Transcript
Well, everybody, welcome to Tuesday, the S&P 500 was just barely down today, .06 percent. Unfortunately for us, we had some weakness and clean energy and some of the technology areas that we like. And our portfolios were down, you know, about .9% in total, so, not a great day, still way ahead, you know, for the year, again, I’ve talked about that, you know, you kind of get that rubber band stretching, and sometimes it kind of snaps back. So we’ll see what happens. I am very pleased, you know, with the Stop Loss placement, I go through, and I’m very careful with that. So, you know, we’re prepared if things get even weaker, but I’m okay with what’s happening at the moment, we’ll you know, see what happens going forward.
We are seeing some strengths in some areas, you know, robotics is still running in those types of things, too. So be interesting to see where this money does go. I personally think it’s kind of waiting for the stimulus package to come through. And today, if you look at the S&P 500, was really pretty flat, I’d like to take this chance to just, you know, briefly answer a question that came in about converting IRA to Roth IRA. And so just to cover the basics, you know, a lot of us built up assets inside of IRAs, or 401Ks that we rolled over into IRAs and, and whatnot. And so you are allowed to convert as much as you want, at any time, from an IRA to a Roth IRA, no matter what your age is or income brackets are those types of things. So that’s a good thing. Obviously, an IRA is a great vehicle. But a Roth IRA is probably one of the best vehicles, ever, I mean, to be able to make, you know, our average rate of return in the last 12 months, was up over 25%. And, you know, to be able to make that kind of money in a tax free vehicle is really unbelievable. You know, years ago, the only tax free that you got was tax free municipal bonds, that just didn’t pay very much. So. So that’s the big allure.
The other big advantage is that now, you know, your beneficiaries will receive your IRAs or Roth IRAs, they have to withdraw the money out over 10 years. So especially if you have something, you know, kind of a large one, you know, it’d be a lot better for them to take that out tax free. Ideally, they just leave it in until the end, and then take it out. That way, they can let it grow for 10 years, if you had an IRA, it’s all taxable to your beneficiaries. And so you know, probably going to want to take out about a 10th every year to try to spread the load of the, you know, taxes. So a Roth is a much better vehicle to inherit than a IRA or 401k, or what have you for 401k, 403Bs, 457s, IRAs, they’re all the same as far as this goes. And so the and we’re talking about conversion, not new additions, that’s a whole other category. That was the question. So in the in the area of conversion, there are a couple pieces that are really important. It actually doesn’t matter what age you are, I’ve had people ask me that on too old to do it, not really, especially if you consider that your beneficiary is going to have another 10 years to let it grow, you know, 10 years tax free versus taxable is a big deal. But there are a couple of criteria that kind of keep people from doing it.
Number one is, you have to have the money to pay the taxes in assets outside of your retirement plan. So in other words, if you took $100,000 out of your IRA and moved it over to a Roth IRA, and then took $30,000, out to pay the taxes, you only have $70,000, in there, you’re better off leaving the $100,000 in the original IRA, you have to take that $30,000 in tax from someplace else, you know, savings or trust account or, you know, sell some other little stock that you have that isn’t in a retirement plan. And so you have to have that liquidity not everybody has that. It can be very small amounts that you can do. So if you have something you can do something but then the next big issue is just and this is a bit more complicated as to what taxes you’re going to pay. And so one of the problems that people have, especially when they’re still working is that they’re making a lot of money, and their tax bracket is fairly high. And anything they add on top of that it’s going to be taxed at a pretty high rate. And that’s where converting, you know, IRA assets while you are working can be very expensive.
We have a tool that we use to try to calculate, you know, when you can and how much you can do and doesn’t work doesn’t increase your ultimate net worth. But what what tax bracket you’re in right now, obviously one of the key areas that people do conversions is right after retirement before they turn 72, because in that gap, usually income kind of drops, because they’re no longer have their work income. And at 72, they make you start taking money out of your IRAs, which is obviously taxable. So the other big, big issue that a lot of people don’t realize, if you have a fairly large IRA, or 401k, or 457, or whatever it is, you will be stunned to see how much taxable income you’re going to have, that is forced out of that IRA, and, you know, in your 80s, and 90s, and what have you. So, it could be a huge amount, I’ve seen clients with, you know, projected 300 to $1 million a year of taxable income, that has to be withdrawn from, you know, their IRAs. And so one of the advantages of looking at the conversion is to try to alleviate that. And so it’s just something to consider something to look at. You can talk to us about that.
Also, we have some tools to do some analysis on those areas. But I think it’s a very fascinating area. Again, just imagine, you know, the perfect scenario where you’re retired now and you everything you have is in a tax free vehicle and all this money that we’ve been making in the last few years is all growing tax free, at least in those you know, Roth type accounts, I would tell you to tell your kids to start putting their money into Roth 401Ks and Roth IRAs, instead of regular IRAs and regular 401Ks. Personally, I think it’s worth giving up the tax write off to get to retirement and have you know, a big chunk of your money in a tax free account just gives you so much flexibility and so much more power as far as that goes. And again, not everybody can do this. But if you can, it’s worth looking at so anyway, that’s answering that question. I think hopefully that helps. And I look forward to seeing where the markets gonna go. You know, not great for us today, but you know, still pretty good year so far. Thank you.