I don't want to contribute to an IRA. Am I nuts?

[jesseissorude]

Hola my kittens!

I don't want to contribute to a tax-advantaged IRA or Roth IRA since I can't pull my money out until age 59.5.*

I want to invest my money in a normal brokerage account, so I can liquidate and invest it elsewhere if an opportunity comes up.

Am I crazy? What do you think?


*(Although I think I could since I've never owned a home and I can pull the money out for a down payment if I ever buy a house).

 

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[jlwilliams]

The tax ramifications of the 401k and the Roth 401k are powerful. I don't know what you overall picture looks like or how much money your talking about investing, but taxes are a huge drain on your productivity. Taking advantage of the tax code such that you either put current money outside of the tax man's reach or put tomorrow's money out of it (Roth) is sensible.

Taxation is a giant monsterous leach. The more life it sucks from the economy the more it demands. It's everybody's duty to starve the monster.

 

[458]

Hola my kittens!

I don't want to contribute to a tax-advantaged IRA or Roth IRA since I can't pull my money out until age 59.5.*

I want to invest my money in a normal brokerage account, so I can liquidate and invest it elsewhere if an opportunity comes up.

Am I crazy? What do you think?


*(Although I think I could since I've never owned a home and I can pull the money out for a down payment if I ever buy a house).

What's an IRA?

 

[MidwestLandlord]

That's a tough one. If your income level allows you to invest in it, it's tempting because it comes out pre-tax.

But ultimately, it's a slowlaner game, and the "wins" associated with that game are small. Even the tax savings, in the grand scheme of things, is small. Plus since I assume it is employer sponsored, chances are the fees are high.

I have money sitting in a Roth IRA (Vanguard) that I started when I was younger. The "returns" I see on that are laughable at best. I haven't put money into it for years.

Even if my house of cards comes falling down and I go take a job somewhere, I'd personally never contribute to an IRA or 401(k), because I know I can put that money, even after taxes, to better use and see better returns than the market.

This is long-term planning & soul-searching stuff. If you honestly see yourself in the fastlane at some point, it's a waste of money in my opinion. If you see yourself playing the slowlane game (nothing wrong with that), then it's probably a good thing to invest in.

 

[G-Man]

Am I crazy? What do you think?

No. Putting your hard earned money into the hands of strangers only to have half of it evaporate in an economic downturn at age 60 after you've watched your most productive years pass you by, just so you can avoid some taxes on the front end,... that, sir, is crazy.

 

[lowtek]

Not an investment adviser, but I do not contribute to retirement plans. As a tax deferment strategy, it's not very smart. You're losing more money (by setting it aside and not being able to touch it) than you save in taxes.

It's kind of like buying a house to pay less in taxes. You lose out in absolute dollar terms.

 

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[G-Man]

You're losing more money (by setting it aside and not being able to touch it) than you save in taxes.

Real world example: I have 10k wrapped up in an IRA earning 5% max. If I had it in the pool of cash I'm using to finance AR for one of the side businesses I'm in, I'd have that 10k levered out to a 36% cash on cash return. FML.

 

[biophase]

I would put money into a Roth if I still could. I've been maxing out my SEP IRA. It's all a numbers game.

The idea of never paying taxes from a Roth is pretty powerful. If you stuck $10k into it and hit a few homeruns you can blow that thing up to $50k $100k, etc... and pay zero taxes when you withdraw. I just play options in my Roth. I do the risky trades in there because of the tax free gains, it's worth it to go aggressive.

For the SEP IRA, the big difference was you either put in the money or get taxed on it. So you put in $50k, your AGI goes down $50k, or you put in $0 and pay $15k taxes on that $50k immediately.

 

[G-Man]

I do the risky trades in there because of the tax free gains, it's worth it to go aggressive.

This had never occurred to me. rep++

 

[jesseissorude]

Dang, all great stuff to think about! Thanks for the input so far!

I don't have a 401(k) since I don't have a slowlane job anymore, but I do have a Roth IRA account I set up for myself. I'm very active in managing it and get way more than 5%, thanks to the Options Trading threads in the INSIDERS section and a few awesome stock picks I made (love you Nvidia!)


So right now, I'm leaning toward moving a huge bulk of my savings over to a new brokerage account, and scaling back my contributions to the Roth.

 

[MJ DeMarco]

Am I crazy? What do you think?

No, I didn't for many years because my goal wasn't "retire at 65". So I didn't have them.

