I was at a small dinner party the other night. Towards the end of the evening a conversation

[Augiedog]

veered into trump land, as is many conversations these days. He is about 80 years old and married to a very smart and perceptive woman. I was not familiar with the political leanings of the guy who was speaking although I suspect he is primarily in the middle of the road so to speak. Perfect for getting run over. But I digress.

He was getting a bit red in the face as he explained his dissatisfaction with trump and his “expletive deleted” tariff policies. He went on to say that he had lost his entire years 401k profits due to trump. He and his wife are not wealthy, but they are frugal and have spent their lives in service to the community and had saved for their retirement years.

I’m sure there are many stories like this out there, in this case it just seemed a bit striking that a well composed guy like this who grew up in the shadow of world war 11 all of a sudden would show such fury at trumpism. It made me feel like there is more hope out there than I had previously felt. 80 years old and ready to kick Republican ass!

[pangaia]

1. Not to take away from his feelings and comments, but..

nobody 80 years old should be have their money invested in such a way that a rising OR falling stock market can cause such volatility in his portfolio.

I am no investing genius but even I know that,

[TexasBushwhacker]

2. That is true. N/t

[progree]

4. Even if he was entirely invested in bonds he would be at a loss for the year

All my bond funds are down even with reinvested interest, year to date (intermediate corporate bond fund and an intermediate Minnesota municpal bond fund). I don't know of any bond indexes that are up YTD, except some really short-term ones. Due to rising interest rates, bonds have not been a safe haven this year.

He went on to say that he had lost his entire years 401k profits due to trump.

[doc03]

9. Same here I am almost 71. I have the recomended 40% of my IRA in stocks and

60% in fixed income. This is the first year I have lost principle since I retired in 2009. Both the stock and bond market are
down and CDs don't even match inflation. I started withdrawing 3% per year in 2013 and increased it for inflation each year.
Every year my principle has grown at the end of the year after making my withdrawals. I have to take the Minimum Required Distributions now I turned 70 1/2, as of today my principle has decreased $25000 after my (MRD). I am doing what most
advisors recommend to make your IRA last the rest of my life.

[still_one]

28. Ideally the stocks and bonds are highly rated, and pay dividends and interest to help stretch things

further.

There is no question that the policies of this administration have created the downturn we are in. Uncertainty is driving it, and there is good reason for that uncertainty.

The suppossed tax bill is not going to be as beneficial for a lot of people as they have been pumping. In fact, people who had itemized deductions will find that because the standard deduction has been increased, they can't itemize deductions anymore, and with the removal of the personal exemption, plus the limits placed on those who can itemized deductions on items that will hurt those in the blue states the most, will leave that group of folks with very little tax benefit, and very likely a loss.

Even those who don't itemize deductions, will find that the removal of the personal exemption is just a smoke and mirror con game that was perpetrated on most of the public, and the tax gain they do realize will be offset by the cost of healthcare insurance premiums, and cost of food and materials aggravated by his wonderful trade war

For those that are the right age, a Roth IRA, or conversion of part of a traditional IRA to a Roth is an ideal vehicle.


For MRD, I would hope some of that distribution can be reinvested into quality interest paying bonds or bond funds, along with quality dividend paying stock or stock funds, and that one is able to wait out when they recocver.


Problem is that a lot of folks don't have the luxury to "wait it out", because they need the money for living expenses, and unfortunately, as long as the policies, both economic and otherwise continue in the direction they are going, any recovery may take some time to occur

[pangaia]

14. For what it is worth, I am in all 1-3 year Treasuries and bank CDs, about as safe as it can get.

I don't make much, about 2.75%-3.2 % right now, but I won't lose it-- I hope.

[still_one]

29. You won't, unless the government literally falls, and then it really doesn't matter because everyone

will be in the same boat.

Just to make it clear, that is extremely unlikely to happen.

If you want safety, you are doing the right thing

[lindysalsagal]

33. I'm in a 3% pre-tax savings account, so, I have no risk at all. I might have made a little money

being agressive, but I don't care. I sleep at night. My money's mine, dammit. I worked hard for it.

