Answers to questions such as whether you are filing, single / married filing jointly and how much deductions you take in the year define what your taxable income is and how much you can convert to ROTH before going to the next bracket. With the information we have it is difficult to give an accurate answer to your Q. That said, I suggest you estimate your taxable income ( perhaps with the help of your accountant) before the end of the year and then convert. Also, remember the conversion should happen before the end of the year.
Tony: Gosh... That answer depends so much on your age, circumstances, goals and comfort level with investment risk that it's actually pretty hard to answer without knowing more...
Tony - You certainly want to make sure your investments are matched to the strength of your stomach as you watch markets rise and fall. Keep your eye on the long-term too and remember that markets have always recovered and gone higher given time.
Like Tim suggested long-term view is paramount in volatile markets such as the one wee seeing now. Also, Timothy's answer summarizes my views.
CJ: Perhaps start by finding out how much you are paying each year inside the VUL for the cost of insurance. It should go up each year as you age and the insurance company should be able to give you that info in an in-force illustration. That way you know how much that part is costing you. Do you need or want insurance? Are you willing to pay that price to keep it? After that look at the internal expenses of the variable investments you are in inside the policy and know how much those are costing you.
CJ (Continued): Once you have those answers you can begin to look into what you want to do. if you ditch it altogether and take the $ out generally you'd be taxed on how much the surrender value exceeds what you paid in. depending on your specific you might: leave it alone and keep paying, stop paying & let it slowly eat up the cash value (and possibly lapse someday), 1035 exchange it to another different type of life insurance policy that is paid up, 1035 exchange it to a low cost annuity, or cancel it and take the $ out altogether, pay any taxes due on the difference between what you paid in and got back out (if you got more back that you paid in) and invest it differently altogether (probably in cheaper more efficient investments. Any of those might be a good approach depending on your full circumstances. I'd consider hiring a fee-only planner for a few hours to look at this with you because there are a lot of choices to consider... And make sure that they feel comfortable giving advice on these types of insurance products, I think that most but by no means all fee-only planners do.
Lynn - You should receive a 5498 from the retirement account you rolled into. You should check with a tax professional on what you need to file.
Lynn, I am not a tax expert, but I think line 16 on your 1040 will include the distribution amount and 16b will have the taxable amount (in your case 0). Please do verify this with your account to ensure this indeed is true in your unique situation.
Frank, after maximizing 401(K), one place to check is if you are eligible to contribute to HSA (Healthcare SAvings Account). If you are eligible and willing to be part of a High Deductible Health Plan, this sill offer you 3 benefits: 1) pre tax savings, 2) Tax free growth, and 3) Tax free withdrawals if used for medical expenses.
Hi Frank - Great news that you are spending less than you make! Paying down your mortgage will give you a fixed rate of return (the rate you pay on your mortgage), but you are building equity in an illiquid investment. Increasing savings, buying mutual funds, or paying down your mortgage should be influenced by current savings/mutual funds/retirement assets you already have.
Frank, further thoughts: a HSA is similar to IRA with 2 key differences. 1) Your eligibility depends what type of Insurance you have (I.e. A High deductible one) and 2) Withdrawls could be tax free unlike in IRAs
Lane - Politics and budget balancing efforts.
Frank: 5 years is not a long time in many senses... I might be tempted to build up $ for a larger emergency fund and $ for moving expenses, seller paid repairs, or other costs regarding the sale, etc... The higher the interest rate is on your mortgage debts is the more appealing paying them down for a relatively certain return is, the lower those rates are, the more investing in a low cost diversified portfolio of mutual funds or ETFs might appeal. The exact right path for you will have a lot to do with your overall picture, goals, others assets, etc.
Frank -- the amount you should have in an emergency fund should be customized to your situation. If you have steady employment and aren't concerned about a layoff then 3 months might be fine. However, if you aren't sure about your employment or have other possible needs (e.g., new car or home repairs, family emergencies out of state that might require immediate plane reservations, etc.) then you want to sock some of that money away to boost your emergency fund. You should also consider whether you have adequate disability insurance. Be sure to check on your benefits at work.
Lane: I'll basically second what Tim said. It's more or less a way for politicians to increase the $ the government takes in without going on the record as "raising taxes".
Hi Julie - I'd dig into the underperformance first and make sure the benchmark is appropriate. Second, understand the managers philosophy and where the performance diverged. Then you can decide the manager made a major error and exit, or stick with the fund in hopes of recovery on a sound philosophy.