However once you start acruing excess cash, you'll want to contribute to save on taxes.

Now I max out everything simply to pay less tax.

 

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[RHL]

No. Putting your hard earned money into the hands of strangers only to have half of it evaporate in an economic downturn at age 60 after you've watched your most productive years pass you by, just so you can avoid some taxes on the front end,... that, sir, is crazy.

For fastlaners, retirement fund investment is for people whose pile of cash has become so large that it is unwieldy or outright impossible to deploy it in more time-intensive managed investments (real estate, your biz, etc.). If you have $15,000 in the bank, no way in hell should you consider an IRA. If you've got $500,000+, eh, maybe.

If you find yourself hustling or promoting/expanding your business to its limits, where more cash input from you literally cannot increase the return, and you cannot mange any more properties, and consistently have some money left at the end of every month, there are worse things you can do than sticking it into a fund like that.

Plus, it's great to have big investment plays that kick in at different epochs of your life to supercharge your financial future. You don't want to start retirement at age 60, but waking up to 6 figures that was heavily tax-advantaged on your 60th birthday would be pretty badass. I'm actually starting to look at some funds now.

Also, if your employer matches contributions to a fund and you still have a job, that's a whole different ball of wax. As long as it doesn't defer your fastlane, that's free money. Grab it.

 

[eliquid]

Depends @jesseissorude

Do you have any debt. Car, credit card, school, loans, etc?

If you have debt, DO NOT put money into an IRA. Pay off the debt first.

Once debt free, I'd put money into a business before an IRA/401k.

You gotta get your freedom first/now, then start locking in freedom for when your older.

 

[Unknown]

Retirement funds are very hard to get to if someone tries to sue you. It's not impossible, but retirement accounts are given an extra layer of protection due to the Slowlane world we live in.

 

[Utopia]

Depends @jesseissorude

Do you have any debt. Car, credit card, school, loans, etc?

If you have debt, DO NOT put money into an IRA. Pay off the debt first.

Once debt free, I'd put money into a business before an IRA/401k.

You gotta get your freedom first/now, then start locking in freedom for when your older.

This is it.

 

[jesseissorude]

No, I didn't for many years because my goal wasn't "retire at 65". So I didn't have them.

However once you start acruing excess cash, you'll want to contribute to save on taxes.

Now I max out everything simply to pay less tax.

For fastlaners, retirement fund investment is for people whose pile of cash has become so large that it is unwieldy or outright impossible to deploy it in more time-intensive managed investments (real estate, your biz, etc.). If you have $15,000 in the bank, no way in hell should you consider an IRA. If you've got $500,000+, eh, maybe.

If you find yourself hustling or promoting/expanding your business to its limits, where more cash input from you literally cannot increase the return, and you cannot mange any more properties, and consistently have some money left at the end of every month, there are worse things you can do than sticking it into a fund like that.

Between those two comments alone, I'd say that's "/thread" for me. Thank you guys for the perspective.

Also, if your employer matches contributions to a fund and you still have a job, that's a whole different ball of wax. As long as it doesn't defer your fastlane, that's free money. Grab it.

No employer since I started my business, so no worry there. When I was employed, I'd always grab the matching contribution though.

Do you have any debt. Car, credit card, school, loans, etc?

Proud to say "No!" I busted my a$$ in school to keep a merit scholarship, so no student loans. The only debt I've ever had was when I bought a car in 2013, but that's all paid off now.

 

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[Soulrize]

Its not legal however I think is smart especially if its on a small scale, that is if you had a cash business, you simply put pre-tax dollars into the after tax account. Not sure how you feel about it but its just an option to consider. I've helped small businesses do so myself with their consent of course knowing the implications.

 

[biophase]

Its not legal however I think is smart especially if its on a small scale, that is if you had a cash business, you simply put pre-tax dollars into the after tax account. Not sure how you feel about it but its just an option to consider. I've helped small businesses do so myself with their consent of course knowing the implications.

I don't understand what you mean. So you put on your tax return that you contributed X dollars into an IRA, but instead you put it into a regular account? So basically you are submitting a tax return that has false information on it?

 

[Soulrize]

accident

 

[Soulrize]

I don't understand what you mean. So you put on your tax return that you contributed X dollars into an IRA, but instead you put it into a regular account? So basically you are submitting a tax return that has false information on it?

So since its a Roth account it is assumed that it is after tax dollars and thus you don't report your contributions on your tax return. From the cash component of your business, for example your sales are 1000 a day, and you takeout 10 dollars a day. So that is 70 a week that is contributed weekly into the roth ira while 990 is recorded each day as sales.