[FM123]

3. Yep, my dad is 90 and wants to kick repug butt every day.

[katmondoo]

5. I'm 88 and smack the TV whenever he appears.

I do avoid programs that show him but sometimes I get fooled and the old dirtbag appears saying something stupid

[Cha]

24. Wow!

katmndoo

[marybourg]

6. If he's 80 years old, he's lost money several times before.

That’s part of investing. You get paid for risk. No risk, little gain. But if he wants to blame it on tRump, that’s great. I suspect that he was disposed to hate tRump anyway, like my spouse and I do, average age 84.

[still_one]

30. Trump diserves the blame for this, just as the bush administration deserved the blame for the

economic implosion that occurred.

Reagan started this process through his policies of deregulation that led to the S&L crisis, and the massive increase in the deficit.

This administration through their policies has created major economic uncertainty. It started with his trade war, and has continued with his policies of trying to undo everything that the Obama administration accomplished.

That smoke and mirror tax bill is not going to bring the benefits that many thought, and in fact because of the personal exemption elimination, and limits on what people could itemize, a good number of people will find that the benefit is not significant, and in many cases they will be paying more, add the increase in food, materials, and healthcare premiums, and those that do get a benefit, will demonstrate again that the Reagan/repulbican policy of trickle down economics will fail again.

Also, you only lose money in the stock and bond market if you are forced to sell at a loss, or if you invested in companies that went bankrupt.

[llmart]

7. And this is the fundamental problem with 401ks and how the public was sold on them.

Most people aren't savvy enough to know what to do with 401k's and this may be a case of someone who just kept his 401k at the company where he retired, never moving any of the money to something else because he doesn't understand investing. Let's not castigate people for this. During the Reagan years they sold people a bill of goods about how the old pension was not good for retirees and that this new 401k option would be so much better because it would grow as the stock market grew and everyone would be a millionaire by the time they retired. Yes, this is exactly the fable they told.

I have worked with employees in benefits departments in various types of institutions and you'd be surprised by how little rather well-educated people know about investing.

[rufus dog]

26. I have one minor correction to make

I entered the workforce in '85, they sold them as you state, but everyone thought they would be "multi" millionaires. I vividly recall discussions over the magic number being 3 million or 5 million that people would have to retire.

[llmart]

32. You may be correct or maybe different pundits said different amounts.

I entered the workforce in 1967. People my age grew up seeing our parents' generation working for years and then retiring and having both Social Security and a guaranteed pension. They at least had some security in their old age that they would have something and that was good enough for them. That generation also knew that most likely their mortgage would be paid off and they would not have that largest of debts to pay every month so their pension money would be enough. But the decade of greed convinced us that more was always better and that old maxim that a guaranteed pension every month wouldn't buy as much, so it would be so much better to manage your own money by investing in stocks and bonds.

The powers that be saw my baby boomer generation, the largest generation in history, and they were going to exploit it in every way possible.

[Demovictory9]

27. they sold everyone that "put $20 a week in and you'll be a millionaire" not accounting

for how people really behave with money

[No Vested Interest]

8. I'm in that age bracket, well diversified financially, and am down 10% of portfolio YTD.

Of course, that's on paper only, no need to make changes or sell at this time.

Have a very good financial advisor, one who doesn't panic or make changes precipitously.
We came back quite well from the problems in 2008.

From my perspective, the losses now, at the end of Dec. mean that my RMD requirement will be lower this year than otherwise - a good thing.

[progree]

10. Your RMD this year is based on your 12/31/2017 value

From my perspective, the losses now, at the end of Dec. mean that my RMD requirement will be lower this year than otherwise - a good thing.

You'll get the benefit of the Trump slump when you take your RMD in 2019, based on 12/31/18 valuation.

Edited "RMD in 2018" -> "RMD in 2019".

[No Vested Interest]

12. I worded that clumsily. I should have said my RMD for 2019 will be lower because of

losses in value (on paper) in 2018 - 12/31/18 to be exact.
I'm not expecting much, if any, recovery in the last few trading days of 2018.

