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Need a few investment opinions
Old 12-18-2014, 03:33 PM   #1
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Need a few investment opinions

DW & I are 55 y.o., thus far we have the vast majority of our investments in tax advantaged accounts (401k's, 401k conversions to IRA's) about 80% of total portfolio, the rest in a couple traditional IRA's.

The scenario: We want to further build our after tax accounts however we are at a combined income level that we cannot deduct any IRA contributions, nor can we open a ROTH/contribute to a ROTH if we did a "back door" conversion. We thought about converting one pre-tax funded IRA to a ROTH but, paying our tax rate of today on conversion amount verse our hopefully lower rate at age 59, we don't think there's enough time to build gains to make up the delta between tax rates. (unless we left it alone for 10-15 yrs)

Question: Are there any alternatives we are missing here? Am I stuck simply funding traditional IRA's with no immediate tax benefit and paying the capital gains rate upon withdraw? We're at a combined income of just under $300k I forget what our MAGI was last year but it did exceed all ROTH limits and regular IRA tax benefit limits. Any sage advice from some folks here would be most appreciated.....
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Old 12-18-2014, 03:43 PM   #2
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After-tax savings in taxable accounts isn't the worst thing in the world, but I assume that you are looking for retirement savings alternatives that will trim your tax bill. I would favor taxable accounts over non-deductible IRAs because of the preferential tax rates if the investments are in instruments that provide qualified dividends or long term capital gains whereas IRA growth would be taxed at ordinary rates.

I assume that you are already maxing out your 401ks and you are not self employed.

If you have HDHI that is HSA eligible you could max out HSA contributions and leave the money in there to grow - used in that manner it is similar to a Roth but with no income restrictions.

Another thing you could do is do after-tax contributions to your 401ks and then roll that money into a Roth once you retire (or even before you retire if your plan allows in-service rollovers).
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Old 12-18-2014, 05:04 PM   #3
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Roth 401(k).
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Old 12-18-2014, 05:50 PM   #4
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A joint taxable account invested tax-efficiently is very tax efficient. If invested in something like a Total Stock Market index fund or a Large-cap index fund expect to pay about 0.5% or less of the total fund value in taxes each year. And as a bonus, one can do tax-loss harvesting when you have a loss and get other taxpayers to help pay for any losses.
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Old 12-18-2014, 08:00 PM   #5
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Originally Posted by LOL! View Post
A joint taxable account invested tax-efficiently is very tax efficient. If invested in something like a Total Stock Market index fund or a Large-cap index fund expect to pay about 0.5% or less of the total fund value in taxes each year. And as a bonus, one can do tax-loss harvesting when you have a loss and get other taxpayers to help pay for any losses.
+1. Managed properly a taxable brokerage account doesn't kick off much tax obligation. Just stash the right parts of your AA in the right types of accounts.
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Old 12-18-2014, 08:46 PM   #6
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Originally Posted by gregory r. View Post
DW & I are 55 y.o., thus far we have the vast majority of our investments in tax advantaged accounts (401k's, 401k conversions to IRA's) about 80% of total portfolio, the rest in a couple traditional IRA's.

The scenario: We want to further build our after tax accounts however we are at a combined income level that we cannot deduct any IRA contributions, nor can we open a ROTH/contribute to a ROTH if we did a "back door" conversion. We thought about converting one pre-tax funded IRA to a ROTH but, paying our tax rate of today on conversion amount verse our hopefully lower rate at age 59, we don't think there's enough time to build gains to make up the delta between tax rates. (unless we left it alone for 10-15 yrs)

Question: Are there any alternatives we are missing here? Am I stuck simply funding traditional IRA's with no immediate tax benefit and paying the capital gains rate upon withdraw? We're at a combined income of just under $300k I forget what our MAGI was last year but it did exceed all ROTH limits and regular IRA tax benefit limits. Any sage advice from some folks here would be most appreciated.....
I don't think you would pay capital gains rates here... it would be ordinary income tax rates.

You could try a low cost annuity through Vanguard to shelter more from tax, but at 55 it's probably a bit late for that.

I bonds for $10k each per calendar year will shelter a little more, and give you some inflation protection.

Best bet, as LOL! says, is to use low cost stock index funds in a taxable account.
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Old 12-18-2014, 09:15 PM   #7
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Originally Posted by pb4uski View Post
Another thing you could do is do after-tax contributions to your 401ks and then roll that money into a Roth once you retire (or even before you retire if your plan allows in-service rollovers).

+1
You don't pay any taxes on these contributions, gives you opportunity to squirrel away tax free money.
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Old 12-19-2014, 12:29 AM   #8
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Originally Posted by LOL! View Post
A joint taxable account invested tax-efficiently is very tax efficient. If invested in something like a Total Stock Market index fund or a Large-cap index fund expect to pay about 0.5% or less of the total fund value in taxes each year. And as a bonus, one can do tax-loss harvesting when you have a loss and get other taxpayers to help pay for any losses.
+1
Also you could buy some BRK (Berkshire Hathaway Inc) shares in a taxable account. They pay zero dividends so you only pay capital gains when you sell the shares which is on your timetable.
I like to think of Warren Buffet as a cheap mutual fund manager
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Old 12-19-2014, 02:42 AM   #9
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just plastics
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Old 12-22-2014, 09:08 AM   #10
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Thanks all for the suggestions, This gives me a few avenues to ponder.
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