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Re: Wellesley Income Fund
Old 03-21-2005, 07:01 AM   #21
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Re: Wellesley Income Fund

Thanks for the tailored advice guys, I think I'm going to open a Vanguard account and dip into Wellesly for the coservative side of my portfolio. I really don't have any bond position (~5%) to speak of, so I like this way of entering a position. Plus it will give me an excuse to peruse all the funds there in anticipation of growing non-401k accounts (I don't like having 90% of my assets in company 401k-limited choices but the match makes it worth it). Chalie, I like your take on it, I have my investments in funds close to those you mentioned (can't get Vanguard with 401k) except for REIT and Wellesly. I think once I add those two via Vanguard, I'll feel a lot more comfortable with my plan. Thanks to all! Now to decide if traditional IRA or Roth IRA is the right choice....
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Re: Wellesley Income Fund
Old 03-21-2005, 07:26 AM   #22
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Re: Wellesley Income Fund

Laurence, I assume you have picked up on this
already, but REIT and Wellesley in a taxable account
are not good choices unless you need the current
income for living expenses. They would be great
in a ROTH if that's what you had in mind.

BTW, go to the book store and scan a copy of
"The Coming Generational Storm" before you
decide to commit funds to a 401k above the
company match. The author's take is that we
are most surely in for tax hikes in the future
and that at most of us pay a high tax at the
margin due to paying up to 85% tax on SS income.

IMHO, the order should be 401k up to company
match, then ROTH and then taxable accounts.
It is almost a tie between ROTH and taxable due
to the low current rates on dividends and cap
gains and the possibility that the gov will screw
us in the future on ROTH accounts .... but they
could also raise taxes on dividends and cap
gains again.

Cheers,

Charlie
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Re: Wellesley Income Fund
Old 03-21-2005, 08:49 AM   #23
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Re: Wellesley Income Fund

So I should put into taxable accounts before maxing the 401(k)? I was getting in mind 401(k) company match, IRA max, 401(K) legal max, taxable accounts. We are only able to afford to put away as much as we are due to the tax sheltered nature of the 401(k). If we switched to taxable, we'd put away less....my hope was to have expenses so low when I retire (no debt payments/mortgage of any kind) that my income would be in a lower tax bracket yet still enough to lead a high lifestyle.....I'm going to have to read this book.
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Re: Wellesley Income Fund
Old 03-21-2005, 08:58 AM   #24
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Re: Wellesley Income Fund

Quote:
So I should put into taxable accounts before maxing the 401(k)? *I was getting in mind 401(k) company match, IRA max, 401(K) legal max, taxable accounts. *We are only able to afford to put away as much as we are due to the tax sheltered nature of the 401(k). *If we switched to taxable, we'd put away less....my hope was to have expenses so low when I retire (no debt payments/mortgage of any kind) that my income would be in a lower tax bracket yet still enough to lead a high lifestyle.....I'm going to have to read this book.
Laurence, tax deferred investing includes an implicit bet on future vs. current tax rates. I am wary enough of Congress and our ongoing deficits that I like to have some diversity in my accounts. Right now, over half of our investments are in 401ks or IRAs, and another 10% or so is iin Roths. I am planning on easing up on 401k contributions in part because I want a larger percentage in after-tax accounts. Having said that, it seems likely that in retirement you should be able to withdraw IRA monies in years when you will be in lower tax brackets, given that most FIREees seem to have a lot more control over their taxable income than us working stiffs.
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Re: Wellesley Income Fund
Old 03-21-2005, 10:46 AM   #25
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Re: Wellesley Income Fund

I am probably preaching to the choir, but IRA
withdrawals are counted as taxable income at
the ordinary income tax rate. For a couple,
taxable income over $30k per year begins to
expose SS income up to 85% max. If you do
the math you can see that this increases your
marginal tax rate.

A future hidden tax on ROTH income similar to the
stealth tax on SS income or via the back door a la
AMT could happen in a future tax starved admin.

As brewer suggested, growing your taxable account
gives you flexibility. An added benefit is that
qualified dividends and LT capital gains are taxed at
lower rates than the max tax brackets ..... this is
a plus if you are a high tax bracket retiree.

Each person needs to examine his own situation
and make a bet as to whether paying tax now or
later makes the most sense. For some folks, dealing
with the devil we know now as apposed to facing
him in the future seems the best of bad choices.

Cheers,

Charlie
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Re: Wellesley Income Fund
Old 03-21-2005, 09:32 PM   #26
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Re: Wellesley Income Fund

A lot to ponder, I'll have to think and do a lot of reading. Thanks for the great rsponses to my questions. This is heavy stuff, I've had three rum and cokes, and my wife is requesting my presence in the bedroom, so I'm hitting the sack. Cheers,

Laurence
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Re: Wellesley Income Fund
Old 03-21-2005, 11:24 PM   #27
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Re: Wellesley Income Fund

Well heck, when my wife requests my presence in the bedroom, 3 drinks or not, I leave skid marks on the floor.

