@youdontkillmoney wrote:
@tacpoly wrote:
There are a few things I would do differently from you:
1. I wouldn't bother contributing after tax money to the traditional IRA because there really isn't any advantage to doing it specially if you cannot do a conversion to a Roth because of maximum income limits. Here is why: when you finally take distribution from your traditional IRA, all your gains will be taxed as ordinary income (regardless of whether the original contributions were before or after tax). Why is this bad? Because if you invested the same amount into individual securities outside the IRA all the gains you take out (after 1 year) will be taxed as long-term capital gains, which I believe is much lower than ordinary income tax rate. Investing outside the IRA also gives you more flexibility in terms of not having to pay the 10% penalty for withdrawal.
2. I would be consulting a financial planner.
3. Do you already own a house or is that in the future?
^^^
Thanks for advice.
I will have to consider your advice on contributing to the Trad IRA given what you said, I suppose you are right that if I invested in a regular brokerage account it also is tax deferred until I cash out, same with Trad IRA but in a non retirement account I have more flexiblity to withdrawal; the income limitations may have neutralized any IRA advantages. I suppose one good thing about the IRA is it "forces" me not to sell or touch it (except for one time $10K max. withdrawal for buying a home, but stil lpay taxes just no penalty)
As for a home, been trying to avoid it as I do not want to stay in Cali, but roots are too many and strog here from work to family and friends so plan to make a first home purchase in 2016, mid to late 2016.
I try to put a certain amount of after tax income into tax exempt investiments such as municipal bonds. Yield might not be high but unlike bond funds, your principal is safe Also, ROI is known if you take the bond(s) to maturity unless the bond defaults. I have had some success with individual bonds in my after tax accounts. Conversely, 401k bond funds have been a constant source of disappointment.
I am not a conservative investor but have come to realize individual bonds have some benefits.Bonds do not have the long term growth potential of stocks but can provide steady income and security of capital if held to maturity
Bond ladders (say 5 year bonds) are also worth considering as part of an investment portfolio.
An Investment Technique - Bond Ladder
Richard at a healthy age 55 has accumulated a respectable portfolio and wishes to invest $200,000 of that portfolio in Treasuries. He would like to get the higher rate associated with a five year maturity but is concerned about possibly needing some of the money sooner. One option for Richard is to ladder the bonds as follows:
After one year, Richard redeems the first $40,000 and buys a five year bond. The original two year bond is now only one year away from maturity. In fact, each year $40,000 will reach maturity. If Richard uses this $40,000 to buy a 5 year bond each year, in four years all of his bonds will be 5 year bonds. He will be getting five year rates on all of his bonds and will have $40,000 reaching maturity each year.
$40,000 buys one year bonds (Treasury Bills)
$40,000 buys two year bonds (Treasury Notes)
$40,000 buys three year bonds (Treasury Notes)
$40,000 buys four year bonds (Treasury Notes)
$40,000 buys five year bonds (Treasury Notes)
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