I was so sure I knew the answer to the after tax allocation question! ( I didn’t ) Your explanation helped me think about it more logically. Thank you!
I put secondary verification on my brokerage/IRA log in because I got goosebumps yesterday when I watched your end of year checklist video. Thanks Rob.
While a tips ladder can't lose money as long as one holds to maturity, bond index funds can. FWIW. Also, while I've always had a minor tilt towards small cap value, I gave up on international equities some time ago (for far too many reasons to enumerate), never looked back, and haven't regretted it a bit. Your mileage may vary. But I'm perfectly satisfied with my "diversification" being spread among U.S. stocks & bonds.
Rob, your response on #5 is 100% correct. It's almost always about the RMDs. As an example, when I model for an average 6% return, I won't have to deal with RMDs in any significant way until I'm well into my late 80s. Change it to 6.5%, and RMDs start getting me in my late 70s. Change to 7%, and RMDs kick in right at 75 or 76. And you know what? At 7% I'll have more $$$ than I'll ever need anyway, so from a certain point of view, RMDs are a good problem to have. Roth conversion programs solve for taxes. That's nice, but too often, they don't also take into account the time value of $$ which buy way more earlier, and the compounding missed out on. It really is a balancing act. But yes, a more "optimistic" rate pf return would absolutely result in a tax-solving program to recommend way more Roth conversions than a pessimistic one. It's simply math.
I agree - I suspect that the Roth conversion analysis don’t take into account discounting to present value and don’t factor in the opportunity cost of paying taxes sooner with the resulting lost investment of those tax payments (no matter what the source of the tax payments).
Lot of really good questions! On the last question: I don't know if Boldin lets you see or adjust it but a really big assumption is what the tax brackets will be when RMD kicks in. ACA premiums and therefore subsides are also wildly variable from year to year(other than you know premiums will go up). I couldn't trust any of these tools unless they let me see the detailed of these assumptions.
@@jjdawg9918 I have been tempted to try Boldin, but if it does not let you enter different COLA factors for future tax brackets and does not even show you what they are assuming in the background, then I agree with you. How can the results be trusted?
REITs are a decision versus other asset classes, such as stocks and bonds, a hybrid of stocks and bonds offering potential capital growth and income with tax advantages. By definition, the choice is asset allocation. It should be included as such. There are REITs in the S&P 500. To invest in REITs is a decision to overweight sector(s).
The discussion on how to account for Home equity or ownership is interesting . I agree with Rob regarding the property you occupy. I think if you hold income property then it depends on your individual situation. For owner-occupied property it is better to put in the annual cost of ownership (maintenance + mortgage payment) as an expense. The equity in the house is illiquid, making it different than traded securities. Mortgages are more nuanced though. In the 90's my mother-in-law owned a condo and had a mortgage with a 7% APR. She also had a fair amount of assets that she invested in CD's where she could get 5%. I explained to her that she effectively get's a 7% return by paying off her mortgage instead of buying CD's. Because she though of the mortgage as something categorically different from CD's, this had not occurred to her, but it was clear once it was pointed out.
Regarding the 5th question, should you have different return rates set based on the account type and allocation. For example, while trying to maintain a allocation target across all accounts, then put the lower return rates funds in Trad IRA ( to minimize growth in RMDs) and higher growth funds into the Roth Accounts to benefit from higher growth without added taxes. Then the Brokerage accounts should have tax efficient funds, like ETFs. Balance them all to meet the overall allocation and risk factors. Would this not be a better way to determine Roth conversion potentials and retirement planning strategies?
The problem with different return rates when running Roth conversion analysis is that it will affect the results. I prefer to keep rates the same for running the analysis so that I isolate just the taxes. Then set them back afterward. Not an ideal solution, but so far I know of no retirement planning software with a better solution.
@@rob_bergerI’m not clear on this. I keep my bond allocation in tax deferred and equities in Roth. Why wouldn’t I model returns accordingly? Yes, it changes the answer…but I want a real world answer
@@rdderrick75 Yes. This is my point exactly. I doubt it is advisable to have all accounts (deferred tax, tax-free, and taxable accounts) with the same asset allocation strategy, which is what would be required to have a common return rate for all three types of accounts. So if the allocations are different in each account, then putting a common return rate across all three types is a ‘garbage-in’ analysis IMO. If it is not good investment strategy, how are the results of the effect on taxes and Roth Conversion strategies good ideas? @rob_berger, is it your recommendation that the SAME asset allocation (eg 50/50, 60/40, or whatever) be used across all three types of accounts? If not, then how can using a simplified RoR input strategy be a good strategy for estimating future tax planning strategies?
