9.10.2023 I Strategies Are More Important Than Investments
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Roth IRA and Roth conversions
- The tax benefits of a Roth IRA are likely to be far greater influence on your wealth accumulation than picking the right stock or bond funds to put in them.
- Converting all or some of your traditional IRA to a Roth now could be a good move
- Conversions are on sale until the Tax Cuts and Jobs Act sunsets in Dec. 2025, when today’s lower tax brackets return to their 2018 levels (unless Congress acts)
- Note: Roth IRA conversions are permanent. You can no longer recharacterize back to a traditional IRA
Time, not timing
- Market timing is not easily achievable, even for professional investors who are in the market 24/7 and spend their entire day monitoring their investments
- By staying in the market, you participate in the market recoveries in real time
- By dollar-cost averaging (DCA), you buy more of what you own at lower prices when markets are down
Spend the smartest money first (Smart Money Strategy)
- The decision to take withdrawals from a tax-advantaged account or sell appreciated securities from a taxable account isn’t always straightforward
- Spending smart money first means seeking to balance tax consequences with investment performance. Sometimes more art than science.
Reducing taxes are one of the best ways to reduce your ROI
- So much of the financial industry tries to encourage people to put most of their wealth into qualified plans including IRAs and 401(k)s
- Pretax retirement plans are inefficient
- Paying the taxes dues on traditional IRA or 401(k) withdrawals will probably be your biggest investment expense during your lifetime
Tax diversification
- Set up near-term, medium-term and long-term buckets
- Income strategy and tax plan need to support your goals and values
- Money Matrix
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