patrick.net

Claire,

The actions you describe would be MAJOR infractions in the eyes of ERISA, DOL, IRS, EBSA and the PBGC. Other than that, no problem. One issue you might see is that firms like ADP and Paychex become like banks b/c they sit on America's pay check for two weeks and actually do lend to the commercial arena.

Are 401K firms complacent? Oh HELL YES! Do they care if you ever see a dime in appreciation? HELL NO! Unlike Peter though, I will advocate if nothing else at the very least contribute up to the company match and dump the balance into a roth or reg. IRA. We've got to stop inventing excuses for not saving. In the end that's what these are, "savings plans".

Peter P,

There's nothing wrong with "pay as you go". You can also amortize a long term cap gain over time. There are also a number of "turn-key" trusts that you can set up at no expense to you and actively direct those proceeds to the bona fide charity of your choosing. Used to be trusts were expensive (and a pain) to set up.

The 401k is not even matched, but at least it's before tax, I thought you could only have a regular IRA if you don't have a 401K?

There are also a number of “turn-key” trusts that you can set up at no expense to you and actively direct those proceeds to the bona fide charity of your choosing.

I think Fidelity has a charitable fund. It may be a tax-efficient way to improve karma. :)

For some reasons I still do not believe in retirement accounts.

Have to second DinOR here --if you can't trust your own retirement accounts (401k/IRAs), what can you trust?

However, I completely understand not "trusting" federal entitlement programs (Social Security, Medicare, etc.) or defined-benefit pension plans. I fully expect those either to be bankrupt or severely scaled back and/or means-tested to the point most people will have little chance of seeing any payoff. SS/FICA to me is basically "Boomer retirement payroll tax" for future generations.

Have to second DinOR here –if you can’t trust your own retirement accounts (401k/IRAs), what can you trust?

I trust something that can be readily cashed out.

The 401k is not even matched, but at least it’s before tax, I thought you could only have a regular IRA if you don’t have a 401K?

Nope, I have both. As I don't yet have children or a CA personal ATM (house) and I don't itemize, these are about the only tax shelters I have at the moment.

You can cash a ROTH IRA out, just not the gains or you'll get taxed on them.

I trust something that can be readily cashed out.

Point taken, though technically you can (for a big hefty penalty, of course :-( ). IRAs/401k/403b rules also allow one-time penalty-free withdrawals for certain events --like buying a first home, paying for kid's college tuition, and such.

HARM -

So you have a tax-deductible IRA not ROTH?

AFAIK, if you contributed to a 401K plan, your contributions to a regular IRA (if they are allowed based on income etc) are NOT pre-tax. In that case, it makes sense to contribute to a Roth IRA, again if income levels allow it.

* NOT A TAX ADIVCE

IRAs/401k/403b rules also allow one-time penalty-free withdrawals for certain events –like buying a first home, paying for kid’s college tuition, and such.

Withdrawal or loan?

So you have a tax-deductible IRA not ROTH?

Yes, though I would like to convert it to a Roth at the next opportunity (2007 I believe?).

I thought it was 2010? For conversion of IRA's that is.

Peter P,

Some of the "charitable trust remainders" are set up so that you can,

Make the contribution

Get an immediate tax break

Keep the income (dividends)

Will it to an heir (also rec. the income)

And upon their passing the $'s finally go to the charity

Pretty good deal.

Pretty good deal.

Yes indeed. Do your clients have any donor-advised fund (e.g. Fidelity Charitable Gift Fund)?

HARM,

I'm kind of in your position except that one of us is self employed. Through my SEP I can "fairly" well adjust my tax position by making a final contribution just prior to the cut off.

Just as Peter questions the "value" of retirement accts. I seriously challenge the sagely wisdom of "fluffing up" your sched. A through the use of Mort. int. ded! If in the process of "fluffing" you are ignoring virtually all of your other savings options "it just doesn't make sense". (Particularly since many fluffers NEED that big fat tax return check to get caught up on bills)!

Withdrawal or loan?

Withdrawal. Though it looks like I was mistaken about first homes & college tuition being exempt from the 10% early withdrawal fee. These would be considered "hardship withdrawals" and are subject to tax + 10% beffore age 59 1/2.

Getting a penalty-free withdrawal is a bit more restrictive:

--You become totally disabled.
--You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
--You are required by court order to give the money to your divorced spouse, a child, or a dependent.
--You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
--You are separated from service and you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy.

http://www.401khelpcenter.com/mpower/feature_121902.html

Peter P,

Just as a matter of convenience I typically use Eaton Vance in Boston. They're pretty comfortable with the process and have an in house stable of tax experts that keep things current. It really helps people that have a low cost basis in a stock and can even help folks that have sold off RE holdings. I hate to say it but it really is a "last ditch effort" when all other "relief" has been exhausted.

*Not a plug for EV

Thanks, DinOR.

I thought it was 2010? For conversion of IRA’s that is.

Yes, got the year wrong --sorry:
http://www.toolkit.cch.com/columns/taxes/06-231roth.asp

I seriously challenge the sagely wisdom of “fluffing up” your sched. A through the use of Mort. int. ded! If in the process of “fluffing” you are ignoring virtually all of your other savings options “it just doesn’t make sense”.

Yes. Plus, your home represents an incredibly UN-diversified and illiquid tax shelter/savings vehicle.

HARM,

Unless you plan to retire near the poverty level, always load up on your Roth IRA first.

DinOR,

Huh? You just won't let me go on that, will you? I was just advocating a flat tax system with fewer loopholes. Since that's just not gonna happen, I don't think my advocacy would really cut into the amount of business you may wish to conduct.

