@ucbalumnus, Capital gains on the equity funds in the Roth IRA will never be taxed. Capital gains on the funds in the traditional IRA will be taxed at ordinary income rates. Capital gain on regular after-tax brokerage accounts will be taxed at capital gain rates if you sell while you are alive, but stepped up if you leave them to your heirs. So you generally want the biggest gains in the places where they won’t be taxed as much - Roth or after-tax accounts.
Income from bonds in Roth is never taxed. Income from bonds in a traditional IRA is taxed when you withdraw from the IRA, which you’ll have to do eventually (or your heirs will).
Income from bonds in your brokerage account is taxed as ordinary income as it comes in.
The general approach is to keep bonds, if you have any, in your traditional IRA so the income isn’t taxed until you take it out. Keep the high growth stuff in your Roth IRA so the growth will never be taxed (the contribution was taxed before it went in). Keep the rest of the high growth stuff in your after-tax account.
That will vary quite a bit by individual, some of us want 30% equity and 70% bonds, some want 90% equity and 10% bonds, so you can’t usually put just one type of investment per account. Some of us have 401ks at work that we have contributed a lot to and can roll over into IRAs, some have few retirement funds but big inherited accounts. There are a few general heuristics and a lot of different situations to consider.
Haha, yes, it has been difficult. DW made me get rid of my entire book collection, and it caused me a lot of turmoil. I have some pack rat tendencies so it can be hard to let some stuff go.
We are getting rid of quite a bit of furniture and the rest will go to either the apartment or the Cape house. Some friends of ours run a furniture bank, we are just going to donate it all, we can’t be bothered to try to sell it for a few bucks.
The kids want virtually nothing, and honestly don’t have space for a lot of stuff right now. We are getting some new furniture and I will use this as an opportunity to upgrade some things, for example I tossed three bins of old Christmas lights and next time I need some I will get new LED ones.
Dealing with the 60+ cans of paint that have accumulated over the years has actually been the biggest hassle so far.
Already have the house and just finished a huge renovation project. It’s a 3BR cape and has a walkout finished basement with its own full bath. We should be able to sleep at least 10 comfortably. We can live on one floor that is only two steps up from the ground and garage, so we should be able to age in place pretty comfortably.
If you invest in mutual funds after-tax, you can get hit with capitals gains every year, as the fund is required to distribute the gains every year, and there is churn as shares get redeemed and the portfolio turns over. Index funds can mitigate this to some degree.
One of the things to look for before buying any mutual fund is the unrealized tax load. You can wind up owing taxes even if the shares have gone down, especially if you by near the end of the year before distributions have been made.
You are also assuming that capital gains tax rates will always be less than regular income rates, and that the estate tax rules will remain (more or less) the same. That is not a sure thing at all. It’s not inconceivable that this could all get flipped on its head in the future.
@ucbalumnus@MomofJandL pointed out things to consider. I would like to add, first one needs to consider if it makes sense to convert from tIRA to Roth paying tax upfront. Once the fund are in Roth, none of the growth/income is taxed when you withdraw. You don’t pay income tax at ordinary rate for capital gains. As far as taxes go, stocks and bonds are the same in Roth. If you keep bonds in a taxable account, you have to pay income tax on the interest they produce. That may point to keeping them in Roth. On the other hand, they don’t appreciate as much as stocks and your tax free space in Roth will not grow. One has to see if increasing that space is worth paying tax on bonds income in a taxable space.
Check if your local garbage company has a hazardous waste drop off place you can take them to (and anything else like batteries, florescent bulbs, automotive fluids, etc.).
The vast majority is latex paint, and it isn’t considered hazardous, so no one handling hazardous material will take it, and you can’t put it into the garbage in liquid form, either.
So you have to pry out open the often-decades-old often-completely-rusted-closed cans of paint, and either let them dry out (which takes months) or add a chemical or cat litter to absorb the moisture and turn the paint solid. It’s a huge PITA.
Electronics are another headache, because it’s illegal now to throw that stuff in the garbage. Fortunately right now Best Buy will take virtually anything besides tube TVs for free and recycle it. Old computers, cell phones, stereo equipment (goodbye turntable I had in college! :D) cords, cables, they take it all. Tube TVs cost $25.
I would only recommend index funds that have a history of little to no capital gains distributions. My Vanguard Total Stock Market fund has not had one since I’ve owned it. I don’t pretend to be able to time the market, and wouldn’t invest with an active manager that thought he could.
Tax laws can and will change, but capital gains rates have been low for quite a while. When the law changes my plans might change, but to me it makes sense to plan based on current laws for now.
And if my only problem is my wildly successful investments getting taxed more, that’s not a bad problem.
However, aren’t traditional and Roth IRAs basically equivalent if the marginal tax rates at the beginning and end are the same? (Of course, they may not be, in unpredictable ways.)
