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  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    This piggybacks on the the prior comment as well.

    You are not doing a withdrawal. The money is not touching your wallet. It is a transfer of money from one qualified plan to another. As I understand it, you can do this at any time with no penalty. Someone please correct me if I am wrong.

    DD
    Aug 20, 2013. 10:44 AM | Likes Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    The logic is correct but it is taking an unknown of what taxes will be in the future with a required RMD vs the known tax rate now and the capability of taking the money out when you decide to, not when the government says you must. You create the flexibility on how you decide when to spend your money.
    Aug 20, 2013. 10:42 AM | 1 Like Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    RAS:

    You got me on that one. I added 25% to the $100. You would need about $131 for the calculation to be accurate.
    Aug 20, 2013. 10:37 AM | 2 Likes Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    NV:

    You are not having a moment. I provided the link where I got the federal taxes owed. Obviously, I am leaving out any potential state taxes because every state is different.

    The income should be higher, but the website asked what is the NET TAXABLE INCOME. I am using the hypothesis of after all deductions. The 25% tax bracket is because the last dollar of that taxable income is being taxed at 25%. The effective tax rate, as you pointed out, is less.

    DD
    Aug 20, 2013. 10:35 AM | Likes Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    haschultz:

    First let me congratulate that it sounds like you are set for life. Kudos to you and your hard work.

    Your questions are advanced level compared to this article. There are really three questions you are asking, I think:

    "When I am retired and at lower incomes (only 401k withdrawal) can I then contribute from savings to a Roth as my lower income should allow that?"

    Answer: If you EARN INCOME, not dividends, but work at a job, you can contribute to a Roth directly.

    Your implied question, I believe is, can I take my RMD and put that into a Roth? The answer to that is NO. However, anything over and above the RMD you can take out and do a Roth conversion at any time in your life. It will be counted as income for tax purposes and you will have to pay tax on the conversion along with your RMD.

    "Can I contribute shares purchased earlier and can I use the purchase price of does it have to be the current day value of the shares?"

    The answer is NO. In retirement plans, there is no cost basis for tax purposes (you don't pay taxes on your gains nor can you harvest losses for future years). You would transfer the value as of that day.

    DD
    Aug 20, 2013. 10:30 AM | 1 Like Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    obie:

    Then I would recommend not doing anything. If you want a little more insight, follow that link for James Lange's book. It's free (best price possible) and there are a lot of graphs and pictures so it's not just page after page of text. I wish you the best.

    DD
    Aug 19, 2013. 07:10 PM | 1 Like Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    obie:

    I appreciate the comments. For a large majority of people, this article may be useless. But let's use a more extreme example:

    Let's say your net taxable income was $150,000 in 2013 and you are 59. You would be paying almost $30,000 in taxes and hit the 28% tax bracket. You retire next year at 60 because you did well investing and now your net taxable income drops all the way down to $30,000. Your tax rate dropped to 15% and your taxes dropped from $30,000 down to $3600. You could take $42,000 from an IRA, pay $6300 in taxes in 2014 and have that $42,000 now grow and be withdrawn tax-free when converted to a Roth. Yes, you paid $6300 now (a known quantity) on a much lower tax bracket than you were used to. But what future RMD and taxes on that withdrawal would you have to pay? No one knows and now you have the flexibility to take it out or leave it to your beneficiaries, but the gov't doesn't tell you anymore you must take out a minimum every year.

    Hope that helps.

    DD
    Aug 19, 2013. 03:04 PM | 1 Like Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    The only income threshhold I can see being a big issue is if you are toeing the line about being able to make a Roth contribution or not. For the working person, if you get to the next tax bracket, you are only taxed on that next dollar at the new bracket, so it really should not become an issue. Can you give another example where an income cutoff would be a problem?

    DD
    Aug 19, 2013. 02:48 PM | Likes Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    owh:

    There is another point to consider, which I stressed in the article. With the Roth, you don't have to take out one dime and you continue let it compound tax-free. With a traditional IRA, you must take out at least the RMD, so by IRS rules, you will be chiseling away from your nest egg whether you want to or need to. So, let's go with Spangler's assumption that whether you pay taxes now or pay it later, you end up with the exact same amount. Would you rather have to take the money out moving forward even if you don't want to OR would you want the flexibility to take out the money when you decide? I would prefer the latter.

    DD
    Aug 19, 2013. 02:45 PM | Likes Like |Link to Comment
  • Start IRA Conversions Early To Have More Purchasing Power Later [View article]
    Thanks, Alpha. Per your side note, I saw you commented on my other article about inheriting IRAs. Yes, that is a very different topic than the one being discussed here and it was to highlight some important points. The best thing to do is find someone who is competent in the IRA language as it changes all the time.

