JoeTaxpayer

If you don’t know by now, I am a Mac fan. I don’t know where one draws the line between a happy user and a fan-boy, but I probably straddle that line. My current desktop Mac is 8 years old (an MDD G4) so I’m not camping over night to get the latest invention. I had a hard drive based MP3 player that looked like a small brick until my wife and daughter bought me an iPod touch. At first, I was unimpressed, I had an MP3 player, now I just had another one. But then came the game changer, the apps. Now, I was able to use Pandora on the iPod, and stream music right to my headset, no computer needed. I was able to program and control my TiVos from the iPod without interrupting the show that was on. I could sign in to my desktop Macs and control them from across the house. The two lingering thoughts I had were “I’d love this thing to be bigger, the size of a trade paperback book” and “give me 3G wireless so I’m not tied to the house or looking for WiFi.” I got my wish.

Joe

This year, I said that I’d use the last Friday of each month to track savings from coupons or great deals. A bit of a slow month, as I didn’t make as many stock-up purchases as I might in a normal month. The biggest deal was the CVS Pepsi brand deal. Buy $20 worth of Pepsico items, including their soda, Starbucks drinks and Tostidos chips or salsa and get $10 in ExtraCare Bucks (ECBs) back.

From the I Heart CVS site I had gotten printable $5 off $20 coupons before my visit. So, $40 in total purchases over two trips, using two $5 coupons, and getting $20 back, and I’d be out of pocket $10 plus bottle deposits. Turns out the computer missed my ECB printing on the first visit, so the cashier forced a print. But on the second visit I got 2 $10 ECBs. In the end, I scored $40 worth of stuff for free. The soda all went to a school function where soda was our assigned item, the chips, salsa, and Starbucks drinks are in the pantry.

The other score – Jane 2.0’s school was having a food drive. Store had a buy $20 in Progresso soup (among other stuff I didn’t need) and get $10 toward next purchase. Soup was on sale for $1 (usually about $2.49). I also had 6 coupons for $1.10 off 3 cans. So even though it was for charity, I sent in soup shelf tagged for nearly $50 for $3,40 out of pocket.That was it for this month.

Last call for free book!

Two weeks back I read Your Money Ratios, an excellent book, and offered to give away a copy to one lucky reader. To enter, just subscribe to my emailed RSS feed before this Sunday when I will choose a winner. Good luck.

Joe

It’s tough to look back, almost painful for many. I’d be curious to see detailed data of how people’s wealth was impacted. Of course, with two crashes, there were two chances to bail at a relative bottom, and call it quits. Looking just at the S&P spider index, ticker SPY, we ended the decade at $111.44. This from a 1999 end of $146.88, down just over 24%. Ouch. But when you adjust the 1999 price for 10 years worth of dividends, you get $124.28 down just over 15%, still not great. The Times published yet another beautiful graphic I’d like to share.

It shows that with a mix of stocks and bonds, one would have not only not lost money, but would have come out a bit ahead of inflation. For this comment, I’m referencing the line that ends just over the $100K. Had the investor added funds, dollar cost averaging, the return would have been better still. $250,000 on a total investment of $220,000 even after adjusting for inflation. It was this method that let me leave the decade better than I went in. How did the zeros treat you?

Joe

I’ve been reading and writing about Roth IRAs for some time now, and it’s time for a Roth Roundup, from both fellow bloggers and the usual sources.

photo credit: therefromhere

First, let’s start with How to Convert Traditional IRA to Roth, at 70½ a question posed at the Wall Street Journal. A fellow whose mom is turning 70½ in ’10 is asking how to “shield her mandatory withdrawals from future taxes on earnings.”  He has calculated the first RMD at $30,000, implying a gross pretax IRA of about $822,000. The reply, which floored me, was to convert it all this year to a Roth, and not worry about taxes again. Wow, send mom into the 35% for the next two years instead of converting over time? Sorry, I can’t imagine much worse advice. (And a comment there pointed this out)

Nickel wrote about Tax Diversification When Investing, a level-headed approach which straddles both the Traditional IRA and Roth to hedge one’s bet as to what their future situation will be. Mike at The Oblivious Investor wrote Tax Diversification: Roth IRA vs. Traditional IRA, a very similar post advocating a mix of account types.

Bad Money Advice asks Why are Roth IRAs so Confusing? Indeed. He shares my disdain for the bad advice out there advocating wholesale conversions with no qualification. In this article we’re shown the commutative property of multiplication, the fact that multiplying by .75 (to reflect a 25% tax rate) before deposit or after withdrawal leads to the same result. Another easy to understand way of looking at this issue.

JJ guest posted on Consumerism Commentary with 2010 Roth Conversion: Good Idea? A nice overview of the pros and cons of a conversion, covering a number of issues others may have overlooked: The non-deducted contributions, estate planning concerns, wholesale changes to the tax structure among them.

Robert Horowitz warns us to Beware the Roth IRA or at least the hype around it. While Robert doesn’t go into the dry boring math that I so enjoy sharing, he does offer a punchline similar to what I’ve been preaching, that “If you retire with no more than $5 million in investments including IRA’s – your federal marginal tax rate probably won’t be much more than 15%. Rates would need to go up dramatically before conversion makes sense.”

Next, we have Charlie Farrell’s Don’t Rush Into Roth IRA Conversions. Charlie also isn’t caught up in the Roth excitement, instead looking at the difference between a lump sum conversion today vs small taxable withdrawals later. His focus is that it’s tough to be confident that you’ll be in a higher tax bracket at retirement, and I agree with this position. Charlie is the author of Your Money Ratios which I reviewed here recently.

Robert Powell of MarketWatch wrote two pieces, Roth it right, Six mistakes to avoid when converting to a Roth IRA and Rethink that Roth 12 traps to avoid when converting to a Roth IRA. A lot of information here, worth reading very slowly. It’s not that a Roth is bad, just that it’s not the slam dunk some would claim it is. Many things to consider, and for many, jumping in to a Roth can be as costly as not Rothing for one who should.

Sam at Financial Samurai tells why you should Be A Sloth and Don’t ROTH – Why Converting To A ROTH Is A Mistake! It’s obvious from this post that Sam is a numbers guy as am I. He’s done the math and says that “To replicate $100,000 in income, you will have to have at least 25X your income in capital, or $2.5 million at a 4% risk free return to produce $100,000/year!” He also makes the point that one can potentially move to a state with no income tax at retirement, thereby saving 5-10% then instead of worrying about rates now. A good read and great series of comments by many including yours truly.

Last, in my role as staff writer at Jeff Rose’ Good Financial Cents, he’s published my Using a Roth IRA to Maximize Your Wealth and this past week, Unforeseen Consequences of the Roth IRA Conversion. Jeff has been pretty prolific on this topic as well, Roth IRA Rules For Minors. Your Kids Guide to Tax Free Money and Choosing Between Traditional Vs. Roth 401(k)s among his recent writing.

The message in all of these articles is that it’s not a ‘no-brainer.’ The decision to use a Roth, Roth 401(k) or the rules to convert are an individual decision, and there’s much to be considered. Do the math, take your time, and ask questions. Most of the articles cited here are from bloggers who are more than happy to keep the dialog going.

Joe