Target Date Funds and Tax Efficient Asset Placement

Back in my post on what funds I invest in, I said that you should not just blindly follow my fund selection, one of the reasons being you should take into consideration retirement accounts. Certain assets should, generally speaking, be held in a retirement account instead of a taxable account. I think I’ll motivate this with a discussion of target date funds.

Continue reading Target Date Funds and Tax Efficient Asset Placement

Obamacare, the Thorn in the Roth Pipeline Strategy

I’m going to keep this post short, because Harry Sit explains this quite well. Recall that a way to withdraw money before 59.5 from a Traditional 401k or IRA is to convert the funds to a Roth IRA. When you do this, the conversion amount gets reported as income for that tax year. The unfortunate problem with this approach in light of Obamacare is that if you buy health insurance from the marketplace and thereby could qualify to get a federal tax credit for health insurance, your, tax credit decreases with a rise in income. Hence, you could end up increasing your taxes more than you might initially expect. Check out Harry Sit’s post at The Finance Buff to read up on the details. Keep in mind he tends to use numbers for a married couple, not single people.

Retirement Accounts, Part 4 – Early Withdrawal Strategies

While I do want to be financially independent by 40, I don’t think I’ll retire at 40. Though it’s still a possibility. And to prepare for that possibility, I looked into early withdrawal strategies.

Normally, unless you have some kind of hardship, you will pay a penalty to withdraw from a retirement account before 59.5 (or before 55 from the 401k of an employer from which you terminated employment in the calendar year you turn 55, or later). But, there are two ways around such penalties: the substantially equal periodic payments (SEPP) or 72t, and the Roth conversion pipeline.

Continue reading Retirement Accounts, Part 4 – Early Withdrawal Strategies

Retirement Accounts, Part 1

Yesterday I finished up my discussion of capital gains taxes (though I may realize in the future I left out a couple things). Capital gains taxes are relevant for your taxable investments. Today, I’ll be talking about your tax deferred or tax free investments.

There are many types of retirement accounts: Individual Retirement Accounts (IRAs), 401k’s, 403b’s, 457b’s, and 401a’s. Virtually all of them come in two flavors: the Traditional and Roth. Before I go into the specific details of the types of retirement accounts, I’ll cover the flavors first.

Continue reading Retirement Accounts, Part 1

Capital Gains Taxes, Part 2

Yesterday I gave you an overview of capital gains taxes. Long term capital gains (for stocks, mutual funds, and ETFs held for at least a year) are taxed at lower rates than standard income. This is how despite making millions, Mitt Romney only paid an effective tax rate of 14.1%.

Today, I’m going to cover a couple of more advanced concepts with regards to capital gains taxes: capital gains distributions from mutual funds, tax loss harvesting, and capital gain harvesting.

Continue reading Capital Gains Taxes, Part 2