@@rdderrick75Agreed. I’m 13 years from RMDs. I use my assumed RORs for each account type because the tool should be projecting the account balances of each at age 75+ when solving for the various recommended conversions. If solving for Highest Estate Value, it would need the assumed ROR for the Roth account which would be higher/different. If solving for Tax Bracket then it would want the assumed ROR on the TIRA to determine that balance in 13+ years. It would also need the assumed ROR for the taxable account to project the account balance in to figure out how much is available to pay taxes in BOTH situations. Making the RORs the same for all accounts doesn’t make sense to me.
Is there any good free software for planning retirement accounts contributions while trying to fund college for kids? Let me explain: I am primarily contributing to a 401k and a Roth 401k (I have IRA from a rollover and modest amount in an after tax account also). However, I have three kids (18. 17, 15) that will be going to college. I know the FAFSA looks at taxable income to determine aid. So I am trying to determine if I should reduce my Roth contribution and up my standard contribution for the time being to make my taxable income look really low so we qualify for more aid? Or are there other strategies?
As far as Trad IRS at 75% would make it to complex. I think it’s directional correct and we have to update balances etc at least quarterly. Too much changes.
Hey Rob, I know its only an example, but should we interpret the Roth Conversion info on your screen (begin 22:17) as gains in "Lifetime Tax" savings resulting in losses in "Estate Value at Longevity". Kinda of ironic and tells the story you need to "see the forest through the trees" (i.e. no ever saved themself rich)
The reason you have different investments is you’re expecting them to grow different amounts due to different levels of risk. If one is in a regular Ira then you have less exposure to the growth of that asset. Said another way: your tax bill is going to vary with the results of that asset. So you don’t really have the risk exposure you wanted when you chose 50:50 unless you do it after tax.
Thanks for the breakdown! A bit off-topic, but I wanted to ask: I have a SafePal wallet with USDT, and I have the seed phrase. (alarm fetch churn bridge exercise tape speak race clerk couch crater letter). Could you explain how to move them to Binance?
The last syllable of Reichenstein rhymes with Einstein. The surname means “at the rich rock” in German, named after the town of the same name in modern Czech Republic, known for its local gold mining (i.e., rich rock).
Hi Rob, I’m anticipating inheriting an IRA in a few years. Do you have a recommendation for how to represent this in Boldin? There seems to be limitations that don’t allow selecting future dates for IRA inheritance. I can choose to set up the windfall to come to an existing IRA account (such that tax treatments are correct) however, I still don’t have the ability to follow the 10 year withdrawal rule that way. Also, is there a way to be more precise with account withdrawal sequencing other than simply ordering them 1-n? Thanks!
You can now model inherited IRAs in Boldin. It's a new feature they added last month. As for modeling it in the future, you could add an annual windfall for 10 years if that's how you plan to distribute the money.
Overall great stuff. Regarding the house-as-asset-question: no way. Your home is where you live--it is an expense, not an asset. Very simply, an asset makes money and an expense costs money. (Thank you, Robert Kiyosaki.)The home in which you live, just like the car you drive, costs money to use. It is not providing you income, unlike a rental property (unless you are fortunate enough to rent a room in your home which generates more cash than you spend on its mortgage, taxes, upkeep and repairs, like a rental property, but that is rare). It IS, as Rob says, part of a net worth calculation in that it can become a gain when you sell it. Same with the equity for certain things as Rob detailed. Some people (not me) like to take out some equity as a HELOC and invest that for income, but even there, it would be the investment which is the asset rather than the home, because the loan generates a monthly bill and needs to be paid back. With anything, the simple question of does it make or cost money is easy to remember. Hope that helps!
Good question regarding after tax allocation. Hadn't considered that before. My first thought was it's unnecessarily complicated. Second thought is taxes should be treated as an expense (to be minimized), no different than any other expense. So I agree with Rob's view.
On the Roth conversion strategy, it looked like Boldin probably has a bug. The tax analysis line did not show a horizontal flat line. Since the tax rates are progressive, the optimal minimum tax solution would be to pay the same amount per year for the rest of your life. So the optimal solution would be doing Roth conversions along with RMDs to produce this horizontal flat line. So it would not matter what average return rate was used it would produce the same "flat" line. The difference would be the height of the line based upon the assumed rate of return.
i see a few bugs in the software relative to the tables and results. However, are you sure the flat line in that case is not related to future/current value settings?
@@PH-dm8ew I was referring to the graphic at 19:22 - the optimized plan had effective tax rates varying from about 20% to 0% - with progressive tax rates paying an effective tax rate of 20% one year and the next year zero can't be optimized.
