<p>Actually, it would not work that way for us, notrichenough. I could never make that kind of return over a sustained period of time, as most people can’t. And if I had the 45k (as opposed to borrowing all over the place) I probably wouldn’t have invested it, but if I had, I’d be paying 40% taxes on the gains, annually, as I doubt I would buy and hold. I expect to pay a high tax rate upon retirement, and it seemed an obvious choice. Pay 45k now, or many millions later. Even if you have a low tax rate at retirement, if you have large RMDs, you’re going to pay big money in taxes.</p>
<p>That sounds like something worth investigating, IxnayBob, for those who have after tax contributions. Could be very helpful for some.</p>
<p>As far as Roth conversions that you have to pay taxes on, I would only do it if I didn’t have to take the money out of the Roth to pay. Defeats the purpose to take it out of the account that grows tax free.</p>
<p>
What is stopping you from just mirroring whatever investments your friend is making?</p>
<p>The link I posted talks about “side fund” analysis, and debunks it for Roths.</p>
<p>I don’t know what else to tell you except… math. </p>
<p>I’ll take a look at the link, but I don’t think the same situation applies to everyone. Even if I could get a program to execute the same trades as our friend, since the account would be much smaller, I’d either have to put fewer stocks in it, or have fees eat up profits for small quantities of stock.</p>
<p>Then you’re looking at putting that money in a taxable account. Every year, paying 40% on the profit. Where’s that money coming from? And then, paying 40% or greater, if tax rates go up, on your RMDs. And the fact that there are RMDs on an IRA is quite a negative, putting you into a higher tax bracket. 45K now, millions later in taxes. </p>
<p>I took a (brief) look at that link, but it seemed to me that the math is not calculated for the situation I am talking about. Converting an IRA into a Roth, using money outside the Roth to convert. The situations they are looking at are either using money inside the IRA to convert it, leaving less inside the Roth (that would be crazy), or comparing either funding a Roth OR a 401K. And there are still some people who are better off funding the Roth. But it seems like a good article because it addresses who might or might not be better off funding a Roth, if they are only going to do one or the other.</p>
<p>The section on “Side-Fund Analysis” covers this. </p>
<p>If everyone could make 18% per year for decades, then sure the Roth is a no-brainer. If you wind up with $9 mil in that account, an RMD would instantly put you into the highest tax bracket, and since you probably won’t spend it all, estate factors come into play.</p>
<p>But the vast majority of people can’t make those kinds of returns. And there’s no guarantee you can continue to get those returns for 20 more years - your guy may retire or get hit by a truck or just lose his mojo.</p>
<p>You’ve made your bet… we’ll have to check back in 20 years to see if it paid off. 
</p>
<p>I wonder how many of us here will still be posting on cc in twenty years. Hopefully all of us will be healthy and alert enough to do so. I’d much rather our friend retire than get hit by a truck…or even lose his mojo, that would be painful for him. But even if he slips to a mere 10% return, that’s still a lot of money, and it would have ended up to have large taxes on the withdrawals, whenever we withdrew from it. Though in twenty years, that might be the cost of health insurance for the elderly, if Medicare, Medicaid, and Obamacare crash the system.</p>
<p>One of my 401K fund dropped 9% yesterday.</p>
<p>Good God, don’t look at it! Ignore, ignore.</p>
<p>@coolweather, it’s just noise. If it worries you, it’s a sign that you’re probably over allocated to equities. </p>
<p>We are still in the accumulation phase, so I like it when the market goes down. More accurately, when it goes down, my first reaction is “Dang!” but then I remind myself that it means that my next purchase will be at a sales price. It also often means that my bond funds went up (not always, but often). </p>
<p>I don’t worry but I wish the the fund always goes up. 
</p>
<p>Oops…I put in more money to my 401K recently (in order to maximize my contribution before the end of the year.) So I think it is mostly in the SP 500 index fund - for this 401K account. (It is not much because I have not worked at this company very long time.)</p>
<p>Do people usually roll their 401K to the new 401K account at their new company when they change their job? I did not. I just rolled it into an IRA. Now I think it may not be a good move. I should have left it at my old company as the maintenance fees are lower on 401K than on IRA. </p>
<p>@mcat2, where is your IRA? How much are the “maintenance fees?”</p>
<p>I usually roll 401ks to IRA, except that I wish now that I hadn’t because of how it affects backdoor Roth. My wife has been at the same employer (or the employer who bought the old employer) for many years, so she doesn’t have an IRA to worry about.</p>
<p>On the subject of market ups and downs, here’s an interesting study <a href=“http://www.bogleheads.org/blog/bogleheads-principles-never-try-to-time-the-market/”>http://www.bogleheads.org/blog/bogleheads-principles-never-try-to-time-the-market/</a></p>
<p>What if we could perfectly time the market?</p>
<p>Mark W. Riepe, from Charles Schwab, tests perfect market timing against four other investment strategies in his article, Does Market Timing Work?</p>
<p>The study tracks the performance of five hypothetical long-term investors following one of the five following investment strategies.</p>
<pre><code>Perfect timing: investing at the market low each year;
Invest immediately: invest at the beginning of each year;
Dollar cost average: invest in 12 monthly installments (also mirrors payroll installment investments in a 401-k type retirement plan);
Bad timing: invest at the market high each year;
Stay in cash investments: stay invested in treasury bills.
