Don’t miss an episode of our podcast, Personal Finance for Long-Term Investors. Available on all podcast players. Here’s the latest episode: A reader wrote in to me last week explaining his DIY retirement plan. His plan involved Roth conversions. No problem so far. Roth conversions create taxes. Indeed, unavoidable. And his plan was to pay those taxes via withholding dollars from the Roth conversion. Hold up! Withholding and Roth Conversions Withholding tax is money that an employer (or other payer) deducts from your income and sends directly to the IRS. It’s a preemptive payment toward your annual income tax. Most of us are familiar with withholding in our normal W2 paychecks. In the case of Roth conversions, withholding is money that your custodian (Schwab, Fidelity, etc.) deducts from the conversion amount and sends directly to the IRS. Rather than 100% of your dollars ending up in your Roth account, you get 100% minus your tax rate. By electing this withholding choice, you are using qualified Roth IRA dollars to pay your taxes. That could probably be the end of the article right there. Would you rather pay your taxes using regular bank dollars? Or using Roth IRA dollars? It’s a clear choice. But numbers will help us clarify further. Two Simple Roth Conversion Scenarios Let’s say you convert $10,000 in the 12% Federal bracket. You also have a normal bank account with $50,000 in it. Scenario 1: You withhold your taxes from the conversion.  You convert the $10,000. You withhold $1200. Only $8800 ends up in Roth.  You still have $50,000 in the bank.  Scenario 2: You use bank dollars to pay the tax bill.  You convert the $10,000. All $10,000 ends up in your Roth.  You now have $48,800 in the bank.  The Difference is Clear There’s a $1200 difference between the scenarios.  That $1200 either ends up in your bank account or in your Roth IRA. I know which one I’d prefer, and it’s not even close. It’s the Roth! In fact, you could easily argue that withholding taxes from your Roth conversion is so inefficient that it’s actually worse than never having done the conversion in the first place. Are you 59 Yet? Because It Gets Worse… If you’re younger than 59.5, then today’s idea is even worse for you. Early withdrawals from IRAs and 401ks typically come with a 10% penalty tax. Roth conversions are not considered an early withdrawal. Roth conversions are safe. BUT…if you withhold taxes from your Roth conversion, then that withheld portion is not considered a conversion. It’s considered a distribution. An early distribution. Subject to a 10% penalty. You owe extra taxes on the money you withheld to pay taxes. It’s taxes all the way down. You do not want to do this. What To Do Instead When you make a Roth conversion, you’ll want to pay the tax

Photo by Andrew Keymaster on Unsplash   Earlier this year I was getting a flood of concern over how dominate the tech/AI sector had become in the S&P 500, and by extension a total market ETF like VTI. In The Simple Path to Wealth May 26th newsletter, I addressed this question: Q: Given the top… [Continue Reading] The post The Power of Self-Cleansing appeared first on JLCollinsnh.

Inside the private markets: Jacob Hodes on ten-year lockups, the retail push, and what Baltimore teaches you about finding value. 🎙️ Listen on Spotify, Apple, or wherever you get your podcasts. Jacob Hodes is a partner and Chief Investment Officer of Private Investing at Brown Advisory, the Baltimore firm descended from Alex. Brown & Sons — the first investment bank in the United States. He got there by way of Goldman Sachs, law school, and […]

Retirement investing is all about discipline. Pick a strategy that’s optimized for maximum returns and lowest cost, then deploy it, and let time compound your wealth. Many DIY investors choose a passive, low-cost index investing strategy — using mutual funds or ETFs from Fidelity, Vanguard, iShares, and Schwab, and allocating funds to stocks and bonds… The post 95% Boring appeared first on Retire Before Dad.

This summer, I’m revisiting one of my favorite episodes. If you haven’t heard it, now is the time. If you have, it’s a classic and worth listening to again. Public Release: August 4. Members have access now.Join us. Brad Jacobs has built eight billion-dollar companies, completed more than 500 acquisitions, and created extraordinary returns for shareholders over four decades. Few people understand how great businesses are built better than he does. This conversation is about […]

I got an email yesterday, and I suspect all of you who use Vanguard received the same.   It’s rare for me to write within one day of something happening, but this one is worth it.  I started this article within 1 hour of clicking the button in that email. You all need to be aware of that email, even if you use someone other than Vanguard.  If you’re with a different firm, read this article, […]

How do you fund maternity leave when you’re self-employed, and no one’s paying you to take time off? I saved three months of living expenses, took 4.5 months off, and didn’t lose momentum in my business. Here’s exactly how I planned it and what I’d do differently next time. Continue reading or listen to the […] The post How To Plan For Maternity Leave When Self-Employed appeared first on The Thought Card.

I spent years inside Apple’s world. Badge, laptop, the whole deal. I watched the machine work from the inside, the way the company turns desire into revenue better than almost anyone on the planet. So when Apple rolled out a new leasing program with Klarna this week, my ears perked up for two reasons. One, I do know exactly how good Apple is at making quality, expensive things more affordable. Two, Klarna kinda has a […]