    DD
    Aug 19, 2013. 02:00 PM | 1 Like Like |Link to Comment
  • Final Thoughts On Beating The S&P 500 Index From A Dividend-Growth Perspective [View article]
    Sorry I have been/currently on vacation. I will have some time available again in the next two weeks, I can write something up. I'm still bummed my last article had to go instablog, so hopefully this one won't.

    DD
    Aug 15, 2013. 10:37 PM | Likes Like |Link to Comment
  • Final Thoughts On Beating The S&P 500 Index From A Dividend-Growth Perspective [View article]
    Dave:

    I know you mentioned it in several articles in the past, but when you end up retiring, hopefully it's before 70.5 that you can start doing a Roth IRA conversion on some of your money and play with the tax brackets to maximize your money. This way when it's in a Roth, leave that as the last dollars you need and take it out tax-free. You will also consequently be minimizing your RMD from your 401K/IRA.

    But that gets into Personal Finance Class 103.

    DD
    Aug 9, 2013. 04:20 PM | 4 Likes Like |Link to Comment
  • Investing In Dividend Growth Stocks Vs. Cash Value Life Insurance [View article]
    CDB:

    What varan is getting at (and he tends to have a pessimistic tone to his comments, but this one I agree with him) is that it is hard to fathom 0% price appreciation while dividends increase 22% per year. Yes, as a market it happened for the 2000s, but hard to imagine it happening again.

    I am an excel guy and when I first did these spreadsheets I was like a pig in poop. But then I realized it is not realistic. You need to figure out what that 20th year of dividends would be with say 6%/yr price appreciation, hence buying less shares and having less "income" from those reinvested dividends. We shall disregard taxes in this case but we know we can't. The income # will probably be significantly less. Still more than the income from the life insurance policy, but still less than what you have published.

    DD
    Aug 9, 2013. 03:27 PM | Likes Like |Link to Comment
  • Investing In Dividend Growth Stocks Vs. Cash Value Life Insurance [View article]
    Always looking:

    I will do my best to answer your questions. I will start with the disclosure that I am a healthcare practitioner, I do not sell life insurance but I do have one term and one WL policy that maximizes Cash Value. I have reasons why I did it for me and my situation only and try and dispense unbiased info. I also wrote a 5 part series about WL insurance. Look at my profile and you will find the articles.

    If you want to be "fair," you should compare your return vs Buy Term and Investing the Rest in a BOND FUND. Why? Because that's what the insurance companies do when they are investing. they invest in bonds- many different types, but they are not in the stock market. When you compare against a bond fund, the WL policy can do quite well, and you have the death benefit on top of it. The website The Invisible Policy goes into much greater detail about this.

    The way you can get "tax-free" money is by doing policy loans. When you take a loan from a bank, do you count that loan as income? No. Same thing here. The difference is many people have no intention of paying the loan back when there is enough cash value. The insurance company doesn't care because the insurance company knows one of two things will happen - you pay the money back now (when you are alive) or you die and the final death benefit will be reduced accordingly. You are not borrowing your money anymore; you are technically borrowing from the insurance company and they charge you interest to do so. What you need to find out is if the company does the loans as direct recognition vs non-direct recognition. Look at my articles to understand the difference.

    Dividends from companies trading on the stock market (PG, KO, AAPL, etc.) are taxed the year you received them. Certain dividends, like from REITs (O, SKT) are taxed as ordinary income because the corporation doesn't pay any tax - you do as the shareholder. The model does not blow up, but does take longer because you have the higher tax drag every year.

    If you want to continue to answer the questions here, I will be happy to do so. If you want to go offline, just PM me.

    DD
    Aug 9, 2013. 03:01 PM | 2 Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 5 Of 5) [View article]
    Kolowa:

    Good question. The answer is no, you can't upgrade per se. But when it is built with a bunch of PUAs, you can be flexible. So, I am using a mock idea of a WL policy:
    $3,000 base WL premium
    $1,000 term policy rider
    $6,000 PUAs

    You must pay the $3k every year to keep the policy active. You must pay the $1k term for the first 10 years of the policy (and then it expires). The variability you have is the $6K per year to put in. That $6K is the turbo to the policy but if your business stinks one year that you can't put the $6K in, that's OK - you still have the policy active as long as you pay the $4K.

    To answer part two, yes you can have multiple policies. So you can start a with a small one, get an idea of how it works, your income increases, and then you can start a second one. Some people have 3 - 5 policies on them or on family members all at the same time because you can fund policies on anyone who is within your sphere - yourself, a spouse, children, grandchildren, and/or a business partner.

    Best of luck.

    DD
    Jul 31, 2013. 08:12 AM | Likes Like |Link to Comment
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