Dave Ramsey

SMHarman · Apr 11, 2014

Big Matt said:
I'm not sure what you are trying to promote, but your money will never be taxed after you put it in a Roth IRA. Sure it was taxed when you got it, but taxes are at an all time low now.

My assertion is that you are better off putting post tax money into an account that will never be taxed (on the growth).

With certainty you will pay taxes on every dollar that you withdraw from a traditional IRA or 401k. Right now taxes are low. So it looks like a good deal, but you have no optionality other than to not take money out (oh, I forgot, you have to...).

I'd rather put money in now when taxes are low and not worry about when they will increase. They aren't going down.

I'm not trying to promote anything. Why do you think I am?

Which taxes are low right now?

You know with certainty that Roth rules will never be changed?

I know with certainty the tax break I got on my 401k is real money today.

This started with me commenting I don't get the benefit of Roth. The minority that pay more tax in retirement than in Work benefit. The rest, not so much.

Sent from my LT26i using Tapatalk

Htoo0 · Apr 11, 2014

When the government takes over all of our 401K, traditional IRA, and Roth IRA's because they decide they can administer it better than we can it will all be a mute point anyway.

Tia · Apr 11, 2014

Htoo0 said:
When the government takes over all of our 401K, traditional IRA, and Roth IRA's because they decide they can administer it better than we can it will all be a mute point anyway.

This has thinking along that line - http://www.passportira.com/unleash.html

geekette · Apr 11, 2014

Tia said:
This has thinking along that line - http://www.passportira.com/unleash.html

hilarious. Was nearly moved to send in my money to learn about the Special IRA!

Clemson Fan · Apr 11, 2014

SMHarman said:
I'm not trying to promote anything. Why do you think I am?

Which taxes are low right now?

You know with certainty that Roth rules will never be changed?

I know with certainty the tax break I got on my 401k is real money today.

This started with me commenting I don't get the benefit of Roth. The minority that pay more tax in retirement than in Work benefit. The rest, not so much.

Sent from my LT26i using Tapatalk

He was referencing the following graph which shows income tax rates now to be relatively low especially compared to the middle of the 20th century. That's the main argument in favor of a Roth. If the income tax rates go up a certain % (like say 10%) by the time you retire then you'll end up "winning" if you take a Roth.

sue1947 · Apr 11, 2014

The issue of 401K vs IRA vs Roth is a moot point for most. The real issue is to maximize retirement saving. Utilize whatever options you have available to the maximum possible so that when you retire, you have a choice in your lifestyle, especially if the choice to retire isn't yours (due to job loss or health issues). I was able to retire early at 54 because I saved in a 401K, IRA and Roth. In hindsight, I should have done more in all 3.
Tax situations vary by individual and time of life so having both types of IRA helps. I'm currently in a very low tax bracket so am taking money out of the regular IRA and converting some to Roth. When I hit 70.5 years and the required minimum distributions kick in, I hope to not be forced into a higher tax bracket by converting to Roth's strategically now. When I put money into those regular IRA, I was at a higher tax bracket so have reaped the rewards of the original tax break and the compounding of those tax savings over all these years (not an insignificant amount).

The key is to start early and not take it out. Compound interest takes some time to start building up. The graph/picture of the formula is a curve that starts fairly flat and then steepens over time. You have to be patient through the flat part to get to the steep part (when your money is really working for you). If you take money out, you restart that process over and over again.

Sue

geekette · Apr 11, 2014

sue1947 said:
The issue of 401K vs IRA vs Roth is a moot point for most. The real issue is to maximize retirement saving. Utilize whatever options you have available to the maximum possible so that when you retire, you have a choice in your lifestyle, especially if the choice to retire isn't yours (due to job loss or health issues). I was able to retire early at 54 because I saved in a 401K, IRA and Roth. In hindsight, I should have done more in all 3.
Tax situations vary by individual and time of life so having both types of IRA helps. I'm currently in a very low tax bracket so am taking money out of the regular IRA and converting some to Roth. When I hit 70.5 years and the required minimum distributions kick in, I hope to not be forced into a higher tax bracket by converting to Roth's strategically now. When I put money into those regular IRA, I was at a higher tax bracket so have reaped the rewards of the original tax break and the compounding of those tax savings over all these years (not an insignificant amount).

