Personal Finance Advice and Education! (9 Viewers)

[hooter311]

Now you're just bragging

You'll never hear me say I'm not blessed and thankful.

 

[pecorino]

I want to roll over the 401 (k) into a self directed IRA.  It's currently 100% Vanguard SP 500 Admiral, not that that's relevant but I'm fine leaving it this way if I'm just going to be eaten alive in fees if crypto were to have a prolonged downswing or stay stagnant.  Roth conversion if possible, but really doesn't matter. 

Have plenty of savings, still own a profitable business, and have a lifetime after tax annuity that would still cover my living expenses if I lost everything.

My first thought was rolling it into a self-directed account. Even then, you would need to check whether you can buy BTC there. For instance, I have a self-directed account through TIAA-CREF but I don't think they'd let me buy BTC. Anyway, I bet you could roll it into something like TD Ameritrade then you can buy BTC from there. Not sure if you will need to convert it to a Roth--ask the good folks at TD and they will let you know. Good luck.

 

[Rattle and Hum]

I want to roll over the 401 (k) into a self directed IRA.  It's currently 100% Vanguard SP 500 Admiral, not that that's relevant but I'm fine leaving it this way if I'm just going to be eaten alive in fees if crypto were to have a prolonged downswing or stay stagnant.  Roth conversion if possible, but really doesn't matter. 

Have plenty of savings, still own a profitable business, and have a lifetime after tax annuity that would still cover my living expenses if I lost everything.

I have a SDIRA and wouldn't suggest for a $40K account because of fees and paperwork hassle. I would suggest a solution which seamlessly allows investing in other instruments (stocks, ETFs, etc) in case your appetite shifts from BTC. I would consider one of two methods but understand my BTC knowledge is limited and I don't trust crypto exchanges:

1) Open a rollover IRA at a brokerage that allows OTC purchases in GBTC which I believe currently trades at a 32% premium to its net asset value. I believe it has always traded at a premium to its NAV.

2) Open a rollover IRA with a brokerage who allows CME BTC futures trading in an IRA. I believe a CME BTC contract is 5 BTC so it will need to come down to get your $40K to work in one contract (there is no margin with IRA trading). I believe Tradestation might be a good possibility. You'll have to tell them you have experience in futures trading to get permission from them to trade futures. You'll have to make sure account balance stays above the maintenance margin and roll your positions into a future months before each contract expires. Make sure you don't have to pay a data or software fee (not required for your purposes).

When an audited ETF holding BTC starts trading I'd look to switch into that. I think that may happen within the next year...this may drive the premium down for GBTC. Good Luck.

 

[matuski]

Not even close for me: give me the money for 30 years and I’d happy pony up an extra quarter point. Prepay if you like or invest or party down. It’s practically a free loan.

At what differential is it worth it?  Half a point? A full point?

 

[Buckna]

I have a little over 40k sitting in an old 401(k) from an former employer.  I'm 35, and have 100% risk tolerance with the funds.  I'm already set.  Any insight on the smartest way to get this into BTC?

I found bitira and bitcoinira but they seem pretty slimely at first glance.  I get that you have to set up a self directed IRA and have a custodian, but that's about as much as I get.

I'm in Wisconsin.  PM me if its something someone can earn commission on.

Equity Trust is one of the largest SDIRA custodians and has a platform for investing in cryptocurrency. As @Rattle and Hum said though, I would be wary of fee's. Most SDIRA's do charge a higher annual fee than a regular custodian so you'll want to make sure its worth your while.

 

[pecorino]

At what differential is it worth it?  Half a point? A full point?

At least two ways to answer that very good question. One is based purely on mathematics (and probabilities) which I don't really want to crunch through right now. Another way is more personal: you'd have to weigh the downsides of the hassle and whatever fees pop up against the financial gain in lowering the rate some amount. My purely non-scientific, personal answer to that question is a full point (OK, maybe three quarters). I just don't have the time or inclination to bother doing it for less. To each his own. 