Julie - great question as moving in and out of mutual funds based on performance is why so many investors actual performance trail the fund performance. If it is down 20%-30% you'd need to understand it's strategy and why you decided to invest in it initially. Also, how it impacts your overall portfolio strategy. Some funds will have periods of significant outperformance and under performance. If you wait to see if it recovers you'll potentially miss that gain. If the funds strategy has changed and you don't feel comfortable with it may be time to look at a different options. If all of this is confusing I recommend you work with a fee-only financial planner to help you implement a disciplined investment strategy.
Julie, assuming you are comparing the fund to the correct benchmark, the kind of performance level warrants a sure reevaluation of your choices. That said, I am unable to make a specific suggestion here in this forum. And yes, given the fact it is in IRA and assuming you don't take distributions from IRA, this will take away the tax consequences from the equation.
Don, we're not seeing your question. Mind resubmitting?
Kay, yes, a contribution to your SEP from whatever source is your money...so do use it to project your retirement. However, if there's a chance you'll change employers and won't be able to contribute that much in the future then you may want to run an alternative scenario. Certainly retirement projections can be tricky -- who are you going to be when you retire, and what will it cost you to live? -- but I'm very glad to hear that you're working on that. Do keep in mind that a fee-only planner can help you do that and perhaps raise some issues you haven't considered.
Here's one from Alex G:
I am trying to determine what makes more financial sense between
buying a house and paying higher property taxes for higher rated
"better" schools or staying put and paying for private school for our
two children. Which of the two will get me more value for each dollar
or more bang for my buck. I wonder if there is an ratio, formula or
calculation that I can use to arrive to the best decision possible.
Potentially I would be looking at houses in the 300k -400k range with
property taxes of 8k-10k per year. The rating for the schools in the
area that I like is in the 7-9 range per the goodschools.org website.
Now we currently pay 3k in propery taxes and the schools are rated low
in the 2-3 range. My best estimate of 1 year of private school for two
children is 7k-10k.
I really appreciate any help or suggestion that you might have.
Julie: That depends on a number of things... First make sure that the benchmark is actually similar to the fund's objectives and an appropriate comparison. For example, it wouldn't be useful to compare a balanced fund that's 60% stock and 40% bonds to a 100% stock index like the S&P 500. If the fund is compared to a truly comparable benchmark and is underperforming that much, try to find out why. Passive index funds should generally underperform their indexes slightly. Actively managed funds usually try to exceed the performance of their indexes in some way (more upside, less downside, or both may be the objective) over a long period of time. For an actively managed fund, more deviation makes sense and it may be a good or bad thing in the long run depending on whether or not whatever decision the fund managers made that's different than what the index is doing was and how that bet pans out in the future. It might have been be the right or wrong move, it's hard to know... This one of the reasons I tend to favor low-cost, passive funds.
Hi Alex - Another consideration is the potential for the future property values of a home in a better school district. On the other hand, the private schools bills will eventually end once the children graduate, but property taxes go on forever, unless you move.
Alex G - Private schools in your area seem to be cheaper than where I live, so you might want to firm up that figure.
Thank you to everyone for all of the questions. We have quite a queue but we hope to get to everyone soon!
WTerry -- often an employer will offer that direct transfer ability, usually once you reach 59 1/2 years old. There wouldn't be an age limit per se. But some plans don't want participants to remain in the plan once they retire and begin required minimum distributions at age 70 1/2.
Alex, while I am unable to provide a formula, ratio or calculation for comparing private school + low property taxes vs public schools + high property taxes, I will give you a small financial tip if you spend money for the education for your K-12 children. SImilar to 529, you can put away up to $2,000 per year (there are AGI limits) in a coverdell account. A coverdell account differes from 529 in that the funds can be used while you spend it for the private schools. Perhaps, this is another financial consideration in your evaluating the options.
WTerry - It sounds as though you have been collecting the pension, and generally pension elections are irrevocable, so don't believe so. If you have not yet begun collecting there may be a lump sum option that may give that ability.
Hi WTerry - if you elected monthly payments of your IBM pension there is not an option to roll it to your IRA. You could increase your 401k contributions to help offset the increased taxers.
With IBM you may also have the option to withdraw the lump sum which can be transferred to an IRA.
Alex, Michael makes a good point, I apologize for not realizing you were taking pension payouts.
Alex G: Echoing what the other's said to some extend, school is brief but property taxes are forever... If you want, a good planner can model these scenarios for you. You could probably spitball how long it takes to break even by looking at the difference between property taxes and tuition but it will also likely have implications for your retirement and that may be hard to model on your own.
Alex - Consider the non-pecuniary benefits and costs as well. Does the private school offer more opportunities for better college for your kids? Does the better neighborhood have more amenities?
Manfred, this is a specialized area of tax. You should consult a tax preparer who specializes in that area.
Manfred, your question is outside of my areas of expertise, I recommend hiring a tax professional with experience on this subject, probably a CPA.