My guess what is more likely than taxing Roth distributions is counting that as income to reduce deductions, or increase SS taxability.
Albert, the first part of your questions really depends on what tax bracket you are in now, and what one you expect to be in retirement (before RMDs, and after). Part two, about the markets, I can't advise on either.
You also want to look at if the increase in taxable income reduces any credits or deductions.
Albert, if you took all of the "reliable sources" in the world and laid them end to end, they still would not reach a conclusion! (Old economist joke). My point is that you will see opinions about the market that cover every viewpoint possible, which means that no one really knows short term what is going to happen. So, what's the remedy? Good long term behavior. The clients that did the best going through the Great Recession STAYED PUT while the going was tough. Sometimes it's what you DON'T DO that gives the greatest benefit. If you are well diversified, you should be able to make it through market declines (not fun at the time). Ignore those pundits - the most important thing is knowing how to control your behavior when the market (which we cannot control) does what it does. Ditto for Roth accounts - this is all speculation for now, and people love to carry on about these things.
Albert, timing the market is almost impossible. Some analysts have done it successfully...ONCE. That might be considered luck. As to the Roth conversion, we don't have enough information to advise on this, a tax calculator may help.
Albert, regarding your second post, the market declines by 20% or more on average every six years. The problem is when it wiill start, when it will end and how much will it drop. Nobody and I mean NOBODY knows this. The best thing to do is set an allocation that makes sense for you according to your needs and risk tolerance and don't move it around.
Apple Z, fromwhat i can tell from your question, you are rolling Roth to Roth and Traditional to traditional and that does not create a taxable event. Fidelity and Vanguard have nothing to do with this. If you later want to convert some of yuor traditional IRA that has after tax money, the pro rate rule comes into play. I hope this answers your question.
AppleZ, the pro rata rule deals with distributions like withdrawals or like Pat mentions changes from account type, not rollovers.
Gerry, my personal investing philosophy is in line with keeping your 'necessary' money stable, which cash does very well.
Gerry, you have hit on the question of the past two years. You certainly could invest in some short term bond funds (vanguard) for some of the money, however, sounds like you will need some money for living expenses in 8 months. Calculate how much cash you will need for a year, keep that in cash. The second year's needs could go to a short term bond. Cash doesn't earn anything, but it also doesn't decline (except for inflation).
You could certainly diversify into various types of bonds as well. Safer bonds let you reap rewards of investing with other money.
Gerry, I think you should have enough cash on hand to cover your expenses in excess of what you may be getting from pensions or Social Security. Relpenis that evey year. If your investments are in the doldrums in a given year, skip the repleneishment fror that year but double up the next year when the markets recover.The rest should be well allocated. I'm not a big fan of individual bonds because they are expensive to buy and you need a lot of money to effectively diversify. If you want income and you are comfy with individual stocks go for the high dividend paying guys like Altria, ATT& T, Kimberly Clark, etc. They are paying more than bonds these days and they are relatively stable.
Apple Z, you pay capital gains tax IF Vanguard distributes dividends during the year (they will report this on your annual Form 1099B) OR if you sell shares for a profit. Fund companies will usually announce planned distributions towards the end of each year, so that you can be prepared. But you don't pay taxes simply on the appreciation of the shares.
AppleZ, you pay on dividends and capital gain distributions from the fund (the stocks it buys / sells) every year; also, gains you experience at the sale.
AppleZ, the longer you hold the investment, the longer you will defer capital gains, provided the ETF doesn't distribute capital gains during the time you hold it.
AppleZ, I'm not clear on the reason to sell and buy back. I don't see an advantage to simply holding and rebalancing when necessary.
AppleZ, the more often you buy and sell, the more likely you are to trigger gains. Buy and hold, jiggling your portfolio around like that doesn't quite compute.
AppleZ, I agree with the others, as Warren Buffet has said, his portfolio would have done better if he had never sold a position.
MEB, there are life expectancy charts and you can see them in IRS Pub 590.
AAMike, JoeF and Olaf, we have you up next.
MEB, here's how your RMD is calculated: you take your IRA/401k balance as of December 31 of the prior year (for example, 12/31/2013), and divide it by the current factor, that is based on your life expectancy at this point in time, which you can find as mentioned by Frank.
Thanks for participating, AppleZ!
MEB, one important fact to consider on RMD is that if you delay until the year after 70.5 years old, you need to take 2 distributions.
MEB, I don't assume there's a reason how the government comes up with anything :)
AAMike, It sounds like making your 401(k) contributions as Roths makes good sense.
AAMike, my personal preference would be a total market index. Fidelity Spartan or Vanguard would be my choice.
AAMike, that is the traditional advice, and it is probably still true in many ways. However, we can't know the future for taxes...
... it often makes sense to diversify your tax holdings when younger, and looking at years with lower income to get assets into Roth.
AAMike, the New Millenium Fund is a large cap growth fund. There are lots of good ones out there.I agree with Robert that a large cap index fund would be great.
AAMike, if you expect to be in a lower tax bracket at retirement, then you will pay less in taxes to withdraw money from your 401k at that time, than you will by paying taxes on it now. However, if it is more than a few years away, it is very hard to predict what the tax brackets will be.
Albert, if you took all of the "reliable sources" in the world and laid them end to end, they still would not reach a conclusion! (Old economist joke). My point is that you will see opinions about the market that cover every viewpoint possible, which means that no one really knows short term what is going to happen. So, what's the remedy? Good long term behavior. The clients that did the best going through the Great Recession STAYED PUT while the going was tough. Sometimes it's what you DON'T DO that gives the greatest benefit. If you are well diversified, you should be able to make it through market declines (not fun at the time). Ignore those pundits - the most important thing is knowing how to control your behavior when the market (which we cannot control) does what it does. Ditto for Roth accounts - this is all speculation for now, and people love to carry on about these things.
I have mix of Roth 401K and traditional 401K both in my current employer's account. I heard about pro rata rule: "if you are contemplating converting traditional IRA accounts that have been funded with non-deductible contributions, you should consider waiting until the year after the conversion to roll 401(k) money to an IRA". If I am going to roll over this mix of Roth 401K and traditional 401K from Fidelity to my Vanguard, which has both Roth IRA and traditional IRA accounts, can I rollover Fidelity Roth 401K to Vanguard Roth IRA and at the same time, rollover Fidelity traditional 401K to Vanguard traditional IRA? If so, will it trigger pro rata rule and make me pay more tax than it suppose to?
Albert, regarding your second post, the market declines by 20% or more on average every six years. The problem is when it wiill start, when it will end and how much will it drop. Nobody and I mean NOBODY knows this. The best thing to do is set an allocation that makes sense for you according to your needs and risk tolerance and don't move it around.
Hi Gerry -- Kiplinger's Value Added columnist Steven Goldberg rounds up the Five Best Bond Funds for 2014.