 

[eoMMan]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

 

[guru_007]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

This is actually a very good question.  I think a lot depends on one's financial discipline.

IMHO, I throw it all together as different accounts is sub-optimal.  I want to maximize the return on all of my money (possible exception of the 'rain day' or 'emergency fund' and even that is invested).  Depending on how well my investments do, that will have a bearing on the expense I take on.  Better years will lead to nicer vacations or cars.  Leaner years, well I'll cut back on the summer vacation for instance.  Further, I am not at all opposed to taking on debt for bigger expenses such a home remodel.  I want my money working all the time.  If I feel I can make more of a return doing nothing than the cost of the loan, I'll do that.  If I want to lock in a guaranteed return, I'll prepay the loan.

However, I certainly can understand the thought of mind to splitting accounts for various goals in the old christmas club fashioned for those that are less disciplined (okay, less anal in tracking all expenses and investments).  Kind of a set it and forget it.   

I'm uber aggressive and understand it's not a one size fits all type of way to do it.

 

[Andrew74]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

I’ve started nerding it up lately. For me it was more a time issue.  I used to lump everything together but as life has gotten busier I started bucketing so I don’t have to think about things. 

 

[Big League Chew]

Best way to reduce my taxable gross income ?

 

[matuski]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

I have to.  My wife simply cannot execute a plan without it.

 

[Judge Smails]

Best way to reduce my taxable gross income ?

This. I’m looking at a general partnership and pass throughs. Otherwise high earning W2 schmoes just get whacked with current tax code. 

 

[Judge Smails]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

Nah. All together. 

 

[-OZ-]

Do you guys nerd it up with various savings accounts for different goals (new car in a few years, vacation, home remodeling, etc.) or do you just throw it all together?

Kinda? Outside retirement I have 5 accounts.

1.  checking / bill paying account. Almost no interest, only keep enough to pay the next month's bills. Only reason I keep this is I've had it over 20 years and it's convenient. 

2. EF, ~2% yield on savings. 

I'll use the EF account if needed to pay for something big and planned, recently used the account to buy a small SUV. 

3. Fundrise, only 10% of my monthly investing goes here, this is ear marked for the down payment on a vacation home in 10-15 years.  

4. Regular brokerage - moderately conservative investments, includes a bond fund which we can cash out if needed (basically if HVAC goes down and we don't want to spend the EF)

5. Robin Hood, my speculative account - up 23% the last 3 months, 11% this past week. this is a small amount.  Mostly my "fun, let's see if I can beat the market" account. 

 

[pecorino]

Best way to reduce my taxable gross income ?

Other than getting fired (which was a clever reply): I assume that if you have the problem of huge, FBG-like taxable income then you are already maxing out a tax-deferred IRA. If not, that’s a no-brainer. Second, it may be worthwhile to move to a high deductible insurance plan so you can open an HSA and dump money in there. Finally, and maybe this is what the Judge is suggesting, there may be ways to shelter some money in a business. I’m not sure about the law here, but opening an LLC may give you some flexibility here.

 

[SFBayDuck]

3. Fundrise, only 10% of my monthly investing goes here, this is ear marked for the down payment on a vacation home in 10-15 years.  

Tell me more about Fundrise.

 

[SFBayDuck]

Other than getting fired (which was a clever reply): I assume that if you have the problem of huge, FBG-like taxable income then you are already maxing out a tax-deferred IRA. 

Wouldn't the income limits ($123K married/jointly) on this keep it from being an option if you're making a FBG-like taxable income?

 

[Instinctive]

Wouldn't the income limits ($123K married/jointly) on this keep it from being an option if you're making a FBG-like taxable income?

Backdoor!

 

[Bob Sacamano]

Backdoor!

At least buy him dinner first.

 

[Tiger Fan]

Backdoor!

Mega Backdoor!