 

[biophase]

So since its a Roth account it is assumed that it is after tax dollars and thus you don't report your contributions on your tax return. From the cash component of your business, for example your sales are 1000 a day, and you takeout 10 dollars a day. So that is 70 a week that is contributed weekly into the roth ira while 990 is recorded each day as sales.

Wtf?

So basically you are recommending tax evasion in order to put money into a retirement account?

In this case if you are going to under report income why would putting it into a Roth IRA even matter? You'd be better off doing nothing with it.

You are basically doing something illegal and then depositing it into a bank account where it can be traced.

The whole premise makes absolutely no sense at all.

And btw there is a limit to what you can contribute into a Roth IRA and while it may not be reported it's easily recorded.

Lastly, the dollar that you put into the Roth doesn't know where it came from. Its not like the actual cash pocketed is driven to the bank and deposited into the account.

 

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[Soulrize]

Wtf?

So basically you are recommending tax evasion in order to put money into a retirement account?

In this case if you are going to under report income why would putting it into a Roth IRA even matter? You'd be better off doing nothing with it.

You are basically doing something illegal and then depositing it into a bank account where it can be traced.

The whole premise makes absolutely no sense at all.

And btw there is a limit to what you can contribute into a Roth IRA and while it may not be reported it's easily recorded.

Lastly, the dollar that you put into the Roth doesn't know where it came from. Its not like the actual cash pocketed is driven to the bank and deposited into the account.

The very first thing I said was it was illegal and I'm just putting it out there. Some people don't fear it because of the minimal amount you can put into

a roth is 5,500 and thats about 16 a day and its just for knowledge. If everyone was ethical and paid what they owed with no shilly shallying then tax

favorable investments wouldnt be a big deal. I would add that you simply use another person bank to transfer the money, but Its beyond the scope of

this post. Under-reporting income is bad period, not a business owner I know doesn't do it, shamefully but if you can't control income and in the

slowlane, options seem grim and more likely to commit to such actions. Kind of like focusing on small fishes(retirement reinvesting) ,better than no fish (doing nothing with it).

 

[MidwestLandlord]

The very first thing I said was it was illegal and I'm just putting it out there. Some people don't fear it because of the minimal amount you can put into

a roth is 5,500 and thats about 16 a day and its just for knowledge. If everyone was ethical and paid what they owed with no shilly shallying then tax

favorable investments wouldnt be a big deal. I would add that you simply use another person bank to transfer the money, but Its beyond the scope of

this post. Under-reporting income is bad period, not a business owner I know doesn't do it, shamefully but if you can't control income and in the

slowlane, options seem grim and more likely to commit to such actions. Kind of like focusing on small fishes(retirement reinvesting) ,better than no fish (doing nothing with it).

Have you read TMF ?

In the book, MJ talks about risks that have very little upside, and tremendous potential downside. This is a perfect example of one of those risks. The "upside" to your suggestion is saving a few bucks on your taxes, the downside is an IRS audit, penalties, fees, potential jail time, and a criminal record.

I'm glad you shared this example of taking a poor risk for us. I hope those that are bootstrapping it take this lesson to heart when money is tight and they are tempted by poor choices.

 

[Soulrize]

Have you read TMF ?

In the book, MJ talks about risks that have very little upside, and tremendous potential downside. This is a perfect example of one of those risks. The "upside" to your suggestion is saving a few bucks on your taxes, the downside is an IRS audit, penalties, fees, potential jail time, and a criminal record.

I'm glad you shared this example of taking a poor risk for us. I hope those that are bootstrapping it take this lesson to heart when money is tight and they are tempted by poor choices.

I have read TMF and taken every detail to heart. Your suppose to focus on income, and for alot of people, they believe its impossible to raise their income and thus do actions such as this.

 

[madmoney]

Hola my kittens!

I don't want to contribute to a tax-advantaged IRA or Roth IRA since I can't pull my money out until age 59.5.*

I want to invest my money in a normal brokerage account, so I can liquidate and invest it elsewhere if an opportunity comes up.

Am I crazy? What do you think?


*(Although I think I could since I've never owned a home and I can pull the money out for a down payment if I ever buy a house).