The key is to start early and not take it out. Compound interest takes some time to start building up. The graph/picture of the formula is a curve that starts fairly flat and then steepens over time. You have to be patient through the flat part to get to the steep part (when your money is really working for you). If you take money out, you restart that process over and over again.

Sue

Thank you, early retiree. Nothing beats Experience. My mileage can't vary until I get there, but I agree with you.

Presumably I will be able to control how much income I make and therefore taxation. Taxation will also depend on where you live as certain retirement income is exempt from taxes in certain states (Kiplingers had a great table showing this).

I figure the best I can do is have multiple stashes and figure it out year by year. That said, tiny trad IRAs will be spent first, then the larger Trads/Rollover 401ks, with Roth being the last man standing.

I just can't get too freaked out by future taxes on money I put in 20 years ago and won't touch for another 20, as all has kept earning more money. While it's all MY money, some of it I didn't put in, so I don't really have a problem with the siphoning of a portion of what didn't actually come from my pocket in another 20 years (it's more than 20 until RMD's kick in).

For me, I feel it would be foolish to put all of my eggs into the Roth basket and much of that has to do with having started a 401k before Roth's existed - my main nest egg was already established, and paying the taxes on that for the sole purpose of making it a Roth ... it's not something that makes sense for me right now. Best to keep the entire amount earning for me while continuing to save as much as possible in all of them that I remain eligible for until I am no longer eligible.

dioxide45 · Apr 11, 2014

Given all the 401K and IRA talk. I still think that the HSA is one of the best vehicles for saving. Tax free money in and tax free money out. If used for healthcare costs. You can't really beat that. The only problem is the rather meager contribution limits.

I just wish I had started in a HDHP with HSA far earlier than I did. When I actually took the time to crunch the numbers, it was cheaper than the traditional health plan that I had been using for so many years.

Rose Pink · Apr 11, 2014

dioxide45 said:
Given all the 401K and IRA talk. I still think that the HSA is one of the best vehicles for saving. Tax free money in and tax free money out. If used for healthcare costs. You can't really beat that. The only problem is the rather meager contribution limits.

I just wish I had started in a HDHP with HSA far earlier than I did. When I actually took the time to crunch the numbers, it was cheaper than the traditional health plan that I had been using for so many years.

I look at the HDHP each year when benefit enrollment rolls around. It is never less expensive for us. When I calculate in the costs of the care we consume, the more expensive premium plan always wins out. This frustrates me. It could work out for one or for three or more but with just the two of us, the deductible limits do not make sense. I don't know why DH's employer has it set up to make it less reasonable for a couple.

Icc5 · Apr 12, 2014

Anything that works for you

Everyone has a different way of learning and understanding things. I'm one of those that did understand and learn from talking to and seeing how my parents ran a household and their finances. Each of my kids do things different. My son does a lot of things I do but not other things. My daughter keeps making mistakes and has to pay because of it. She seems to have to learn from her own mistakes and listens to friends instead of our advice and example.
I like dealing with money as does my son. Money and money matters just seem to confuse my daughter.
Never bounced a check in my life, daughter has bounced plenty. My 92 year old mother said they learned in 8th grade to balance a check book. Both my Mom and I have never been off by a penny in balancing.
If Ramsey system or any system works then great, use it. Not having to make mistakes saves fortunes. I've seen it in my family and how much better off those of us that can manage are then those that can't.
Bart

dioxide45 · Apr 12, 2014

Rose Pink said:
I look at the HDHP each year when benefit enrollment rolls around. It is never less expensive for us. When I calculate in the costs of the care we consume, the more expensive premium plan always wins out. This frustrates me. It could work out for one or for three or more but with just the two of us, the deductible limits do not make sense. I don't know why DH's employer has it set up to make it less reasonable for a couple.