 

[Sand]

Best way to reduce my taxable gross income ?

No tricks with total gross income.  If you're talking AGI, though, there are things that can be done - load up on every tax deferred vehicle you can -  401k, traditional IRA (you and wife, if possible), HSA.  If you have multiple choices of health plans at work the mentioned HSA or the gold plated plan (premiums are generally pre-tax) will lower AGI.  If self employed there are some other options that can help you pack away huge chunks.  Charitable contributions.    Generate capital loss for the year - 3k can come off of the income line each year.  Reduce interest, unqualified and qualified dividends, if possible (items like MKL or BRK can do that as they don't shed cash).  Pop out quadruplets by the end of the year - well, short term fix, anyway.

 

[Sand]

Tell me more about Fundrise.

Good article here.  He has some others, I think, as well.

 

[Big League Chew]

Other than getting fired (which was a clever reply): I assume that if you have the problem of huge, FBG-like taxable income then you are already maxing out a tax-deferred IRA. If not, that’s a no-brainer. Second, it may be worthwhile to move to a high deductible insurance plan so you can open an HSA and dump money in there. Finally, and maybe this is what the Judge is suggesting, there may be ways to shelter some money in a business. I’m not sure about the law here, but opening an LLC may give you some flexibility here.

Are those college funds (529?) another way?

 

[Big League Chew]

No tricks with total gross income.  If you're talking AGI, though, there are things that can be done - load up on every tax deferred vehicle you can -  401k, traditional IRA (you and wife, if possible), HSA.  If you have multiple choices of health plans at work the mentioned HSA or the gold plated plan (premiums are generally pre-tax) will lower AGI.  If self employed there are some other options that can help you pack away huge chunks.  Charitable contributions.    Generate capital loss for the year - 3k can come off of the income line each year.  Reduce interest, unqualified and qualified dividends, if possible (items like MKL or BRK can do that as they don't shed cash).  Pop out quadruplets by the end of the year - well, short term fix, anyway.

Yes. AGI.  Thanks

 

[Sand]

Are those college funds (529?) another way?

529s are post tax.  The money grows tax free if used for educational purposes.  No help with AGI.

 

[Worm]

I have a SDIRA and wouldn't suggest for a $40K account because of fees and paperwork hassle. I would suggest a solution which seamlessly allows investing in other instruments (stocks, ETFs, etc) in case your appetite shifts from BTC. I would consider one of two methods but understand my BTC knowledge is limited and I don't trust crypto exchanges:

1) Open a rollover IRA at a brokerage that allows OTC purchases in GBTC which I believe currently trades at a 32% premium to its net asset value. I believe it has always traded at a premium to its NAV.

2) Open a rollover IRA with a brokerage who allows CME BTC futures trading in an IRA. I believe a CME BTC contract is 5 BTC so it will need to come down to get your $40K to work in one contract (there is no margin with IRA trading). I believe Tradestation might be a good possibility. You'll have to tell them you have experience in futures trading to get permission from them to trade futures. You'll have to make sure account balance stays above the maintenance margin and roll your positions into a future months before each contract expires. Make sure you don't have to pay a data or software fee (not required for your purposes).

When an audited ETF holding BTC starts trading I'd look to switch into that. I think that may happen within the next year...this may drive the premium down for GBTC. Good Luck.

TDAmeritrade has both GBTC and ETCG available, and I purchased some of both in an IRA rollover earlier this year. Nice and easy.

 

[Long Ball Larry]

Are those college funds (529?) another way?

may help with state income tax, depending on where you are, FWIW

 

[ghostguy123]

Random question I was just thinking about.

I have a mortgage on my house, a mortgage on one rental property with about 30 grand equity, and another condo that I own with no mortgage worth around 65k.

If I was to take out a HELOC with both of those and pay off my mortgage, could I then deduct the expenses of the new loan on the rental properties? How illegal is it?

 

[Tom Hagen]

Random question I was just thinking about.