RMD for 2018 has all been settled - taxes prepaid, etc.

Thanks for pointing out my error. I'm already looking ahead for 2019.

[progree]

16. Yup, I made the same error on my first try (2018 v. 2019). I too am done with my 2018 IRA RMD

I'm a few years short of 70 1/2, so I don't have to take IRAs on my regular IRA accounts yet (and don't).

But I inherited a small IRA from my parents, and have had to take RMDs on that ever since getting it, regardless of my age (though my age affects what the RMD divisor is each year).

[doc03]

11. I don't think your MRD going down is a good thing

if you depend on the income to live. After all the IRA was intended to supplement your income not to hoard money for your heirs.
I am probably in a similar financial position as you since I get SS and get a pension from my job so the reduction in my MRD doesn't really affect me that much but many folks a not that lucky.

[No Vested Interest]

13. Believe it or not, I've had more than I need the last 2 or 3 yrs.

Life style has changed - slowed down- because of a family members illness, and my own aging.

[progree]

15. Of course it is bad to have a lower RMD because the account value has gone down

but other than that, I have done everything I can to lower my RMDs -- namely by converting my traditional IRAs to Roth IRAs a piece at a time -- since 1998 or so. (No RMD requirements on Roth IRAs).

If one needs income above and beyond their RMD, one is free to withdraw more, and the IRS would be delighted to see more withdrawn.

But by my math, if I need income beyond my RMD, I'm better off withdrawing from my taxable accounts than my tax-deferred traditional IRA, because of the power of tax-deferred growth. And one must pay taxes on their IRA withdrawals.

[No Vested Interest]

17. It sounds as though you're plenty familiar with the ins and outs of retirement finance.

That's a good thing.

The IRA was originally my spouse's, so I inherited it, and, God willing, our children will inherit the balance.

I am no longer eligible to convert traditional IRA to Roth, because total income is too great. While we were a two-person household it was possible tax-wise, and we have a smallish one, but not after I became a single person.

[progree]

19. No income cap on Roth conversions in 2018 or 2019, if my Googling got the right hits

I am no longer eligible to convert traditional IRA to Roth, because total income is too great. While we were a two-person household it was possible tax-wise, and we have a smallish one, but not after I became a single person.

I don't think there is any income cap anymore -- the Fidelity excerpt below says the income cap was done away with after 2010.

In the past to be able to convert from a Traditional to a Roth IRA your income needed to be under $100,000. The IRS rules have changed and there is no longer an income cap in place.
https://www.rothira.com/roth-ira-conversion-rules

Anyone can convert their eligible IRA assets to a Roth IRA regardless of income or marital status. Prior to 2010, only those account owners who had a modified adjusted gross income below $100,000 were eligible to convert.
https://www.fidelity.com/building-savings/learn-about-iras/convert-to-roth

On Edit -- and its best to convert to Roth when the market is down, because one converts more shares for the same dollar amount. For example if one wants to convert $10,000 and the share price is $10, then one converts 1,000 shares. But if the share price is down to $8, one converts 1,250 shares to reach $10,000. The more Roth shares and the fewer Traditional IRA shares that one has, the better. It's like 20% off on a Roth conversion deal.

Edit #2 - added the excerpt from Fidelity - no income limits on Roth conversions

[No Vested Interest]

21. That's interesting, re removal of the income cap. My advisors have not told me of that,

that I recall. Perhaps they did and I forgot, since it isn't in my interest to so in that
transferring more standard IRA to Roth would just increase my income more, thus increasing income tax liability.

As I mentioned, I don't have a need for more personal income at this time. Perhaps one day I would need caregiving, either in my home or at a facility, and we all know the cost of quality caregiving is not only high, but likely to go higher.

[progree]

22. I've been converting a little at a time since 1998 ... based on my tax person's advice

and checking out the various online conversion calculators. Since then I developed a spreadsheet for it, but every few years try out an online conversion calculator just to double check.