Well, this Jeff guy could just file for financial death, AKA bankruptcy...unless he lied getting those loans.

astrid,

I was ONLY kidding! Btw, you're right, take full advantage of your roth. I'd really love to see the IRS consolidate the two so people don't have the redundant fees (and account statements).

DinOR,

I have heard similar dislike for COVERED CALLS from my friends who trade in options. I think I am alone in this. I write covered calls, ALL the time. Sometimes in IRA accounts, if possible.

I have many long positions. I write call options on it. I consider it as "extra dividend".

I am mot suggesting buying stocks to write call options. But if you already have a stock or ETF, then writing call options is as close to "easy money" as it can get.

Theoritically there is a chance of getting called and missing the upside. In a raging bull market that is very likely. But in current market, like for last 5 years, I have been called less than 5% of the time. And in all cases, I could get back in the position cheaper than the strike price.

Each contract writing yields in very small amounts. But if done on many long positions over and over again, the returns are nothing to sneeze at. Esp. in IRA. And it's so freaking easy ! I am not trying to optimize anything. I just write long very out of the money calls. The nickels and dimes add up over years.

Sometimes, it is a life saver. Without the calls I wrote on DELL over last 5 years, I would have been in red, deep red. But I managed to get out early this year, with a small combined profit due to all the calls that I wrote and simply expired.

To BA or Not to BA,

I have absolutely no problem w/that strategy at all. It's what "old money" does when the market turns flat as a means to generate extra income. But you must admit, it's done as often as not as defensive measure and you have to have a pretty big position for it have an impact.

I have heard similar dislike for COVERED CALLS from my friends who trade in options. I think I am alone in this. I write covered calls, ALL the time. Sometimes in IRA accounts, if possible.

I prefer writing uncovered OTM puts, especially if a possible slight downside is foreseeable.

Each contract writing yields in very small amounts. But if done on many long positions over and over again, the returns are nothing to sneeze at.

Make sure you do not pay more than $1 per contract in commission.

NOT INVESTMENT ADVICE

Scott,

The VIPERS are great. But the case between ETF and its underlying fund is clear. For automatic investment plans, the fund is better, because ETF trading fees will be a drag on the performance for most people. For trading, ETFs win hand down, as there is no "early redemption fee".

oh one more thing about buying puts or calls from an IRA — if you reach maturity and they are in the money (I think that’s the right term), and you don’t have the cash to exercise the option, then you’re kinda screwed (since you cannot use margin to borrow the money). I think I read in Fidelity’s paperwork that if that happens they will sell the option a day or two before the maturity.

There are just too many ways to get screwed trading options.

MA,

The "San Diego Creative Investors Club" (or whatever they call themselves) has to be the largest compilation of mis-information ever assembled! The interaction looks like the blind leading the blind. It must be some seminar guru's invention so his/her newbies can "get real time support"! Ever notice how closely the flirt with the law? These guys are scary.

Scott,

I agree with you regard to puts vs shorts. I said in the beginning of the thread that I shorted TOL. I meant figuratively. I bought puts.

I have never shorted stocks yet. Don't think I ever will. Buying puts is less risky to me.

MA,

I'm sure these guys go through several lenders at the same time (or as closely as possible) so it doesn't show up on their credit report. For all we know they are going through 11 different brokers or even working the loans on-line?

I have never shorted stocks yet. Don’t think I ever will. Buying puts is less risky to me.

But puts require more considerations because they are very sensitive to implied volatility. Do you buy deep ITM puts? How about bear spreads?

NOT INVESTMENT ADVICE

MA (and for those that might be curious)

The gal on the SDCIA that is frequently mentioned is Suzanne Goulet and her web-site is www.terrasantainvestments.com for those considering buying "pre-construction" specials in Asheville, NC or perhaps El Paso "the new Phoenix". Units should be completed in 2007/2008!

Pfffft

RE: the new Phoenix

In the new Phoenix, 500K is the new 200K. :)

Yeah, multiplied by 11! LOL!

This brings me to my next bubble beef (as we are now at a point where this would perhaps be better rec'd).

Many posters here are now at a stage in life where they SHOULD be building real wealth. Not monopoly money bubble bucks, but real wealth. With lasting equity. I would love to be in a place where I could soberly consider buying my own office building. Perhaps sub-leasing a few spaces. Making meaningful impovements and building genuine equity.

Many posters here SHOULD be at a point where more and more of their income is from their investments (not as much by sweat of brow).

But Nooooooo! We aren't happy as a country (nor as individuals) unless we're going from one bubble to the next! Equity has become such a fleeting thing I can't see how anyone can not at least attempt to "time the market". When it's all said and done it's our sense of timing that seems to be the only thing that DOES matter. Welcome to the new Amerika!

Scott,

why don’t you have a self employed 401k? Much better than a SEP-IRA…. unless you have employees?

I had employees in my C-Corp, so the SEP was more effective. Since most of the employees were "top-heavy" on the salary scale, we were able to get much more out of the SEP rules than 401k limits. For my new LLC I'm not sure which way I'll go yet.

Peter P,

How do you recapture the present value of pre-withholding contributions in a taxable account?

Conor,

I certainly believe that ETFs (the index based ones) should and likely will remain very tightly correlated to their underlyings. That said, I let others test out the new products first...at least with my retirement money. After all, there are still a few remaining taxation and legal issues around ETFs. Again, probably nothing will come of them, but I can eliminate that risk by waiting and still do fine with a Vanguard market index MF.

How do you recapture the present value of pre-withholding contributions in a taxable account?

It is not possible.