I have a mortgage on my house, a mortgage on one rental property with about 30 grand equity, and another condo that I own with no mortgage worth around 65k.

If I was to take out a HELOC with both of those and pay off my mortgage, could I then deduct the expenses of the new loan on the rental properties? How illegal is it?

Tracing rules would apply. In simple terms, the deductibility of interest is usually determined by the use of the proceeds and not by the property used to secure the loan. The interest would be non deductible personal interest because the loan proceeds were not used to buy or improve the rental properties.

It also would not be deductible home mortgage interest since it is not secured by your home, which is the exception to the rule about the loan not needing to be secured by the property. 

 

[Buckna]

Random question I was just thinking about.

I have a mortgage on my house, a mortgage on one rental property with about 30 grand equity, and another condo that I own with no mortgage worth around 65k.

If I was to take out a HELOC with both of those and pay off my mortgage, could I then deduct the expenses of the new loan on the rental properties? How illegal is it?

Not a CPA, but as Hagen said, don’t think it will work. I believe the new tax act now takes into account the tracing so it’s only deductible if used for improvements on the existing property (although I think you could deduct the interest as an expense if the funds were used to buy a new investment property.) I would also hazard a guess that the rates on the non-owner occupied HELOC’s wouldn’t beat the rate that you’ve got on your primary residence by quite a bit. Especially if the condo is non-warrantable. But I am also not a loan officer either.

 

[Big League Chew]

I want to start a savings account for my kids. All under 8. Is a Roth IRA the best move? The plan is for it to go 30ish years before passing it to them

 

[SFBayDuck]

I want to start a savings account for my kids. All under 8. Is a Roth IRS the best move? The plan is for it to go 30ish years before passing it to them

I think you have to show an income to contribute to a Roth IRA, but I'm not the expert in here on that.  Once my daughter starts working and has an income, my hope is to match her income up to the annual Roth limit to help her get retirement savings started.

 

[-OZ-]

I think you have to show an income to contribute to a Roth IRA, but I'm not the expert in here on that.  Once my daughter starts working and has an income, my hope is to match her income up to the annual Roth limit to help her get retirement savings started.

Yep

We've contributed to college accounts, if they end up not needing all of it we'll keep passing it down to younger siblings until we run out of kids (it will take a while)

 

[Big League Chew]

I believe that is correct as well, and it has to be more than "mowing lawn money from dad" to count as income. I believe it's possible to get babysitting $ contributed to a Custodial Roth, but it has to be legit income, and I believe you can't contribute more than the kid earns in taxable income (reported on a W2 or similar). 

529 is a good vehicle up to the end of college-age. A 529 can be used for tuition, books, and rent, even if living off campus. It can also be used after graduation if they're still at least part-time enrolled somewhere. It's a good tax shelter for income as you can use a 529 as a pass-thru (for example, instead of using part-time job income to pay rent on an off-campus apartment, contribute part time income into a 529, take it out the day after, and use that money to pay the rent as an 'educational expense' since it's your living space while enrolled. That income (up to the school's stated cost of room & board) can now be refunded on a tax return and avoids some income tax). Leftover money from an older kid can go directly to a younger kid's fund. Anything left over at the end, there are options. 

Depends on what your state allows for 529s though, every one handles them differently as far as what benefits you get out of it. California, for example, doesn't really offer much benefit to their 529 plans compared to other states as far as deductions and credits for the gifter.

Not sure, but, a 529 might be easier for your kid(s) to get money out of at age 30, if they want to put a down payment on a house or something, than an IRA they can't touch until 65. 

Thanks for the information sir

 

[BeTheMatch]

Thanks for the information sir

It doesn't have to be reported income. You just need to have a record of it in case you're asked down the road. If it's $500 worth of baby-sitting money or for mowing lawns, you don't have to report that income. Just keep a record of dates and amounts and the people that paid your kid, etc.