Theres a huge difference between "consensus investment right and wrong" when working and when ER'ed. I just smacked into some. I had some muni bond holdings until I found our tax rate too low to worry about them. Made a buttload of sense when I was taxed at the 50-something percent level. I also had my wife maxing out her 403b (like a 401k, only for hospital workers, teachers and the like, and usually less pleasing) until I also noted that we were basically saving a small bit of tax dollars in order to invest in lousy funds with high annual fees. Yuck. And as noted, instead of being able to take the gains 20 years from now as a long term capital gain, we'd have to take them as ordinary income tax levels, when we're also taking social security and have all sorts of other income out the wazoo.

Its all different after ER. And its very different from one joe to another.
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Re: Wellesley Income Fund
Old 03-22-2005, 10:23 AM   #28
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Re: Wellesley Income Fund

LOL! Well, I'm paying for those drinks today! Depending on our raises this year (review time is April for both of us) we'll get the after tax set up either this year or next year. I hear you on the poor fund choices. Thanks everybody.
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Re: Wellesley Income Fund
Old 03-22-2005, 02:02 PM   #29
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Re: Wellesley Income Fund

Now I'm confused. I thought that one should max out one's 403(B), then IRA, then any taxable savings you can manage. This thread seems to be saying that may not be correct. I have both Fidelity and Vanguard as options in my 403(B). I'm currently with Fidelity. My husband is a contractor, but becoming an employee soon, and I've been telling him to start up his 403(B) contributions again as soon as possible. Is that not a good idea?
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Re: Wellesley Income Fund
Old 03-22-2005, 02:08 PM   #30
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Re: Wellesley Income Fund

You have to balance the tax savings of the 401k/403b/ against your investment choices.

If you're paying 15% combined tax rate and your investment choices are 1-2% annual fee funds that underperform and are wrapped in an annuity, you rethink the brightness of the 403b.

If you're paying 35% combined tax rate and have access to nice vanguard funds or other low cost, well performing index funds...you max the crap out of your 401k/403b.

If you're getting employer matching funds, definitely go there.

When you leave that job, look strongly at rolling that 401k/403b over to an IRA at the cheap fund shop of your choice.

Lastly you have to balance the withdrawal "penalties". If you invest in an S&P500 index fund in an after tax account, hold the shares until you ER in a decade, then withdraw, you pay long term capital gains rates. If you put the money into a 401k/403b/IRA and withdraw in a decade...you pay ordinary income tax rates on those. Only way to escape that is to convert the IRA to a Roth, in which case you're going to be mighty pissed if the Fed Govt institutes a flat sales/value added tax and junks income tax before you retire.

For someone in the accumulation phase, the pre-tax deals are probably automatically the best choices. In our case my wife works 3 nights a week, and that gives us enough income to pay the monthly bills, health care, and earned income to allow us to max fund our Roths. I did have her maxing her 403b but at this point we're better off keeping the cash and throttling down the withdrawals from our taxable portfolio.
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Re: Wellesley Income Fund
Old 03-22-2005, 02:12 PM   #31
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Re: Wellesley Income Fund

Quote:
LOL! Well, I'm paying for those drinks today!
Laurence...I learned some time ago that the best Rum is Vodka

Unless you're in mexico, you're waist deep in warm water at a pool bar where a fine bartender assures you that he makes the very finest rum and cokes on the planet earth, in which case you drink 6 of them, go pass out in your room and have to get up at dawn next morning to go scuba diving...where its all rendered a-ok when you discover that the only other diver is a gorgeous blonde who forgot her dive skin so will be diving in a skimpy leopard skin bikini with poorly designed ties that cause the top to keep falling off underwater. And after the 5th time it happens she quits bothering to put it back on. I imagine the coral and fish and other underwater stuff in Cabo San Lucas is lovely. I wouldnt know.

Whoops...that one got away from me...
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Re: Wellesley Income Fund
Old 03-22-2005, 04:16 PM   #32
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Re: Wellesley Income Fund

Forgive my ignorance, but with either of those two funds (Wellington/Wellesley), would they be wise to use for after-tax money? If so, instead or taking the dividends out, could the money be permitted to grow inside the funds for some later withdrawl (yes, I understand I'd pay tax on money I haven't yet touched).

Thanks all,
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Re: Wellesley Income Fund
Old 03-22-2005, 04:47 PM   #33
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Re: Wellesley Income Fund

LMAO! Now THAT is a vacation! I had a bad experience with vodka at age 17, still can't drink the stuff, nothing exciting, unless you count how "excited" my buddy was to try and clean his oriental rug before his parents got home .