</code></pre>
<p>Each investor received $2,000 at the beginning of every year for the 20 years ending in 2012 and left the money in the market, as represented by the S&P 500 index.</p>
<p>The table below shows the ranking order of performance and accumulated wealth over the 1993 – 2012 period for each investment strategy:
Strategy Terminal wealth
Perfect timing $87,004
Invest immediately $81,650
Dollar cost averaging $79,510
Bad timing $72,487
Stay in cash investments $51,291</p>
<p>The totally unrealistic strategy of perfect timing will always occupy the top place in the ranking. The measured period was also one which included a realized equity premium return over cash investments.</p>
<p>The study then examined 68 rolling 20-year periods dating back to 1926. In 58 of the 68 periods, the ranking order was exactly the same. In only one period did investing immediately fall to the fourth ranking (in 1962 to 1981, a period of weak equity markets). However, during that period, fourth, third and second places were virtually tied.</p>
<p>The study concludes that “the best strategy for most of us mere mortal investors is not to try to market-time at all. Instead, make a plan and invest as soon as possible.”</p>
<p>Bogleheads conclude: never try to time the market.</p>
<p>However this market is very frightening. In my opinion it has basically gone up because of the government which is very dangerous. It’s basically fictitious. QE3 is ending and the government cannot keep doing this. I would say be very careful. We could have a huge crash. In fact I wouldn’t be surprised if we do. The real question is when. This is definitely a short market for now. </p>
<p>Bob I agree with your comments but this is not a normal market. It hasn’t been since the government intervened. </p>
<p>There is one rule I adhere by. Always protect your investments and come up with a stop. It can be 5%, 8%, 10%, etc. the reason is simple if you lose 50% of your money you’d have to make 100% to get it back. Let’s say you have 100,000 and lost half of it and now you have 50,000. You will have to make 100% return to get it back. That’s insane. So with a stop of 10% you lost 10,000 but you can easily make that back. </p>
<p>I witnessed the crash of 2000 and many people just let their money fall. They were like deer in headlights. </p>
<p>I know of a person that gave 1M to her investment adviser and she forgot about it for several years. She decided to see how much she had. 250,000! I’m not kidding. </p>
<p>If you follow that simple stop loss rule you will be able to preserve your hard earned assets and be able to invest another day. </p>
<p>Everyone should develop their own strategy where they can sleep at night. I’m very fortunate that I saw the crash of 2000 because I learned a lot from that. </p>
<p>That’s just my 2 cents. </p>
<p>Bob. I don’t understand why does your rollover to the tIRA affect your back door Roth? Every year I roll over my 401k to my tIRA and sometimes I then move my tIRA to a Roth. I’ve had no problems with doing that. </p>
<p>I must be much older than you. I witnessed Black Monday 1987. I went in and bought…still holding some of those stocks.</p>
<p>
I am not going to argue with Bogleheads. But some of us do try to time the market that is why we look at Bollinger bands, rsi, stochastics and various indicators before we put in a bid.</p>
<p>@Krlilies, and that’s what makes horse races. </p>
<p>I’m just teasing with the following game, but here’s a game where you get to guess if these actual terms are used in technical analysis or figure skating:</p>
<p>Turning Point
Twizzle
Swing Target
Zayak Rule
Oscillator
Russian Split
Head and Shoulders
Kiss and Cry
Crack and Snap
Haircutter
Blow-off
Death Drop
Dead Cross</p>
<p>
</p>
<p>What you’re doing doesn’t sound like a backdoor Roth, actually. At some point, presumably, you’re paying tax on the conversion.</p>
<p>The problem with having tIRA assets is that you can’t move only non-deductible assets out of a tIRA if you also have tIRA assets that were pre-tax or deductible. You have to pro-rate and pay taxes and it makes my head hurt to think about it :)</p>