 

[Buck Bradcanon]

Forgive as I'm sure this has been covered in this thread, I am sure this has been covered in this thread, but what is the best way to save for college..or what is the best 529 plan?  I live in Texas.

 

[matuski]

Forgive as I'm sure this has been covered in this thread, I am sure this has been covered in this thread, but what is the best way to save for college..or what is the best 529 plan?  I live in Texas.

Live in TX, did Utah.. https://my529.org/

 

[wilked]

Forgive as I'm sure this has been covered in this thread, I am sure this has been covered in this thread, but what is the best way to save for college..or what is the best 529 plan?  I live in Texas.

Utah, Nevada, NY are all good ones.  Once you get to the top 5-10 it's really splitting hairs (expense ratios).  

I use NV as it links direct from my Vanguard account

 

[Big Blue Wrecking Crew]

This. I’m looking at a general partnership and pass throughs. Otherwise high earning W2 schmoes just get whacked with current tax code. 

Would be interested in hearing/learning more about this. Are you able to expand your thoughts here?

 

[Sand]

I want to start a savings account for my kids. All under 8. Is a Roth IRA the best move? The plan is for it to go 30ish years before passing it to them

My kids' grandfather setup a UTMA for them.  For the older one, who has held a job for a few years I siphoned off the UTMA every year and packed a Roth until it was all transferred over.  

 

[Sand]

Not sure, but, a 529 might be easier for your kid(s) to get money out of at age 30, if they want to put a down payment on a house or something, than an IRA they can't touch until 65. 

You can't touch a traditional IRA until 65.  A Roth IRA, on the other hand, can be touched.  You can remove the contribution part of the account (it's post tax anyway).  You can't touch the gains.  I don't think it's indexed to inflation, either.  But you do have more wiggle room with a Roth.  Perfect vehicle for a kid, though, as their taxation status is usually near zero (sadly I did not birth another Shirley Temple), so the Roth for them is just about tax free the whole way.

 

[-OZ-]

So I'm pretty sure I'm switching my Roth IRA to M1. Any thoughts or recommendations? 

Don't know if I'll be switching my wife's, the college accounts, or our regular account, but maybe. My IRA is a little more than 1/3 of hers (I stopped investing in my Roth IRA for a few years while I was maxing the tsp instead, and what I did have was largely international. meanwhile I had her entirely in vanguard, US ETFs).

Any bad experiences? Any promo codes or anything?

 

[stlrams]

I called Fidelity regarding the backdoor Roth IRA (converting 401k money to Roth) and they indicate its a taxable event.  Paying my current tax rate on every dollar moved.  This is correct or am I misunderstanding..

 

[Sputnikv8]

I called Fidelity regarding the backdoor Roth IRA (converting 401k money to Roth) and they indicate its a taxable event.  Paying my current tax rate on every dollar moved.  This is correct or am I misunderstanding..

I don’t know the details, but yes.  It is a taxable event.  Moving a big chunk would be a big tax bite. 

 

[Steve Tasker]

I called Fidelity regarding the backdoor Roth IRA (converting 401k money to Roth) and they indicate its a taxable event.  Paying my current tax rate on every dollar moved.  This is correct or am I misunderstanding..

A "Roth conversion" is a taxable event, yes.  If you are converting a traditional IRA with no "basis", which is to say most traditional IRAs including a previously rolled-over 401(k), then the full amount that you convert into a Roth is taxable at ordinary tax rates.  It may or may not be a good idea for you, depending on your personal financial situation.

The annual "Backdoor Roth" for higher-income earners is very efficient because the traditional IRA has basis, as the taxpayer would not have been allowed a deduction for the initial contribution.  If you are over the traditional IRA deductible cap, and you contribute $6,000 into a traditional IRA, you cannot take a deduction for that contribution.  Thus you have basis in the IRA.  If you then convert that traditional IRA into a Roth, presumably in short-order before accumulating any earnings, you're taxable on the amount of the rollover ($6,000) minus the amount of your IRA basis ($6,000) = $0 taxable income.  Your personal situation may be different in that you presumably took a tax deduction (or rather an exclusion from your W-2 wages) for the prior 401(k) contributions.  

