boxes- more and more banks do not offer them anymore. Cost is too much and customers expect them for free.

I work for a small regional now so we still have them and will continue to do so as a way to differentiate ourselves from the Chase's of the world but they are a pain in the rear and gawd knows how much money it ends up costing the bank.

OH! And I forgot... a few enterprising lawyers thought it would be fun to sue some banks saying the coin counts were off. So, that further has put pressure on banks to get rid of them. Not only are they a pain the rear, cost a lot to have but they are apparently a lawsuit liability now as well.

wow - sucks.  

I am an excellent change counter though.    They used to want your name and SS# on the rolls - now no SS# (which makes a hell of a lot of sense).  

 

[Steve Tasker]

To those asking about backdoor Roth IRAs:

The real name of the concept here is just an IRA conversion.  A taxpayer has the ability to convert his or her traditional IRA to a Roth IRA at pretty much any given time.  If a taxpayer does convert from a traditional to a Roth, any previously untaxed (aka pre-tax) portion of the traditional IRA will be taxed upon conversion to the Roth.  For your average Joe Schmoe with a run-of-the-mill traditional IRA, the untaxed portion of it is probably the entire thing.

Example:  Joe Schmoe has a $100,000 traditional IRA, all funded with pre-tax dollars (ie he took a tax deduction on his various previous tax returns for these contributions).  If Joe wants to convert the entire traditional IRA to a Roth IRA, he can do so.  But the kicker is...he will have $100,000 of taxable income this year, but he didn't actually receive any cash in the transaction.  If he can afford the tax bill, great...if not, he's in trouble.

The "backdoor" Roth IRA is just a nickname whereby people use this conversion loophole to effectively contribute annually to a Roth IRA despite being over the normal income limits to contribute to a Roth.  Generally the taxpayer contributes to a traditional IRA, and elects for the traditional IRA contribution to be non-deductible (or it may be non-deductible regardless depending on the taxpayer's income level).  The taxpayer invests in cash, money market, something with a very low rate of return.  As soon as the bank allows, the taxpayer performs a Roth conversion, turning the non-deductible traditional IRA into a Roth IRA.  If done correctly and timely, generally the taxpayer has very little, if any, taxable income on this transaction.

Example:  Joe Schmoe is over the Roth limit.  Let's assume he has no regular pre-tax traditional IRAs.  He contributes $5,500 to a traditional IRA in 2018 and elects for it to be non-deductible.  He will not get a $5,500 deduction on his tax return for this.  He invests in cash, which makes no income at this time.  A week later, he calls his bank and converts the $5,500 sitting in the traditional IRA to a Roth IRA.  Joe now has a Roth IRA.  The taxable income on the conversion consists of [the amount converted = $5,500] less the [basis in his IRA = $5,500] = $0 of taxable income.  Joe has perfectly completed the "backdoor" Roth IRA.

The main pitfalls of the backdoor Roth scheme are (1) not having the cash to pay the tax as noted above, and (2) complications when a taxpayer holds additional traditional IRAs that are not being converted.  This is why Wilked, I think it was WIlked, on the previous page mentioned that he had rolled-over his traditional IRAs into his company's 401k plan.  If he didn't do this, he could be in for a world of hurt with regard to the backdoor Roth.  I'm not gonna delve into too many specifics but the key point is to remember that if you're planning on a traditional-to-Roth conversion of any kind, you really don't want to leave anything unconverted in a traditional IRA.  Think of it as all-or-nothing.  This is why it was crucial for Wilked to put those IRAs into his 401k - he effectively rid himself of any traditional IRAs, paving the way for easy backdoor Roths going forward.

 

[kutta]

When does an umbrella policy make sense?  We have say $100k in home equity and decent retirement accounts, and maybe 3-6 months of emergency cash.

Asked a different way, can someone come after 401k money and does an umbrella protect that?

I pretty much agree with @wilked that $500k in assets is probably a good starting point. But really, you can do it with any amount of assets. Lawyers will sue for anything if they think they can get something. Let them go after insurance money instead of anything you own now or may own in the future.

If you have kids driving, I would get an umbrella no matter what.

 

[tonydead]

To those asking about backdoor Roth IRAs:

The real name of the concept here is just an IRA conversion.  A taxpayer has the ability to convert his or her traditional IRA to a Roth IRA at pretty much any given time.  If a taxpayer does convert from a traditional to a Roth, any previously untaxed (aka pre-tax) portion of the traditional IRA will be taxed upon conversion to the Roth.  For your average Joe Schmoe with a run-of-the-mill traditional IRA, the untaxed portion of it is probably the entire thing.

Example:  Joe Schmoe has a $100,000 traditional IRA, all funded with pre-tax dollars (ie he took a tax deduction on his various previous tax returns for these contributions).  If Joe wants to convert the entire traditional IRA to a Roth IRA, he can do so.  But the kicker is...he will have $100,000 of taxable income this year, but he didn't actually receive any cash in the transaction.  If he can afford the tax bill, great...if not, he's in trouble.