With a Roth conversion, one pays taxes now at their ordinary tax rate, to avoid taxation later.

Sounds kind of stupid at first glance. Why would anyone pay taxes now instead of decades later? But it works out, even if one's tax bracket in retirement is the same as one's tax bracket now. Just the magic of tax-deferred vs. tax-free compounding, especially over a long time.

It's a big winner if one expects their retirement tax bracket to be higher than one's current tax bracket.

And likely won't make sense if one's retirement tax bracket is more than a little bit lower than one's tax bracket.

I'm glad as heck that I did -- most of my conversions were in a 15% marginal tax bracket. Nominally I'm in the 12% tax bracket now, but I have a bunch of capital gains, so (it's very weird but it works out that I effectively get taxed at 27% on any extra income including IRA withdrawals and IRA conversions). But I do it anyway because the same thing happens at the other end when I'm forced to take IRA RMDs -- my nominal marginal rate may be low, but the interaction with the capital gains results in a high tax bracket.

The big capital gains comes from donating my farm to PopulationConnection.org , in return for a charitable gift annuity. A lot of the annuity income is taxed as capital gain.

But anyway, even without all these special circumstances, I'm SO.... glad that I did these conversions over the years, otherwise I'd be facing big IRA RMDs.

[progree]

23. A backdoor contribution to a Roth IRA could make sense at any age???

Last edited Wed Dec 26, 2018, 02:54 AM - Edit history (2)

One can contribute to a Roth IRA at any age, but subject to income limits.

That's always a good deal -- simply put some taxable account money into a Roth. There's no tax impact either way in the year one does the Roth contribution -- no deduction and no tax to be paid.

But now one has money in a tax-free-forever Roth account rather than a taxable account.

But there are still income limits to contributing to a Roth. A "backdoor Roth contribution" is a way around that.

Can I convert to a Roth IRA even if I earn too much to contribute?

If you or your spouse have high income levels and are not eligible to contribute directly to a Roth IRA, and you do not already have a traditional IRA, you may want to consider opening a traditional IRA and making a nondeductible contribution, then converting it to a Roth IRA. This strategy is sometimes called a back-door Roth contribution.

Tip: For more detail, see Converting your traditional IRA to a Roth IRA, which includes a Roth conversion tool and a checklist.
https://www.fidelity.com/viewpoints/retirement/roth-IRA-common-questions

Edited to add - I forgot one important thing -- one must have earned income in order to contribute to any kind of IRA.

And while I'm at it, I think there is an age limit to contributing to a Traditional IRA... even a non-deductible contribution

And if the above are not a problem for someone, I think that when one does the Roth conversion, and one has both deductible IRA stuff and non-deductible IRA stuff, one must prorate the conversion; so for example if one has 8 times as much deductible IRA as non-deductible IRA stuff, the conversion will be 8/9 deductible IRA and 1/9 non-deductible IRA. And one pays taxes on the deductible IRA part that is converted, which is 8/9 of it in the example. All of this from fuzzy memory.

Edited 3 paragraphs above: "one must have earned income in order to contribute to any kind of Roth" -> ... "any kind of IRA"

[No Vested Interest]

25. I do not have earned income, so cannot contribute to IRAs. nt

[doc03]

18. Myself I have been converting some of my IRA over to a Roth each year. In addition to my

MRD I convert as much as I can to a Roth without going to the next higher tax bracket. This year I had a MRD of $9000 and I converted another $4000 to the Roth.

[progree]

20. Sounds smart to me. Good luck! nm

[still_one]

31. That is the way to go. I have been slowly doing that myself. It is a smart strategy, as long as

they don't change the Roth Ira rules

[phylny]

34. We are retiring next year.

We have been through ups and downs in the market before, but this is a downer for us. We'll stay with our investments because eventually, they go up again, but he's screwing with our retirement.

[Initech]

35. The sad thing is that they will continue to vote for these assholes.

No matter how bad they are getting screwed because they suffer from Liberal Derangement Syndrome.