I think this is just the nature of HDHP. There is no individual deductible like with a traditional health plan. So if the deductible is $1500 per person, $3000 for all covered members. Then even if one person has a claim, you have to meet the full $3000 family deductible. Not just the $1500 for that one person. The plan though our employer is the same.

DW and I are lucky, we work for the same employer so we each buy an individual plan. It is cheaper and we only have the individual deductible to worry about.

bogey21 · Apr 13, 2014

This is the stuff that should be taught in High School. Start with how to balance a checking account and work up to retirement planning. Surely there is something in the (core?) curriculum this could replace.

George

sue1947 · Apr 13, 2014

bogey21 said:
This is the stuff that should be taught in High School. Start with how to balance a checking account and work up to retirement planning. Surely there is something in the (core?) curriculum this could replace.

George

As a former high school math teacher, I can assure you this is all taught in a variety of math classes from general math/consumer math up to pre calculus. Most teenagers aren't ready to hear it and it doesn't stick in the memory. Remember story problems?

Sue

Rose Pink · Apr 14, 2014

sue1947 said:
As a former high school math teacher, I can assure you this is all taught in a variety of math classes from general math/consumer math up to pre calculus. Most teenagers aren't ready to hear it and it doesn't stick in the memory. Remember story problems?

Sue

I agree. We didn't have 401Ks and IRAs (or even pocket calculators) back when I was in public school but our math problems did involve $ signs and %s. I think there may have even been compounding interest problems. I was not a fan of math and my concerns centered on whether I was going to get asked to the dance and not on how I was going to pay for retirement.

My mom worked at a bank. She had a small red book with the simple title "Loan Payments Handbook." It's been mine for decades. It is hundreds of pages of tables listing percentage rate, loan amounts, and years to pay it off. I keep it for its sentimental value. Of course, such tables can probably be found on the internet these days. The internet--another thing we did not have.

Anyway, even though children cannot "see" their retirement years, they can still relate to the cars and other material desires of the now. They can learn about investing to help them achieve more immediate goals. I've heard about classes where the students learn about the stock market by pretend investing and tracking their stocks throughout the class term. In some classes (or extracurricular clubs) they learn about running business ventures. These tend to be elective classes, though.

geekette · Apr 14, 2014

Rose Pink said:
I agree. We didn't have 401Ks and IRAs (or even pocket calculators) back when I was in public school but our math problems did involve $ signs and %s. I think there may have even been compounding interest problems. I was not a fan of math and my concerns centered on whether I was going to get asked to the dance and not on how I was going to pay for retirement.

My mom worked at a bank. She had a small red book with the simple title "Loan Payments Handbook." It's been mine for decades. It is hundreds of pages of tables listing percentage rate, loan amounts, and years to pay it off. I keep it for its sentimental value. Of course, such tables can probably be found on the internet these days. The internet--another thing we did not have.

Anyway, even though children cannot "see" their retirement years, they can still relate to the cars and other material desires of the now. They can learn about investing to help them achieve more immediate goals. I've heard about classes where the students learn about the stock market by pretend investing and tracking their stocks throughout the class term. In some classes (or extracurricular clubs) they learn about running business ventures. These tend to be elective classes, though.

Never cared about dances, but in 8th grade social studies class we did a couple weeks of stock market study. We each had a fictitious $10k to invest for a week. I made 10% and got very interested in stock market. wasn't until about a decade later that I had any money to invest, but already knew a lot about how it worked.

I was lucky, some never understand the stock market at any age.

I do think there is more money management taught than is actually absorbed but this will vary greatly.

Blues · Apr 14, 2014

With all the discussion here about Roth vs traditional IRA, I was amused to see this article in my Yahoo Finance news feed:

http://blogs.marketwatch.com/taxwatch/2014/04/14/how-a-roth-ira-totally-screwed-up-my-taxes/

"What I didn’t know is that the Roth assets get lumped in with my regular income, which in this case bumped me into a different tax bracket."

