Long rant, easy answer: Rich and poor drive; but only the rich write tax law.
“As in most things, follow the money.” Yep.
For sure, follow the money. Don’t even get me started on another rant.
Per @attorneymother http://www.omhpartnergroup.com/i-should-have-listened-seven-problems-your-401k
Look at this:
A Roth account inside a 401(k) plan is also subject to the same rules as the 401(k) plan. There is one rule that is especially troublesome for a Roth inside a 401(k). A Roth inside a 401(k) is subject to the Required Minimum Distribution rules. In other words, you would be required to start taking income out of your Roth at age 70 and a half just like a regular IRA.(7) This is not true with a Roth outside a 401(k) plan. The lifetime RMD rules can only be prevented by rolling the DRAC to a Roth IRA outside the 401(k) plan.
The DRAC five year non-exclusion period does not carry over to the new Roth IRA. Opening a Roth account outside a DRAC will begin the five year non-exclusion period for all ensuing contributory Roth accounts opened at later dates, as Natalie Choate says in her book, “Life and Death Planning for Retirement Benefits”:
@newjersey17
First of all, Natalie Choate is my heroine. She is THE expert on the treatment of retirement plan benefits, IRAs and rIRAs. If she doesn’t have the answer, chances are that other counsel are stumped or look to her for interpretation.
I found one of her updates when searching for the treatment of the “non-exclusion period” (technical term for the required 5-year holding period before distributions from rIRAs are excluded from taxes) for DRAC to Roth IRA rollovers:
https://www.ataxplan.com/choatesNotes/CNotesV8N1.pdf
The discussion is on Page 2 and confirms the start of the five-year “non-exclusion period” for DRAC to Roth IRA rollovers. However, there’s a twist in favor of people who have pre-existing Roths:
As I understand it, unless the taxpayer already has a Roth IRA, a rollover from a DRAC to a rIRA starts the 5-year holding period.
ANYONE who is concerned about these issues should consult your own expert. The rules are complex and my interpretation of them is academic in the sense that I have neither a Roth IRA or DRAC nor intend to convert in the near-term because of my marginal tax rate. My inquiry is for purposes of understanding the Roth beast, which has morphed (probably beyond legislative intent) into a mega tax loophole for those who understand how to thread the needle.
I was so surprised with this comment “A Roth inside a 401(k) is subject to the Required Minimum Distribution rules.”
That’s crazy that it differs from a Roth IRA where it doesn’t require a RMD. You cannot be too careful! 
@newjersey17
At the risk of self-promotion (which is not my intent), I did have that in Post #5630, on page 376.
Please take a look at The Roth Post and see if there is anything else you can add based on your reading.
Thanks. I completely missed that.
If we are into self-promoting, I pointed out RMD about Roth 401K in post #5494 on p. 367 to complement attorneymom’s earlier post about roth to alert people which attorneymom graciaously acknowledged in post #5496.
I agree with everyone about tax codes. 50% doesn’t pay any tax. I think that’s a problem. I am not saying the poor should pay more tax. Their income should be raised to owe tax except the poorest 20% or so. It does look like the upper middle class is the one squeezed out bearing the most burded.
Oh, come on, @Iglooo. I hope your comment about self-promotion wasn’t a dig at me. If so, you have completely mistaken my post. That said, it doesn’t matter either way to me, as I find this thread useful for collaborative purposes.
In a 381-page thread with over 5700 posts, I doubt that anyone is expected to (1) have read the entire thing or (2) remember who said what when.
It was a bit of a dig. This is a long thread and many info are repeated. No one ever takes a credit for anything except you once in a while. I am sure you deserve more tha you take credit for.
It’s pretty amazing that we got this thread to 5700+ posts without getting shut down for politics.
Really? Wow! It must be true about lawyers and their outsized egos.
I’m not aware of anyone keeping track of any such credit-taking, real or imaginary. I try to acknowledge people for their kind words. I think I have thanked posters for this thread also. But, really, this is silly. Let’s carry on.
Hi @Dadof3
Quite a bit of this very long thread is thought-provoking. While skimming over the older half of the thread, I noted your Post #866 (6/9/14) quoted in part below:
This very rough type of “asset allocation” has occurred to me, actually. It’s been my “default” strategy on and off for the past 10 years, especially during the 2008-10 period when I was essentially inert. It seems to have worked well enough for me, but that may just be the fortunes of the market. But, I figure that if I can weather the storm for 5-6 years with liquid, fairly-safe funds, I can keep my equities intact or sell to replenish the 5-6 spending fund. The problems lie, I think, in (1) finding a good parking place for the spending fund because interests rates are so low now that inflationary erosion becomes a real concern and (2) knowing when to act if there is a prolonged bear market.