(edit - this is a very simplistic example and is not tax advice)

 

[Buckna]

I called Fidelity regarding the backdoor Roth IRA (converting 401k money to Roth) and they indicate its a taxable event.  Paying my current tax rate on every dollar moved.  This is correct or am I misunderstanding..

Would recommend talking to a good CPA. While not rocket science, it can get complicated fast. For instance if you have other IRA’s already, that could affect how much you can move and the tax on it.

But generally yes, you pay the tax outside the 401k/IRA so you don’t reduce the principal being rolled over. Otherwise it’s not worth doing because you’ll get hit with the early withdrawal penalty in order to pay the tax inside the account. A similar penalty issue occurs when people have 401k loans and lose/leave their job and can’t pay the loan back and have to pay it out as a distribution.

 

[stlrams]

A "Roth conversion" is a taxable event, yes.  If you are converting a traditional IRA with no "basis", which is to say most traditional IRAs including a previously rolled-over 401(k), then the full amount that you convert into a Roth is taxable at ordinary tax rates.  It may or may not be a good idea for you, depending on your personal financial situation.

The annual "Backdoor Roth" for higher-income earners is very efficient because the traditional IRA has basis, as the taxpayer would not have been allowed a deduction for the initial contribution.  If you are over the traditional IRA deductible cap, and you contribute $6,000 into a traditional IRA, you cannot take a deduction for that contribution.  Thus you have basis in the IRA.  If you then convert that traditional IRA into a Roth, presumably in short-order before accumulating any earnings, you're taxable on the amount of the rollover ($6,000) minus the amount of your IRA basis ($6,000) = $0 taxable income.  Your personal situation may be different in that you presumably took a tax deduction (or rather an exclusion from your W-2 wages) for the prior 401(k) contributions.  

(edit - this is a very simplistic example and is not tax advice)

So if I understand correctly. Fully fund IRA annually (6k) then immediately convert to Roth IRA.   I max out 401k annually and not eligible for Roth.

 

[stbugs]

A "Roth conversion" is a taxable event, yes.  If you are converting a traditional IRA with no "basis", which is to say most traditional IRAs including a previously rolled-over 401(k), then the full amount that you convert into a Roth is taxable at ordinary tax rates.  It may or may not be a good idea for you, depending on your personal financial situation.

The annual "Backdoor Roth" for higher-income earners is very efficient because the traditional IRA has basis, as the taxpayer would not have been allowed a deduction for the initial contribution.  If you are over the traditional IRA deductible cap, and you contribute $6,000 into a traditional IRA, you cannot take a deduction for that contribution.  Thus you have basis in the IRA.  If you then convert that traditional IRA into a Roth, presumably in short-order before accumulating any earnings, you're taxable on the amount of the rollover ($6,000) minus the amount of your IRA basis ($6,000) = $0 taxable income.  Your personal situation may be different in that you presumably took a tax deduction (or rather an exclusion from your W-2 wages) for the prior 401(k) contributions.  

(edit - this is a very simplistic example and is not tax advice)

So is the back door Roth a way for people not eligible for Roth IRA to invest in a Roth?

 

[Steve Tasker]

So is the back door Roth a way for people not eligible for Roth IRA to invest in a Roth?

Yes

 

[Steve Tasker]

So if I understand correctly. Fully fund IRA annually (6k) then immediately convert to Roth IRA.   I max out 401k annually and not eligible for Roth.

In theory, if you have no other traditional IRA, yes, that would be an annual "Backdoor Roth".

If you have other traditional IRAs, including an old 401k that you have rolled-over previously into a traditional IRA, it gets a lot more complicated than that.