What is ‘well enough’ and who gets to define it. Is it simply anyone who has more than YOU think they should have?
Oh the horror. The absolute HORROR of doing ‘well enough’ without government assistance.
YEs, by all means we must put the breaks on that type of socially irresponsible behavior. TAX TAX TAX those in the -pick your %- which must be punished.
No good can come of responsibly saving to take care of yourself. The government knows much better where those $$ should go. No need to encourage personal savings in a pre-tax fashion. 8-|
With all due respect bus driver, the math is not there to “easily” grow to millions. It would require an extremely risky investment to hit.
Using the historical 7% compounded return from equities, your $105k after tax could double every 10 years, but would be well shy of even one million after 30 years.
Ah, but you are talking generic situations, and I am referring to a specific one. Our friend has gotten us an annualized return of 16.8% for 20 years. I find it impossible to believe he can continue to do that for another 20 years, but even if he goes way below that, if we live many more years (I’m hoping!), and that’s the last thing we cash out, our kids could get a very nice sum.
But my whole point was emphasizing why a Roth can be so good over time, it if grows to a large sum…no taxes, ever. And don’t take money out of it to pay conversion taxes!
Exactly. It’s one of those special deals that people in the financial business get, I think, not available to us common folk. Who was it that managed to get hundreds of millions of dollars into a Roth? I remember hearing about it lately.
If one invests in an asset that they are certain will increase in value, it’s relatively easy to manipulate different returns for different shareholders or partners. We did this in our family limited partnership shortly after my daughter was born. Her brother had a two year head start on her and we were limited in what we could contribute to each account annually, but using strategic allocation and internal leverage within the partnership she was able to quickly match her brother’s valuations. This strategy wasn’t controversial or particularly aggressive, and in self directed retirement vehicle I can imagine some fantastic growth strategies.
To put it simply, if you’re going to break up a company and strip its assets (or do something less unseemly, such as develop a parcel of land) and you know you’re going to make a lot of money, you can structure it such that Partner #1 (your taxable entity) puts up all the money and is guaranteed a low return, and Partner #2 (your tax favored entity or your infant daughter) puts up a small amount of money but takes a lot of “risk”, and gets the bulk of the return.
Our friend is my husband’s best friend from high school, whom my husband actually got interested in investing. He is very modest, always never willing to assume good returns will continue, and turned down an opportunity to run a hedge fund years ago. He also refuses to take new clients, including our kids, he has enough to handle. We can follow his every trade online.
Busdriver; that kinda return is exemplary. Perhaps 1% of all investment pros? 'Grats to him (and you!).
But my point still stands: it was not ‘easy’ (and it probably was not without higher risk). If it was, the mass of investment ‘pros’ would get close. They don’t. ( Even the cream de la cream at Harvard investments have a down year.) On any given year, only ~quarter of professionals can beat the market average.
Well, he doesn’t beat the market every year, blue bayou, and it helps that the first year he got a 70% return. But he is very diligent, researches like crazy, and actually is too cautious. We keep asking him to not keep so much in cash, but have stopped bugging him lately, because it’s hard to complain. You can’t compliment him, because then you get a speech about who knows how much longer the high returns will continue.
I’m sure it’s not easy at all, but I was illustrating how in some cases, it’s far better to take the tax hit right away, and let the Roth ride for decades.
To add, I’m not one to be interested in bragging about my returns, particularly since we aren’t astute investors, and our returns are very mediocre. But I am amazed by our friend’s hard work and ability and wish we had believed in him more, earlier on.
^^deflnitely concur with your last point. I wish I was more prescient years ago when I just assumed that I’d be poor in in retirement and have a very low tax rate. Fortunately, that won’t be the case. But I am now kicking myself for taking the 15% tax deduction for a t-IRA, instead of putting the cash into a Roth.
Proposals that have been released so far this morning.
-corporate tax down to 20%
child tax change from 1000 to 1600
-addl tax credit of $300 for addl caretakers of an elderly person
-property taxes can be deducted up to 10k
-fuzzy on the AMT, will be repealed but no details
-estate tax to be repealed.
-example 191k rate drops from 28% to 25%
-416k rate goes up from 33% to 35%