Backdoor Roth IRA conversion: Tax-free? – MarketWatch

When you make a nondeductible contribution to a traditional IRA and you immediately convert it to a Roth IRA, 100% of the conversion is nontaxable, right? Not necessarily.

You may be asking yourself, how it could be taxable since you didn’t get a tax deduction for the contribution to your IRA. What about the backdoor Roth IRA conversion strategy?

Before I get too far ahead of myself, let me back up and review some basics about taxation of deductible versus nondeductible IRA contributions and taxation of Roth IRA conversions that is relevant to this discussion.

Deductible vs. nondeductible IRA contributions

In 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the lesser of a $5,500 or b your taxable compensation for the year. If you’re 50 or older, the limit is $6,500. You can make contributions to a traditional IRA until age 70-1/2.Without getting into details, the ability to take a deduction for part or all of a contribution to a traditional IRA is dependent upon three things:

  • Whether you’re covered by a retirement plan at work
  • Tax filing status
  • Amount of modified adjusted gross income “MAGI”

via Backdoor Roth IRA conversion: Tax-free? – MarketWatch.

Build Wealth With Focus on Value, Thrift

As usual, Rick Kahler has written an article full of great, practical ideas.  In this article, he talks about the things we often do to save ourselves money which often turn out to do just the opposite.

Enjoy and Learn, Steve

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People who successfully build wealth have one trait in common: they understand the art of frugality.These unassuming millionaires know how to live on much less than they make, and they know how to save money. But those behaviors alone aren’t enough. Not spending money today does not always result in having more money tomorrow.

Frugality for its own sake can result in doing without things that matter to you, failing to take care of basic needs like your health, and living with a sense of deprivation. It can also lead to spending more money, not less, in the long run.Frugality for the sake of enhancing your life, on the other hand, features an eye for value. Most people who build wealth are masters at the art of getting value.

read the full article here: Rick Kahler: Build Wealth With Focus on Value, Thrift | Financial Awakenings.

Q&A

Steve –

I am such a neophyte in the area if investing.  It is new to me that I am taking on information like a camel with water and yet I think most of the information is useless and only filling what was for so long empty. I do not yet know what the information means or how to utilize it. Like the fact that IBM’s choices somehow predict what the S&P’s trend will be, 75% of the time. Is this useful information, is is trustworthy, is it taking up space in my brain where something of true importance should reside?

I truly just want to be able to look at the stocks I am now “committed” to and be able to tell whether they are going up or down and get a sense whether to leave the stocks be for 5 years or sell them etc. (is this to someone’s benefit other than mine?)

Thanks, Jim.

Jim –

It is impossible to know whether individual stocks will go up or down – over any period of time.

As we have discussed, your best bet for a good rate of return with minimal risk is a risk-appropriate, well-diversified portfolio of low-cost mutual funds.

You are worrying way too much about things that you have absolutely no control over.  You need to focus on the things that you can control and do them well.

Steve

How To Write an Ethical Will?

Writing an ethical will may seem difficult. However, it can be viewed as the writing of a love letter to your family. Ethical Wills can include personal and spiritual values, hopes, experiences, love, and forgiveness. It may well be one of the most cherished gifts you can give to your family.

Here are three basic approaches for creating your ethical will.

Approach #1

Using an outline structure and a list of items to choose from. This is by far the easiest way to get started and it can build your confidence quickly. You can create a rough draft to work from in less than an hour. The Ethical Will Writing Guide Workbook and The Ethical Will Writing Guide software were developed for this approach. This approach is also covered in Ethical Wills: Putting your values on paper.

Approach #2

Using guided writing exercises to help you create content for your ethical will. The Ethical Will Resource Kit contains several guided exercises to help you. Ethical Wills: Putting your values on paper contains even more exercises.

Here are some ideas to help you get started.

via How To Write an Ethical Will?.

Active vs. Passive Investing | | Bell Wealth Management

The investment world has reached a watershed moment. Recently, one of the largest pension funds in the world announced that it was considering moving to an all-passive portfolio. For the average individual investor, this might seem like a “yawner” of a headline, but the eventual outcome has major implications for the most fundamental question in investing: Which is better—active or passive? Simply put, active management is performed by those investors who believe that they can outperform “the market” by using fundamental and/or technical analysis to pick individual investments that will outperform a particular benchmark e.g., S&P 500 Index. Passive management, on the other hand, does not try to beat the market. Rather, these investors attempt to capture the average market return with as little risk and expense as possible. The California Public Employee Retirement System CalPERS is the big kahuna of pension funds. Just as you invest your 401k money in stocks and bonds, the professionals at CalPERS invest money for the teachers and other public servants of the State of California. Since they are responsible for over $250 billion in assets, it becomes headline news in the industry when they make a change. Currently, CalPERS has about 60% of their assets in passive strategies and 40% in active strategies.

via Active vs. Passive Investing | | Bell Wealth Management.