Rich, are you referring to setting up a DRIP? I thought dividend producing funds in after tax accounts were not good in accumulation phase due to the tax burden incccured that you mentioned, but this thread makes me think it might be worth it to avoid the risk of a high tax burden in the future...dunno...
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Re: Wellesley Income Fund
Old 03-22-2005, 05:08 PM   #34
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Re: Wellesley Income Fund

Rich,

The short answer is yes, you can have your distributions
automatically reinvested if you wish.

The long answer is that these funds are not very
tax efficient and are generally better suited for
tax sheltered accounts.

Having said that, I use Wellesley in a taxable account
because I need the income. TH mentioned in another
post that he likes Wellesley in a taxable account
because he is in a low tax bracket.

As previously mentioned, it would be wise to
look carefully at your own situation and decide if
these funds in a taxable account make sense for
YOU.

If you decide to use them in a taxable account, I
would suggest that you have the distributions
invested in a MM fund. This can be done automatically
as well. The income can then be spent or reinvested
as you wish without causing a "taxable event".

Cheers,

Charlie

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Re: Wellesley Income Fund
Old 03-22-2005, 05:25 PM   #35
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Re: Wellesley Income Fund

Laurence, I had a similar experience with gin. One
weekend several of my buddies and I had a party
at a friend's house and tapped his dad's gin bottle
pretty hard and got sick all over the place .... really
gross. We were stupid enough to think that his
dad would not notice that we added water to the
gin bottle to make up the difference. He caught hell
and fingered the rest of us. I was grounded but
could not help notice the amused glint in my dad's
eye.

Cheers,

Charlie
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Re: Wellesley Income Fund
Old 03-22-2005, 05:33 PM   #36
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Re: Wellesley Income Fund

>>>have the distributions invested in a MM fund. This can be done automatically as well. The income can then be spent or reinvested as you wish without causing a "taxable event".

Charlie, why would putting the proceeds in a money market fund result in no taxes?? You've really got my attention on this one!

Rich
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Re: Wellesley Income Fund
Old 03-22-2005, 06:09 PM   #37
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Re: Wellesley Income Fund

You have to pay taxes on the dividends issued by the fund in the year issued. I think charlies point is if you slush the money into a checking or MM fund, you can then spend those funds without generating a taxable event. If you reinvest the monies into fund shares, then later sell fund shares to create cash, that would be a taxable event (a sale of fund shares).

I have all the dividends and capital gains paid out by all of my funds sent straight to my checking account. I'm paying taxes on it anyhow. If I can live on that output (and I can, especially if you consider the addition of my wifes income), then I dont have to sell any fund shares in my taxable account. As long as the taxable account continues to appreciate in value in excess of inflation, and my spending needs dont rise above what the dividend/gains throw off from the funds generate, I never need to sell a share. Having no debt to service helps me live very well on a smaller withdrawal. So far so good for almost 4 years. Two of them pretty crappy ones.

Given the range of write-offs I can come up with, I manage to offset a lot of this income with deductions. Hence a low tax rate.

If I had higher spending needs and/or was in a higher tax bracket, I'd probably focus on dividend bearing stock funds, like vanguard equity-income, and have to periodically sell shares, but just pay the capital gains rates on the withdrawals. As long as your federal rate is <15%, the strategy I'm using works.
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Re: Wellesley Income Fund
Old 03-23-2005, 11:32 AM   #38
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Re: Wellesley Income Fund

Rich, sorry about the clumsy way I tried to
say what TH so succinctly said.
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Re: Wellesley Income Fund
Old 03-23-2005, 01:16 PM   #39
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Re: Wellesley Income Fund

I'm sorry, you used the word "succinct" far too close to my name...

That rarely happens.
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Old Fuzzy Wuzzy post Re: Wellesley Income Fund
Old 03-03-2006, 08:10 AM   #40
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Old Fuzzy Wuzzy post Re: Wellesley Income Fund

This an old Fuzzy post that really got my attention.

Quote:
Originally Posted by Cute n' Fuzzy Bunny

I have all the dividends and capital gains paid out by all of my funds sent straight to my checking account. *I'm paying taxes on it anyhow. *If I can live on that output then I dont have to sell any fund shares in my taxable account.

Given the range of write-offs I can come up with, I manage to offset a lot of this income with deductions. *Hence a low tax rate.
Hi Fuzzy/Folks

Hope I'm not becoming a nuissance but this resource/you folks are great. (Thanks Dory).

I realize you can have Dividends sent to your checking account.

Is Fuzzy saying that in December when the mutual Fund companies report Cap gains you can have this cash redirected and sent to your checking account also? Is this unique to Vanguard or can you do it with all MF's (ie American funds, Oppenheimer etc)?

Last one "Given the range of write-offs I can come up with".....

Been looking at the Tax thing. What kinds of "write offs" do some of you more creative FIRE's have.

I am way to cute for prison but obviously want to be in the 15% or less bracket?

Thanks again,

Wally


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