I would use the traditional IRA as spending cash and the Ross has stocks and bonds and clean out that traditional IRA so you’re not paying tax the rest of your life and let the regular Ross grow
I had a little trouble with the logic of the SCV portion. Even with manipulating the time period, the data showed almost no downside. The theory of SCV says that over long time periods, we should expect higher returns. That is, in fact, what your data shows. It doesn't seem reasonable to conclude that you or others should avoid upside potential. I think it is more appropriate to caution people as their time horizons approach 20 years.
I do not believe the fact that for quite a long time, on different rolling periods, small cap values have outperformed large cap is any indication it might happen again in the future. The strongest argument for me about SCV tilting is diversification, especially now when 7 stocks completely dominate the S&P500.
I would argue that small Value demonstrates its usefulness by its lack of correlation with the United States market as a whole. We have seen a 15 year bull run in United States stocks. You would expect uncorrelated sources of return to show their premium when the US market stumbles. Therefore, I would fall into the camp of people who argue that right now is a perfect time to invest in small Value, stocks, but I hope that you, the reader, don’t believe me. I would prefer to claim their premiums for myself, and history has shown us that the more people pile in, The lower the returns are. I will also point out in this self disinterested comment that international developed markets have seen a massive premium of small. Value stocks over the same period that they under performed in the United States. If you are interested in international diversification, you should also be interested in claiming the small cap value premium in other markets.
really enjoy this friday format!
Hello, Bill from Annapolis here. I really enjoy this format of show in addition to your live shows. Happy New Year.
Happy New Year Bill!
Particularly good questions/topics on this episode. I like the way you put up both sides of the argument.
I enjoy the live streams, but sometimes I don't have the time to sit for 1+ hours. This is great as a kind of "recap" very nice.
Love FQF! Great insights! Thank you for analyzing Small Cap Value.
I was so sure I knew the answer to the after tax allocation question! ( I didn’t ) Your explanation helped me think about it more logically. Thank you!
I put secondary verification on my brokerage/IRA log in because I got goosebumps yesterday when I watched your end of year checklist video. Thanks Rob.
I too enjoy the Friday format
While a tips ladder can't lose money as long as one holds to maturity, bond index funds can. FWIW.
Also, while I've always had a minor tilt towards small cap value, I gave up on international equities some time ago (for far too many reasons to enumerate), never looked back, and haven't regretted it a bit.
Your mileage may vary.
But I'm perfectly satisfied with my "diversification" being spread among U.S. stocks & bonds.
Rob, your response on #5 is 100% correct. It's almost always about the RMDs.
As an example, when I model for an average 6% return, I won't have to deal with RMDs in any significant way until I'm well into my late 80s. Change it to 6.5%, and RMDs start getting me in my late 70s. Change to 7%, and RMDs kick in right at 75 or 76.
And you know what? At 7% I'll have more $$$ than I'll ever need anyway, so from a certain point of view, RMDs are a good problem to have.
Roth conversion programs solve for taxes. That's nice, but too often, they don't also take into account the time value of $$ which buy way more earlier, and the compounding missed out on. It really is a balancing act.
But yes, a more "optimistic" rate pf return would absolutely result in a tax-solving program to recommend way more Roth conversions than a pessimistic one. It's simply math.
I agree - I suspect that the Roth conversion analysis don’t take into account discounting to present value and don’t factor in the opportunity cost of paying taxes sooner with the resulting lost investment of those tax payments (no matter what the source of the tax payments).
consistency is key... and simplicity encourages consistency.
I would like of you showed more examples in Boldin. Like the withdrawal % or do we need to enter anything there?
Lot of really good questions!
On the last question: I don't know if Boldin lets you see or adjust it but a really big assumption is what the tax brackets will be when RMD kicks in. ACA premiums and therefore subsides are also wildly variable from year to year(other than you know premiums will go up). I couldn't trust any of these tools unless they let me see the detailed of these assumptions.
@@jjdawg9918 I have been tempted to try Boldin, but if it does not let you enter different COLA factors for future tax brackets and does not even show you what they are assuming in the background, then I agree with you. How can the results be trusted?
Nice episode. Great questions
Hey Rob, any chance you can time stamp the questions in the future so we can skip the ones that don’t apply. Happy New Year
REITs are a decision versus other asset classes, such as stocks and bonds, a hybrid of stocks and bonds offering potential capital growth and income with tax advantages. By definition, the choice is asset allocation. It should be included as such. There are REITs in the S&P 500. To invest in REITs is a decision to overweight sector(s).