For example, starting with $1,000 of pre-tax money, assuming doubles over time in investment, 30% marginal tax rate at beginning and end:
Traditional: $1,000 into investment, doubles to $2,000, taxed at 30%, you end up with $1,400.
Roth: $1,000, taxed to $700, invested, doubles to $1,400, you end up with $1,400 after tax-free withdrawal.
Notrichenough, your local Sherwin-Williams store will recycle latex and oil-based paint free of charge. Most stores have a limit as to how many cans they will accept at once so check first.
Bingo. Our local waste drop off is just a drive thru. Pull up, pop the trunk, and guys with HazMat suits empty the stuff out. They don’t even want you to get out of the car. No cost if you have a local address.
If YOU spend all the money yourself AND your tax rate is the same when you contribute as when you spend AND you would withdraw the Roth money or the Traditional money at the same time that is the case .
However-
For most of us, the tax rate is lower when we contribute, so we’re better off getting the tax break in our peak earning years, and paying the lower rates later (advantage traditional).
Also, there are no RMDs for Roth, so if you don’t need to spend it you can leave it all to your heirs. They will have to take it out of the Roth eventually, but they still won’t pay tax. So you can get more years of untaxed growth (advantage Roth).
Either way, if you have both types of accounts, and you decide to have a mix of stocks and bonds, you probably want the stocks in the Roth (because they will probably grow more, and you will pay no tax on the growth) and the bonds in traditional. But bonds could outperform stocks, many other things could happen, there is no certainty in investing.
One can only plan with the knowledge available today. The stepped-up basis upon death could change. (So much for leaving the kids the BRK!.) Heck, an argument can even be made that in xx years, needing money, Congress will find a creative way to start taxing Roth distributions…
Yes, but MJ has a pretty good size income range at 12% today. (e.g., $2M in RMD’s would be 12% absent other income.) But yes, Roth only works if your bracket is lower in retirement. (Don’t forget that Roth’s do not have RMDs until the death of the owner so an easy way to pass on assets…)
The other thing to watch out for is the IRMMA tax, for which Roth distributions are not counted.
Interesting… I’ve never heard of this and they don’t advertise it. I’ll check it out.
Our town does a hazardous waste day twice/year. Unfortunately the times don’t line up, as the next one isn’t until the summer. And again, they won’t take latex paint because it’s not considered hazardous. It might be different in your area.
ETA: the only thing on Sherwin WIlliams web site that I can find is something about a program called “PaintCare”, which is only available in a few states, and mine isn’t one of them. It’s not run by SW but they act as a collection site in the states that have PaintCare, and it’s not free (although not expensive either).
Our hazardous waste pickups operate in the same manner but do not take latex paint. Only oil based and thinners! YMMV.
We had to dispose of 4 5-gallon buckets of paint leftover by painters of our House1. Mister was foolish to ask them to leave the paint… 19 years later, we had to deal with it. Thank goodness our past two summers were super hot!
I got rid of about 20 gallons a few years ago by pouring them out and letting them dry in the August sun… I never finished and now I am paying the price for my procrastination. L-)
When dh and I first married we started the Eaton Press 100 Greatest Books Ever Written (or something like that). We dutifully paid $43 and change per month as they came in for the next 8+ years. Dh insisted on keeping them. He is reading through them in his retirement, so not much I can say.
We had a drive up place where hazardous materials could be taken. Also CDs and DVDs. The electronics graveyard is a challenge for sure. Good luck with your purge!
I had a collection of 800+ SF paperback books that I accumulated over the years. They took up 4+ bookcases, and DW didn’t want to move them.
I realized that I haven’t read an actual printed-on-paper work of fiction in several years since I got a kindle, so why haul them around. Still, it caused a lot of dissension and I’m still a little butt-hurt by it.
I donated them all to an organization called More Than Words which “empowers youth who are in the foster care system, court involved, homeless, or out of school to take charge of their lives by taking charge of a business”, said business being a used book store.
So at least they went to a good cause, and I get a write-off. Win-win!
Our southern city has both electronics graveyard (certain Saturdays - you drive the stuff to the place), and hazardous waste. Just have to look up and follow instructions.
Yes the downsizing. By the time the next 33 months pass and we are retired, we will see/know what the kids have taken from the home (one wants the piano but has a military move first; some of the kid stuff with the grandchildren, etc).
When you have the room, you do tend to store stuff unless you are a minimalist or super tidy/organized. My motto is to not buy stuff twice. I have a friend that actually got rid of a doll house 3 times - her daughter still wanted one after she got rid of the first, replaced it and in the end had purchased and gotten rid of 3 doll houses.
I have some of my mom’s stuff in the garage that I haven’t taken the time to go through - but I know a few small items we want to keep and a lot will get donated that the kids don’t want. Distributing some of the many pictures.
Lively bunch! Procrastinating on doing the taxes? (Happily we got first pass done in TurboTax this weekend. I’m procrastinating on the next steps / checking etc.)
