Ask Todd

Need advice on whether to go ROTH or NOT. My wife and I are in our late 20s/early 30s and we've got investments in ROTH 401ks and Traditional 401Ks and we both have ROTH IRAs. We both max out our 401ks and IRAs. I like to go all out ROTH in 401ks AND IRAs because I like the tax free earnings that I would earn in retirement. We are currently in the upper end of the 25% tax bracket. Along with the tax free earnings, I'm not sure if we'll be in a higher tax bracket in retirement so we prefer paying taxes today as everything suggests taxes will be higher 30 years from now. Are we doing the right thing by putting all our retirement savings in after tax accounts. Should we diversify our tax situation and put some in tax deferred accounts?

Hey Todd. I just ran across your "Ultimate Retirement Calculator" and have a question. In the 'desired annual retirement incomet' field, is this net of taxes or is this gross before taxes. In other words, are your calculations grossing up this income to account for the tax % entered or do I have to do that?

Thanks,

Dennis

Mooresville, NC

I just turned 82 years old and have about $1,008,000 in an IRA. I expect (hope) to live another 18 years.

I would like to withdraw about $5,000 a month. Question: will I run out of IRA money before my demise?

If so, when and, if so, how much should I be drawing out each month. My current portfolio is yielding about 5%.

Hi

I would like to know how I can get a job in this field. I did financial advising but felt like it did not connect well with the client sometimes because you were always being pressured to sell more than educate or help your client.

I do have a fairly strong financial background. I had my LLQP, secrities license, 2 courses towards my CIFP and 2 year Accounting diploma as well. My passion is to teach and help people with their finances, not just selling but helping them with their credit problems as well.

Please let me know what path I can take to do this type of work. I feel this would keep me motivated and feel like I have accomplished something in life as well.

Regards

Penny

P.S. I think this website is phenomenal and thank you.

Hi Todd, I'm glad I stumbled on to your site - I am learning so much, thank you for all the free advice. For someone completely ignorant of finances, this was a great find for me.

I'm newly divorced, 2 kids in elementary school, steady job at a public school with full benefits, car paid off, no debt except for a 24K student loan. I automatically put away 20% of my monthly income -- but have been using it for car repair, glasses, etc. otherwise, I'm quite frugal. I looked into getting my student loan forgiven since I work at a public school, but they said that was only for teachers. I also write on the side -- have a couple scripts on option, but all on deferred payment. I'm considering starting my own short film production company next year, but not sure if that's a wise move. I've had short stories published in the past many years before, but not a lot of money in that for what I put in.

Where does a single mom like me even begin?
(P.S. I am looking forward to your 7 Steps next year!)

Hey Todd
Are you familiar with the term arbitrage? My understanding is borrowing at a lower rate investing at a higher rate and collecting the spread. Your thoughts? I recently ask a question about the I.U.L opportunity -essentially investing i.e. 25k into it ,adding 2k per month, after year 1 -taking a loan from yourself and investing at a higher rate, while your 25k is growing on a snapshot of the S&P, at the time you put the 25k in and a year later receiving the difference of growth btn that time period, i.e. 10-13%, if its zero you are guaranteed 2% by the life insurance. The idea becoming your own bank. At year ten your invested money is dollar for dollar and would be in the neighborhood of 200k. Obviously if you put more in at the beginning it would be a greater amount. No taxes when you borrow out of it and your only paying 4% on what you borrow and hopefully investing at 10% or greater. If the S&P paid you 6% and you got 10% from your other investments your looking at 16%. Your thoughts?

thanks Joe

Hi Todd,
I have often had a burning question. I have an annuity that I can get access to without penalty or taxes. I have often thought about pulling out a chunk of it to put toward my mortgage and refinance, especially now with the lower rates. This would allow me to comfortably pay off my house within 10-12 years. I am 40 years old. I am in a 30 year mortgage at 5.625% I owe about 165K. I could about 40-50k and knock it down to a 10-15 year mortgage. I guess the question is is it better to have money invested or be debt free.

Thank you,
Todd C. Jacobs.

Todd,

Thanks for all the free content on the web. It has helped shaped my financial situation for the better.

Here's some quick background before getting to my question. I'm 30 years old and have been working since graduating college at 22. Through that time, I've religiously maxed out the tax advantaged accounts available to me (e.g. 401K, Roth IRA, Regular IRA). As my career developed, my income also grew. A few years back, after growing my income while aggressively cutting costs, I started to have excess cash to invest after maxing out tax advantaged accounts. That excess cash has gone into a personal online brokerage account where I've purchased equity securities. I should probably mention here that I've been sqaurely focused on equity securities in my investment portfolio along with owning a condo that I'll probably rent out once I outgrow it. The majority of my portfolio pays dividends, which also get reinvested. I also continue to invest as much new cash as possible.