A Billion-Dollar Misunderstanding (in Gold) – On Retirement (usnews.com)

By Daniel Solin

April 25, 2013 RSS Feed Print

There are small misunderstandings, like the one chronicled by Robert Grover in his cult book, “One Hundred Dollar Misunderstanding”. Then there are really big ones.

The miscalculation by hedge fund gurus John Paulson and David Einhorn relating to the price of gold falls into the latter category. According to an article in Forbes, Paulson had a paper loss of around $1.4 billion on his gold investment this year, although he still has a gain since he created the gold share class for his hedge fund in 2009 when gold was selling at $950 an ounce.

David Einhorn, who runs hedge funds (including a dedicated gold fund) at Greenlight Capital Management, also bet heavily on gold. According to Reuters, Einhorn’s investment in gold was recently listed as its third largest position in its main fund.

via A Billion-Dollar Misunderstanding (in Gold) – On Retirement (usnews.com).

Active vs. Passive Investing | | Bell Wealth Management

The investment world has reached a watershed moment. Recently, one of the largest pension funds in the world announced that it was considering moving to an all-passive portfolio. For the average individual investor, this might seem like a “yawner” of a headline, but the eventual outcome has major implications for the most fundamental question in investing: Which is better—active or passive?

Simply put, active management is performed by those investors who believe that they can outperform “the market” by using fundamental and/or technical analysis to pick individual investments that will outperform a particular benchmark (e.g., S&P 500 Index). Passive management, on the other hand, does not try to beat the market. Rather, these investors attempt to capture the average market return with as little risk and expense as possible.

The California Public Employee Retirement System (CalPERS) is the big kahuna of pension funds. Just as you invest your 401(k) money in stocks and bonds, the professionals at CalPERS invest money for the teachers and other public servants of the State of California. Since they are responsible for over $250 billion in assets, it becomes headline news in the industry when they make a change. Currently, CalPERS has about 60% of their assets in passive strategies and 40% in active strategies.

via Active vs. Passive Investing | | Bell Wealth Management.

DFAandVanguardSettingtheRecordStraight

 

A reporter for the

New York Times

recently interviewed DFA’s co-CEO

and founder, David Booth, about the firm’s excellent reputation in

promoting good corporate governance through its proxy voting and its

belief that markets produce better outcomes for investors than active

management does.

The article, titled “Challenging Management (but Not the Market),”

offers a good summary of DFA’s approach and is generally well writ

ten. However, the reporter deviated from his main themes at one point

to compare DFA’s fund performance and expense ratios to those of the

Vanguard Group. His explanation of performance was so misleading

and inaccurate that it warrants a proper response. Before that, how

ever, let’s review in a little more detail the core differences between

the two fund companies.

via apr13ac v2 – ac_2013_04-DFAandVanguardSettingtheRecordStraight.pdf.

Your Move, Bogleheads: Advisor Finds DFA’s Returns Trump Vanguard’s

Admittedly, few investment companies inspire more passionate feelings than Vanguard and Dimensional Fund Advisors (DFA). So many investors are invested in the idea that either one of those companies is the best that there are numerous analyses devoted to comparing them.

A Google search on “DFA vs. Vanguard” yields 114,000 results. A page on the Bogleheads website—named for Vanguard founder John Bogle—has 168 posts; Morningstar has a similarly named thread in its discussion forum. Indeed, the New York Times recently waded into the dispute with an article last month.

Now comes advisor Jeff Troutner, writing “DFA and Vanguard,” the subject of his firm Equius Partners’ April newsletter.

While there are legions of Vanguard fanatics out there, the good folks at Equius are confirmed DFAheads, as many advisors are.

Troutner argues that media coverage of investments tend to be biased toward Vanguard because of a simpleminded focus on costs, thereby missing out on the research DFA employs to engineer funds he claims delivers higher net returns over time. “You really do get what you pay for,” Troutner writes.

via Your Move, Bogleheads: Advisor Finds DFA’s Returns Trump Vanguard’s.

Vanguard Asks: How Much Return Do Your Clients Really Need?

Investors could be better off with lower return objectives and a less risky portfolio than the more typical higher return objective of most portfolios, a Vanguard research paper argues.

The paper by Vanguard researchers Donald Bennyhoff and Colleen Jaconetti, which Vanguard will post to its site Wednesday, points out the risk to advisors and clients of seeking even the historical average rate of return.

Titled “Required or Desired Returns: That is the Question,” the paper argues that advisors who impress this distinction upon their clients increase the probability of their clients’ investment success.

via Vanguard Asks: How Much Return Do Your Clients Really Need?.