Thank you, Rob.
The discussion on how to account for Home equity or ownership is interesting . I agree with Rob regarding the property you occupy. I think if you hold income property then it depends on your individual situation. For owner-occupied property it is better to put in the annual cost of ownership (maintenance + mortgage payment) as an expense. The equity in the house is illiquid, making it different than traded securities. Mortgages are more nuanced though. In the 90's my mother-in-law owned a condo and had a mortgage with a 7% APR. She also had a fair amount of assets that she invested in CD's where she could get 5%. I explained to her that she effectively get's a 7% return by paying off her mortgage instead of buying CD's. Because she though of the mortgage as something categorically different from CD's, this had not occurred to her, but it was clear once it was pointed out.
Regarding the 5th question, should you have different return rates set based on the account type and allocation. For example, while trying to maintain a allocation target across all accounts, then put the lower return rates funds in Trad IRA ( to minimize growth in RMDs) and higher growth funds into the Roth Accounts to benefit from higher growth without added taxes. Then the Brokerage accounts should have tax efficient funds, like ETFs. Balance them all to meet the overall allocation and risk factors. Would this not be a better way to determine Roth conversion potentials and retirement planning strategies?
The problem with different return rates when running Roth conversion analysis is that it will affect the results. I prefer to keep rates the same for running the analysis so that I isolate just the taxes. Then set them back afterward. Not an ideal solution, but so far I know of no retirement planning software with a better solution.
@@rob_bergerI’m not clear on this. I keep my bond allocation in tax deferred and equities in Roth. Why wouldn’t I model returns accordingly? Yes, it changes the answer…but I want a real world answer
@@rdderrick75 Yes. This is my point exactly. I doubt it is advisable to have all accounts (deferred tax, tax-free, and taxable accounts) with the same asset allocation strategy, which is what would be required to have a common return rate for all three types of accounts. So if the allocations are different in each account, then putting a common return rate across all three types is a ‘garbage-in’ analysis IMO. If it is not good investment strategy, how are the results of the effect on taxes and Roth Conversion strategies good ideas? @rob_berger, is it your recommendation that the SAME asset allocation (eg 50/50, 60/40, or whatever) be used across all three types of accounts? If not, then how can using a simplified RoR input strategy be a good strategy for estimating future tax planning strategies?
@@rdderrick75Agreed. I’m 13 years from RMDs. I use my assumed RORs for each account type because the tool should be projecting the account balances of each at age 75+ when solving for the various recommended conversions. If solving for Highest Estate Value, it would need the assumed ROR for the Roth account which would be higher/different. If solving for Tax Bracket then it would want the assumed ROR on the TIRA to determine that balance in 13+ years. It would also need the assumed ROR for the taxable account to project the account balance in to figure out how much is available to pay taxes in BOTH situations. Making the RORs the same for all accounts doesn’t make sense to me.
Is there any good free software for planning retirement accounts contributions while trying to fund college for kids? Let me explain: I am primarily contributing to a 401k and a Roth 401k (I have IRA from a rollover and modest amount in an after tax account also). However, I have three kids (18. 17, 15) that will be going to college. I know the FAFSA looks at taxable income to determine aid. So I am trying to determine if I should reduce my Roth contribution and up my standard contribution for the time being to make my taxable income look really low so we qualify for more aid? Or are there other strategies?
As far as Trad IRS at 75% would make it to complex. I think it’s directional correct and we have to update balances etc at least quarterly. Too much changes.
Hey Rob, I know its only an example, but should we interpret the Roth Conversion info on your screen (begin 22:17) as gains in "Lifetime Tax" savings resulting in losses in "Estate Value at Longevity". Kinda of ironic and tells the story you need to "see the forest through the trees" (i.e. no ever saved themself rich)
The reason you have different investments is you’re expecting them to grow different amounts due to different levels of risk. If one is in a regular Ira then you have less exposure to the growth of that asset. Said another way: your tax bill is going to vary with the results of that asset. So you don’t really have the risk exposure you wanted when you chose 50:50 unless you do it after tax.
Thanks for the breakdown! A bit off-topic, but I wanted to ask: I have a SafePal wallet with USDT, and I have the seed phrase. (alarm fetch churn bridge exercise tape speak race clerk couch crater letter). Could you explain how to move them to Binance?
Stop scamming bro.
Does the Holding Spreadsheet work for ETfs?
The last syllable of Reichenstein rhymes with Einstein. The surname means “at the rich rock” in German, named after the town of the same name in modern Czech Republic, known for its local gold mining (i.e., rich rock).