And this guy is a financial journalist??? :wall:

I find it amazing that anyone, much less a financial writer, could do this conversion without knowing even the most basic facts about the tax ramifications. He didn't know it would bump him up in brackets? He was advised to re-characterize. Then advised not to re-characterize. Why didn't he know the rules in the first place? Why didn't he do his own research and make his own decisions, rather than being whipsawed by conflicting advice from co-workers (also financial writers)?

Makes me sad, thinking about the implications for financial literacy in this country. :ignore:

-Bob

Rose Pink · Apr 14, 2014

Blues said:
... Why didn't he do his own research and make his own decisions, rather than being whipsawed by conflicting advice from co-workers (also financial writers)?

-Bob

This speaks to me about how complicated the issue is. While doing his research, the author contacted 1) "the parents" (and I do not know what their expertise is), 2) "Jonelle--MarketWatch's resident tax expert," and 3) "Dan Thomas, a CPA financial planner and partner at Thomas and Thomas in Orange County, Calif."

Trying to understand the market and investments makes my anxiety disorder flare to debilitating heights. I simply cannot think and I feel sick. I would have relied on a CPA financial planner as well. That would have been my research.

I am awed by the Tuggers who seem so sure of their investments and their investment strategies. I have never, ever felt that secure. I try to read and learn but even for me, a college graduate, it is all so convoluted and confusing. When I hear that even the "experts" (whoever they are) cannot predict the market, then I know I can't.

We have contributions to a 401K made automatically every paycheck (we hope that will not have lost money in a downturn when it comes time to retire). DH is eligible for a pension (we hope it will still be there come retirement time). We will have social security (we hope that will still be there come retirement time). We are saving up to get our home ready for the long haul--40 year shingles on the roof, new car when I turn 65, some cash in the bank for a few month's worth of expenses. If all else fails, we will rely on our children and grandchildren. DH says he will work as long as he is able and can hold a job.

And I am still nervous!

geekette · Apr 14, 2014

Rose Pink said:
This speaks to me about how complicated the issue is. While doing his research, the author contacted 1) "the parents" (and I do not know what their expertise is), 2) "Jonelle--MarketWatch's resident tax expert," and 3) "Dan Thomas, a CPA financial planner and partner at Thomas and Thomas in Orange County, Calif."

Trying to understand the market and investments makes my anxiety disorder flare to debilitating heights. I simply cannot think and I feel sick. I would have relied on a CPA financial planner as well. That would have been my research.

I am awed by the Tuggers who seem so sure of their investments and their investment strategies. I have never, ever felt that secure. I try to read and learn but even for me, a college graduate, it is all so convoluted and confusing. When I hear that even the "experts" (whoever they are) cannot predict the market, then I know I can't.

We have contributions to a 401K made automatically every paycheck (we hope that will not have lost money in a downturn when it comes time to retire). DH is eligible for a pension (we hope it will still be there come retirement time). We will have social security (we hope that will still be there come retirement time). We are saving up to get our home ready for the long haul--40 year shingles on the roof, new car when I turn 65, some cash in the bank for a few month's worth of expenses. If all else fails, we will rely on our children and grandchildren. DH says he will work as long as he is able and can hold a job.

And I am still nervous!

Sounds to me like you + spouse are doing all you can that is within your control so long as you watch your risk as you edge closer to retirement so that you don't have to worry about downturns. Saving is the important thing, reducing future expenses the next most important thing.

Most likely, there are things that you are well more adept at than I could ever be so don't beat yourself up for talents you never developed or simply had no interest or knack for, whatever the case may be. Maybe I could learn how to fix my own car, but it makes sense for me to seek an actual professional mechanic as I really don't have the time nor aptitude. For some, it makes sense to seek an actual finance professional.

Sandy · Apr 14, 2014

dioxide45 said:
I think this is just the nature of HDHP. There is no individual deductible like with a traditional health plan. So if the deductible is $1500 per person, $3000 for all covered members. Then even if one person has a claim, you have to meet the full $3000 family deductible. Not just the $1500 for that one person. The plan though our employer is the same.

