Author Topic: DividendMantra's "Why I Hold 100% Of My Equity Investments In A Taxable Account"  (Read 4141 times)

Freeyourchains2

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I saw this article recently on Dividend Mantra's website, and thought i should share it with the Investor Alley.

"http://www.dividendmantra.com/2013/08/why-i-hold-100-of-my-equity-investments.html#more"

Dividend Mantra lays out my thoughts exactly for my particular personal situation below:

When your employer doesn't match anything.
When your employer retirement options have all extremely high fees.
When your employer offers no pension.
When your employer sucks, lol.

Dreams of investing in Real Estate rental property and Business start-ups can't be achieved within a 401k/IRA account either without extreme loopholes. Of course a bit of both could be utilized depending on your personal situation and...

After much discussion and debate and many threads in these forums, i have learned other ways on how to achieve FI within 10 years with MMM's strategy on a 401k/IRA/HSA exempted loophole to avoid 10% early withdrawal penalty fees. So if my particular situation does ever change soon, like finding a new employer or starting my own SEPP-401k/IRA from my own business...then i will consider those options as good options, which i have learned here from Investor Alley.

But investor alley should also beware that some Non-Retirement Account strategies exist also for early FI, and people shouldn't be so quick to dismiss them.

« Last Edit: August 27, 2013, 09:43:08 AM by Freeyourchains2 »

fiveoclockshadow

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Good article covering a niche that is a bit different from standard advice.  Good explanations of the lack of advantage to many tax breaks when having low retirement income.

Still not clear to me why he avoids the Roth IRA though.  By his own math and assumptions he is losing $1200 during his accumulation phase by not doing a Roth.  The earnings "locked" in there until he is 59 are small.  Why give Uncle Sugar $1200 you don't need to?  He makes a big deal about SEPP being not to his taste but Roth is a free lunch in his case.

Thanks for the link!

aclarridge

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Good article covering a niche that is a bit different from standard advice.  Good explanations of the lack of advantage to many tax breaks when having low retirement income.

Still not clear to me why he avoids the Roth IRA though.  By his own math and assumptions he is losing $1200 during his accumulation phase by not doing a Roth.  The earnings "locked" in there until he is 59 are small.  Why give Uncle Sugar $1200 you don't need to?  He makes a big deal about SEPP being not to his taste but Roth is a free lunch in his case.

Thanks for the link!

Agreed, I don't understand this either, assuming I understand Roths correctly in that there's a penalty for early withdrawal. That 49.5k should be <10% of his portfolio...if he's down to his last 10% when he reaches normal retirement age, he's doing it wrong.

GreenGuava

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Hey, what's this?  Something new on the topic.  Cool.

Of course, the author doesn't address the Roth (not ROTH;  it's named after a person) pipeline or the idea that he'll need money after 59.5.  If you're living at the low rate, those conversions are near-free, and the money you pull depends on what you need, not what someone else decides to send your way.

Those dividends also are taxed during the accumulation phase, unless your total income is under the start of the 25% bracket.  That limits what can compound.  It's part of why the total return is far more important in taxable - the non-dividend gains aren't taxed until they're realized.

Left

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hm... I haven't heard about it here or often. But you can invest in real estate with a self directed 401k
http://www.irafinancialgroup.com/the-self-directed-401k-plan.php

anyways, I think I might do this once my current 401k gets enough to buy a rental/or do with my roth, haven't decided which route.
Sure I can't get the profit on it before retirement, so if I do early retire, I'd need a good nest egg first.

fiveoclockshadow

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Agreed, I don't understand this either, assuming I understand Roths correctly in that there's a penalty for early withdrawal. That 49.5k should be <10% of his portfolio...if he's down to his last 10% when he reaches normal retirement age, he's doing it wrong.

It is even less than that.  For a Roth the penalty is only on withdrawing *earnings*.  The contributions can come out anytime you want tax and penalty free.  So he can get that $49.5K anytime he wants and only the roughly $8K in earnings for the nine year accumulation phase along with the future earnings on on those earnings is "locked away".  If he needs that ~1% before 59.5 he is already in deep doo-doo.  In the meantime if he really wants to he can take the $49.5K out in the first few years of retirement, save that $8K and its additional earnings for after 59.5 and come out $1200 ahead.