Hi Rob, I’m anticipating inheriting an IRA in a few years. Do you have a recommendation for how to represent this in Boldin? There seems to be limitations that don’t allow selecting future dates for IRA inheritance. I can choose to set up the windfall to come to an existing IRA account (such that tax treatments are correct) however, I still don’t have the ability to follow the 10 year withdrawal rule that way. Also, is there a way to be more precise with account withdrawal sequencing other than simply ordering them 1-n? Thanks!
You can now model inherited IRAs in Boldin. It's a new feature they added last month. As for modeling it in the future, you could add an annual windfall for 10 years if that's how you plan to distribute the money.
Really appreciate your advice Rob!
Overall great stuff. Regarding the house-as-asset-question: no way. Your home is where you live--it is an expense, not an asset. Very simply, an asset makes money and an expense costs money. (Thank you, Robert Kiyosaki.)The home in which you live, just like the car you drive, costs money to use. It is not providing you income, unlike a rental property (unless you are fortunate enough to rent a room in your home which generates more cash than you spend on its mortgage, taxes, upkeep and repairs, like a rental property, but that is rare).
It IS, as Rob says, part of a net worth calculation in that it can become a gain when you sell it. Same with the equity for certain things as Rob detailed. Some people (not me) like to take out some equity as a HELOC and invest that for income, but even there, it would be the investment which is the asset rather than the home, because the loan generates a monthly bill and needs to be paid back.
With anything, the simple question of does it make or cost money is easy to remember. Hope that helps!
Good question regarding after tax allocation. Hadn't considered that before.
My first thought was it's unnecessarily complicated. Second thought is taxes should be treated as an expense (to be minimized), no different than any other expense.
So I agree with Rob's view.
Put me in the small cap value and international camp. About 10% of each.
On the Roth conversion strategy, it looked like Boldin probably has a bug. The tax analysis line did not show a horizontal flat line. Since the tax rates are progressive, the optimal minimum tax solution would be to pay the same amount per year for the rest of your life. So the optimal solution would be doing Roth conversions along with RMDs to produce this horizontal flat line. So it would not matter what average return rate was used it would produce the same "flat" line. The difference would be the height of the line based upon the assumed rate of return.
It appears Boldin under calculates my taxes. I do Roth conversions in the 200k range and they are at least 10k under what I will actually pay.
i see a few bugs in the software relative to the tables and results. However, are you sure the flat line in that case is not related to future/current value settings?
@@PH-dm8ew I was referring to the graphic at 19:22 - the optimized plan had effective tax rates varying from about 20% to 0% - with progressive tax rates paying an effective tax rate of 20% one year and the next year zero can't be optimized.
I would use the traditional IRA as spending cash and the Ross has stocks and bonds and clean out that traditional IRA so you’re not paying tax the rest of your life and let the regular Ross grow
Love love love FQF!
🤘🏻
I like this format
I had a little trouble with the logic of the SCV portion. Even with manipulating the time period, the data showed almost no downside.
The theory of SCV says that over long time periods, we should expect higher returns. That is, in fact, what your data shows.
It doesn't seem reasonable to conclude that you or others should avoid upside potential. I think it is more appropriate to caution people as their time horizons approach 20 years.
Well, not really, It has been higher over the past 20 years, and I could have looked at 15+ year periods where SCV was much lower.
I do not believe the fact that for quite a long time, on different rolling periods, small cap values have outperformed large cap is any indication it might happen again in the future. The strongest argument for me about SCV tilting is diversification, especially now when 7 stocks completely dominate the S&P500.
pauly merriman wants a debate...set it up
I agree with Rob on after tax allocation primarily due to the unpredictable complexity it introduces.
I would argue that small Value demonstrates its usefulness by its lack of correlation with the United States market as a whole. We have seen a 15 year bull run in United States stocks. You would expect uncorrelated sources of return to show their premium when the US market stumbles. Therefore, I would fall into the camp of people who argue that right now is a perfect time to invest in small Value, stocks, but I hope that you, the reader, don’t believe me. I would prefer to claim their premiums for myself, and history has shown us that the more people pile in, The lower the returns are. I will also point out in this self disinterested comment that international developed markets have seen a massive premium of small. Value stocks over the same period that they under performed in the United States. If you are interested in international diversification, you should also be interested in claiming the small cap value premium in other markets.
VTI and forget it.
VT and forget it 🙂
Pay taxes put it in a Roth account Take it out of 401k pay taxes by gas Pay taxes By groceries pay taxesSeems to me we're all screwed
Death and Taxes. Yup.