DW and I are lucky, we work for the same employer so we each buy an individual plan. It is cheaper and we only have the individual deductible to worry about.

I think it may differ among employers. We have the HDHP and it is a max of $5000 for both, or $2500 individual. So my DH has high med expenses, and he meets his amount quickly. I don't. There are different plans, and the employer selects which one to offer.

For us, at least at this point, it has worked for us. Interesting that they "sold" it as perfect for folks with minimal medical expenses, but we have high expenses. With all of his prescriptions, after April or so, he has met his deductible and all prescriptions from then on are covered.

Just MHO.

ace2000 · Apr 14, 2014

Rose Pink said:
I am awed by the Tuggers who seem so sure of their investments and their investment strategies. I have never, ever felt that secure. I try to read and learn but even for me, a college graduate, it is all so convoluted and confusing. When I hear that even the "experts" (whoever they are) cannot predict the market, then I know I can't.

The ones that seem so sure are the ones that have confidence in the theory that stocks will generally stay on an upward trend for the long term. As long as everyone can grasp onto that concept there will be a lot of confidence. Will it always hold true for the future? We'll see. But for now, why ruin it?

geekette · Apr 14, 2014

ace2000 said:
The ones that seem so sure are the ones that have confidence in the theory that stocks will generally stay on an upward trend for the long term. As long as everyone can grasp onto that concept there will be a lot of confidence. Will it always hold true for the future? We'll see. But for now, why ruin it?

It's been true a very long time for most 10-12 year time periods, so, yes, I have confidence thru the long term and don't fret on the downsides.

I would not call it theory, given there is factual data available since before and after the great depression crash. I have strong belief in American business else I wouldn't own any of them. Any one company or industry could fail or become obsolete, so while I am considered Buy and Hold, it's more like Buy and Monitor in case I need to relinquish a company truly hitting the skids vs temporary stock price depression.

ace2000 · Apr 14, 2014

geekette said:
I would not call it theory, given there is factual data available since before and after the great depression crash.

You mean there's factual data available that supports your theory? And you even said yourself - "most" 10-year periods. There is no guarantee that past performance will indicate future results. Why do you think that little saying is required on all money manager publications and advertising? I subscribe to the same myself, and just saying that's why I feel confident. No guarantees though.

geekette · Apr 14, 2014

ace2000 said:
You mean there's factual data available that supports your theory? And you even said yourself - "most" 10-year periods. There is no guarantee that past performance will indicate future results. Why do you think that little saying is required on all money manager publications and advertising? I subscribe to the same myself, and just saying that's why I feel confident. No guarantees though.

No guarantees.

Sure, I said "most" because I wasn't going to go look it up and there are likely some recent 10 year periods you can find it wasn't true and I'm not going to be responsible for that ; ) And it does of course depend on what you invest in. Are we talking about the DOW or SP500 or your personal portfolio or mine? If one wishes to spend the time to work up a sample they should generally find it to be true. Check Yahoo Finance historical prices.

I'm a-ok with many more decades than my age of 'evidence'. I will leave the rest to the statisticians.

Rose Pink · Apr 14, 2014

geekette said:
... so while I am considered Buy and Hold, it's more like Buy and Monitor in case I need to relinquish a company truly hitting the skids vs temporary stock price depression.

How much time do you spend monitoring/researching companies that you invest in? What tools do you find most useful for your research?

bogey21 · Apr 15, 2014

I have a Son age 35 who doesn't save and won't be talked into saving. Most of his friends look at the world in a similar manner. The only income I see him having when he retires are his monthly Social Security and VA disability payments. The one thing I have been able to convince him to do is to have his house "free and clear" (he has 10 years left on a 3.25% mortgage) when he reaches retirement age. My logic is that with a little part time work he should be able to limp by. Not great but it beats being totally unprepared.

George

PS Another advantage of having the house "free and clear" is that he can do a Reverse Mortgage at the appropriate time. That will give him 3 monthly cash receipts (Social Security, Disability, and the Reverse Mortgage payments) to live on. Add Medicare and it is actually not bad if one has no savings.

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