If you have extra disposable income, you should contribute to your Roth IRA. 2017 have another 5500$ in my IRA. You can pull out your money in case of emergency and do not have to wait til 59.5, only thing is you will get a penalty and not on principal either just the earning profits. I guess cost of doing business. Even if you do decide to get an Roth IRA be sure to gear them at the market, and purchase blue chip stocks. The earning aren't the fastlane but it beats a traditional bank any day.

Q

 

[bringitnow28329]

You can only contribute $6500 a year to an IRA. That's almost nothing. Unless you plan to be poor when you retire you most definitely need to be maxing out a 401k or 403b, IRA or ROTH IRA, or a SEP IRA if you are self employed. Any extra money should go into a brokerage. Yes the money is stuck in these accounts but would you rather lose the money or get access to it later in life? It's a no brainer when you have the predicament that we have in the US with regards to the greedy tax man.

 

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[Ninjakid]

What's an IRA?

Irish Republican Army obv

 

[oimate]

What's an IRA?

Its a freedom fighing army designed to free Ireland from British rule... or an Individaul Retirement account-Whatever on you perfer lol

 

[Yoda]

@eliquid hit the nail on the head about paying debts first.

Next, I'm going to act like I didn't just read the maniacal tax evasion looney toons.

Now to add...

When you pop money into an IRA or equivalent to avoid paying the tax this year, consider... what will the tax rate be when you do access it? Historically, we're actually at a pretty low tax rate, on the whole. Assuming a roller coaster (which isn't atypical) in tax structure, we should probably expect a hike in taxes over the next 20+ years. Why not pay taxes when taxes are low, as opposed to higher (though, of course, this is a projection)? Obviously the Roth makes even more sense, now, with this train of thought.

To boot, with this in mind, you need to not only beat the gains you can make through reinvestment (retained earnings), but ... wait.. there's more!

Tack on some inflation, and your buying power is also going down at access. While this is typically not talked about, owning a cash-flowing asset is one way to hedge against this over the long haul, simultaneously putting capital back in your pocket now and in the years coming. Should something like inflation go nuts, you're walking away with hard assets, not a bunch of paper gainz dampened by distraught buying power.

So, realistically, for an IRA to make real [fastlane] sense, your IRA or equivalent better:

1. Be contributed after debt payoff.
2. Outperform reinvested capital.
3. Outperform zero (meaning not loss).
4. Increase in buying power ($ x inflation x growth rate).
5. Not get slammed by future taxes.

If we're considering the element of "control" with our money... I'm not throwing my money here.

For those who do, or already have money tied up, read up on substantially equal payments to withdraw money before 59 1/2 without penalty. Of course, you pay tax still. Whenever you access your money from an IRA type account, you pay the current tax rates at the time of access. FYI.

 

[eliquid]

@eliquid hit the nail on the head about paying debts first.

Next, I'm going to act like I didn't just read the maniacal tax evasion looney toons.

Now to add...

When you pop money into an IRA or equivalent to avoid paying the tax this year, consider... what will the tax rate be when you do access it? Historically, we're actually at a pretty low tax rate, on the whole. Assuming a roller coaster (which isn't atypical) in tax structure, we should probably expect a hike in taxes over the next 20+ years. Why not pay taxes when taxes are low, as opposed to higher (though, of course, this is a projection)? Obviously the Roth makes even more sense, now, with this train of thought.

To boot, with this in mind, you need to not only beat the gains you can make through reinvestment (retained earnings), but ... wait.. there's more!

Tack on some inflation, and your buying power is also going down at access. While this is typically not talked about, owning a cash-flowing asset is one way to hedge against this over the long haul, simultaneously putting capital back in your pocket now and in the years coming. Should something like inflation go nuts, you're walking away with hard assets, not a bunch of paper gainz dampened by distraught buying power.

So, realistically, for an IRA to make real [fastlane] sense, your IRA or equivalent better:

1. Be contributed after debt payoff.
2. Outperform reinvested capital.
3. Outperform zero (meaning not loss).
4. Increase in buying power ($ x inflation x growth rate).
5. Not get slammed by future taxes.

If we're considering the element of "control" with our money... I'm not throwing my money here.

For those who do, or already have money tied up, read up on substantially equal payments to withdraw money before 59 1/2 without penalty. Of course, you pay tax still. Whenever you access your money from an IRA type account, you pay the current tax rates at the time of access. FYI.

This

I always tell people that with a IRA where you pay tax later, you will be paying at that tax rate then.. in the future... of which you can't predict or even know about.

No control.

I always forget to tell people that even though I know it. Thanks for bringing this topic back up @Yoda