What do you think about this notion: one way to look at it is that the 5-6 year spending fund constitutes a % of your post-retirement life expectancy initially and it is clearly a type of asset allocation. But it is one in which the bond allocation is pegged to a $ amount rather than a %. I kind of like considering it this way.
I hope you don’t mind my singling you out but your post caught my eye. I’d like to hear your further thoughts on this matter. Others, please chime in with your thoughts and feedback and point out any issues relating to this approach.
Moving on…let’s keep it all lovely and peaceful… Remember that posts miss that important interpretation that spoken communication brings, so let’s all try to interpret what is said believing that is all said with the best intentions possible.
and totally off topic - why do you all seem concerned about the Required minimum distribution rules. The ROTH money comes out untaxed, one uses what one needs and if there is any left over, one pops it into a bank account or gifts it to the kids or goes on vacation… right? What am I missing here?
It is true that there is quite a bit of information repeated on here. Though some things, I didn’t understand the first time it came up, and I still don’t understand it the twentieth time it came up! Maybe at some point, it will be written simplistically enough for even me to understand, or I’ll get off my butt and start reading some financial books.
Some of the mantras that people have here are rather interesting. I suspect that most people don’t even know what their mantras are, though I have been trying to pay attention to what mine are. Probably that the government is corrupt and trying to find ways to confiscate our money, they are all thieves, using our tax dollars to buy votes and for their pet projects, and that no matter what you plan for, it can always be lost. And I’ll just keep saying it again and again, like I never said it the first fifty times!
@anxiousmom
I think the concern about RMDs out of tIRAs is that those funds go into AGI or MAGI and causes other taxable items to be taxable.
So, with the rIRA, between no RMD and being non-taxable, there is a double benefit, especially for people who do not need the funds during retirement – they can pass the Roth to their spouse / children / heirs and further compound the tax-deferral or tax-free benefits. It turns into an estate-planning vehicle.
I think it’s helpful to view the Roth in terms of how it might serve your purpose best. And that, obviously, depends on your individual circumstances.
@AttorneyMother and @Dadof3, we have not had an extended down cycle ala Japan here. If that streak continues, you will be fine with a 5-6 year cash-like stash which can be replenished when equities are up (or back up).
It depends on your ability, need, and willingness to take risk, which is of course very individual. I personally don’t bet what I need to try and win what I want, so my AA approaches 50/50, which some people would find crazily conservative. That’s what makes horse races.
If you’re close to or in retirement, where an adverse sequence of returns would really hurt, I think up to 20 years of living expenses (ie, your shortfall after SS and pensions) is a good idea. If you need equity-like returns, it’s not for you. If you’re young, it’s probably not for you. If you need to provide for your survivors, it might not be for you.
Many worry about the “inevitable” decline in bonds more than the 30+% decline in equities that is also possible. I have a fair amount of assets in various bond funds, and while it would not shock me to have them go down in value, they are intermediate in duration and I can weather that storm and then enjoy the higher yield.
I’m just searching the web @Iglooo, but I doubt see that there is a distinction between what self-directed Roth and self-directed regular IRA can invest in. This would include equity in startups as long as you weren’t the controlling Investor and can be fired. The same would be true of private equity. This is how i should make VC investments at this point.
@IxnayBob, the way that the it can be worth something to really rich folks is that they can put in investments that are are startup stage. So venture investments at founders cost. I think an IRA and a Roth IRA can own these investments.
On my second question, there are clear provisions to block a person from taking out current income from the way investments are structured – i.e., no-self-dealing that lets you take out as current income what should have been retirement income. What’s not clear to me is whether a Roth IRA could own an investment entity that gets a fee for advising on transactions or not so long as no payments are made to anyone connected to the IRA. Suppose my Roth IRA were to create (and possibly invest in) an LLC that advised in transactions and got success fees but paid nothing to its owner or affiliates or relatives. So all money earned by the firm would be dividended up to the Roth. No payments to any individuals. Does that fly?
I do dadof3’s strategy.
I probably end up with a duration of 5.6 years.
Thanks, @IxnayBob
I think the problem for me, right now, to approach age-appropriate asset allocation, I’d have to be very astute at picking bonds and bond funds. Hence my discussion with dstark and momsquad a couple of pages ago. I think having to worry about interest rates as they directly (as opposed to indirectly) affect the ups and downs of my bond fund investments is something I’d have to get used to.
What do you think about the Vanguard Intermediate MMM Fund? I had money in this 20 years ago.