The "backdoor" Roth IRA is just a nickname whereby people use this conversion loophole to effectively contribute annually to a Roth IRA despite being over the normal income limits to contribute to a Roth.  Generally the taxpayer contributes to a traditional IRA, and elects for the traditional IRA contribution to be non-deductible (or it may be non-deductible regardless depending on the taxpayer's income level).  The taxpayer invests in cash, money market, something with a very low rate of return.  As soon as the bank allows, the taxpayer performs a Roth conversion, turning the non-deductible traditional IRA into a Roth IRA.  If done correctly and timely, generally the taxpayer has very little, if any, taxable income on this transaction.

Example:  Joe Schmoe is over the Roth limit.  Let's assume he has no regular pre-tax traditional IRAs.  He contributes $5,500 to a traditional IRA in 2018 and elects for it to be non-deductible.  He will not get a $5,500 deduction on his tax return for this.  He invests in cash, which makes no income at this time.  A week later, he calls his bank and converts the $5,500 sitting in the traditional IRA to a Roth IRA.  Joe now has a Roth IRA.  The taxable income on the conversion consists of [the amount converted = $5,500] less the [basis in his IRA = $5,500] = $0 of taxable income.  Joe has perfectly completed the "backdoor" Roth IRA.

The main pitfalls of the backdoor Roth scheme are (1) not having the cash to pay the tax as noted above, and (2) complications when a taxpayer holds additional traditional IRAs that are not being converted.  This is why Wilked, I think it was WIlked, on the previous page mentioned that he had rolled-over his traditional IRAs into his company's 401k plan.  If he didn't do this, he could be in for a world of hurt with regard to the backdoor Roth.  I'm not gonna delve into too many specifics but the key point is to remember that if you're planning on a traditional-to-Roth conversion of any kind, you really don't want to leave anything unconverted in a traditional IRA.  Think of it as all-or-nothing.  This is why it was crucial for Wilked to put those IRAs into his 401k - he effectively rid himself of any traditional IRAs, paving the way for easy backdoor Roths going forward.

 

Regarding the bold:  Everyone I know just leaves it as cash and converts a day after the funds post in the traditional leaving the traditional IRA with zero balance.  No reason to mix up funds; make a different IRA account that only serves as a placeholder.  And I haven't heard of anyone having to wait to do a conversion.  

 

[Binky The Doormat]

I pretty much agree with @wilked that $500k in assets is probably a good starting point. But really, you can do it with any amount of assets. Lawyers will sue for anything if they think they can get something. Let them go after insurance money instead of anything you own now or may own in the future.

If you have kids driving, I would get an umbrella no matter what.

Kutta - do you have the UMBI/UIBI that also covers you against under/uninsured motorists at those levels?

 

[kutta]

Kutta - do you have the UMBI/UIBI that also covers you against under/uninsured motorists at those levels?

I have very high auto insurance coverage for that. My umbrella is more for liabilities resulting from actions of me, my wife, and my kids.

 

[tonydead]

The one thing to keep in mind with umbrellas is they usually require you to carry the max auto insurance. You can’t just have low amounts of auto and cover the rest with an umbrella.

So in some cases like mine it's going to be much more than 250/year then.  One of the benefits in paying cash for cars is getting the lowest insurance because you don't have to protect against money owed to a loan. Torn on what to do here. 

ETA. Another $340 a year to move up to maximum liabilities. 

 

[kutta]

So in some cases like mine it's going to be much more than 250/year then.  One of the benefits in paying cash for cars is getting the lowest insurance because you don't have to protect against money owed to a loan. Torn on what to do here. 

ETA. Another $340 a year to move up to maximum liabilities. 

Do you have kids of driving age? How about a decent amount by of net worth? If you have either of those, the extra you spend in insurance amounts to almost nothing compared to your potential liability.

 

[Chadstroma]

Is it possible to just have a coin sorter and then weight nickels, quarters, pennies? Or is that not accurate enough? I know some retail places transition to this for bills. 

You still have to sort and talking to the guys who fix them- that is typically what gets all fouled up.

 

[Chadstroma]

wow - sucks.  

I am an excellent change counter though.    They used to want your name and SS# on the rolls - now no SS# (which makes a hell of a lot of sense).  

Social?! Wha?! Back in the day I did work for a bank that wanted the account number on them but that was a long time ago in a galaxy far far away.

 

[tonydead]

Do you have kids of driving age? How about a decent amount by of net worth? If you have either of those, the extra you spend in insurance amounts to almost nothing compared to your potential liability.

No.  Yes.  

You're probably right.  An extra $50 dollars a month over 10 years is only giving up about $10,000 of investments.