With all this said, can you give any guidance on the best way to hold my investments outside of the tax advantaged accounts (401K, Roth IRA, Regular IRA)? My ultimate goal is to be financially independent...which for me means having the freedom to pursue the things I feel are valuable in life on a full time basis. This means at some point (shooting for age 45 or earlier) I will be able to live off passive income from my investments while having the complete freedom to choose what I do each day. Is there an advantage to holding equities within a LLC, C-corp, etc rather than a plain old personal online brokerage account? I can't think of any but would like to hear your thoughts, or have you point me toward a good resource to learn more on the subject.

Thanks!

Hi Todd
First of all thank you for your invaluable content - I am really enjoying it.

I am in the process of building a website that focuses on teaching kids financial literacy - I was wondering if you could possibly help me in developing some content.
Our kids are our future and they surely deserve to be guided by mentors like you early in their lives.
If you can help me in anyway - you have my email address.
Kind Regards
Sean
Ps We live a while for ourselves and forever in our children

Hey Todd
I ask awhile back a question in regard to investing essentially borrowed money in real estate to grow wealthly.. Did you respond and I missed it? Or will you respond soon?

thanks

I have a question similar to Patty's about paying off dept vs contributing to retirement. But I am in the opposite position. I am retired from my job of 33 years and currently not working. I have approximately $95,000 left on my mortgage (house worth $275,000) and 8 years left on the mortgage. My retirement is 60% of my previous salary but I have all the same expenses (utilities, food, gas, etc with one child still in college that I try to support. I have a reaonable pension of $62,000 per year and a Federal government Thrift Savings account (similar to a 401K) of $189,000, and an IRA or $30,000. I am 57 and I was thinking when I turn 59 I would use the money in the thrift savings Plan to pay off my mortgage. This is my only debt. My wife will get a small pension at 65 and Social Security. She is 57 as well. The small income from her job helps us get by comfortably month to month. WE have about $45,000 in other liquid assets (savings, stocks, gold/silver). Should we pay of the mortgage dept (to free up $1200 per month in disposable income) from the Thrift savings plan and reduce my supplementary retirement, or continue on course and pay off the house in 8 more years?

Tim

I am interested in learning how to buy rental houses by foreclosure or tax deed sales. I saw on facebook that you follow Stansberry research "Daily Wealth". I had just got done reading that article about the housing market myself when I saw your post. I am thinking that it is a good time to look into buying my first rental with prices and interest rates still low. Are there any must-read, up-to-date books or pieces of info that would help me with the basics of buying low cost houses to rent? Any suggestions you have before I would start a challenge of this sort?

Todd,

I am aching to be free of my student loan debt (roughly $60k), so I've been religiously following a debt-payoff plan thanks to your ADP calculator. At the same time, I've been struggling to put 10% of my monthly income towards savings, and another 10% towards my IRA (though, I know it's not enough). I'm 26 years old. Years away from retirement. And aching to be debt-free....

What's more important? Quick debt-payoff? Or maxing out IRA contributions and saving 10% of my income?

If I cut back on contributing to my savings and retirement even 50%, I could be free of debt 2 years sooner (saving $5,000 in interest) than if I continue to save/contribute the way I am. If I were debt-free, I could travel at will, put away more for retirement later on, save for a house... Oh, the possibilities! But, then I slow down my savings and retirement accounts. Any advice?

Todd,

Thanks for your response! I agree completely with your reply and the post articles. I think I did not represent my wants clearly. My dream is to do a job (or own a business) that I love, that has importance helping people. I want to work the hours that I choose and not have to worry about whether I can afford to by a pair of jeans for work! My dream job would be doing something that improves peoples lives and at the same time enables me to give 20-50% (whatever makes financial sense) of the profit to various missionaries that are in my family. Not everyone is called to full-time missions, God needs wealthy people to make money to support these works. Anyways, my problem is that I am too confused as to what I should do, I really need direction and after I figure that out, I need a plan to make it happen. This is where I think you could be of help.
Do you think that your "7 steps to 7 figures" would be beneficial to me or should I pursue the coaching directly?
Thanks so much!

Todd,
I have been trying to figure out what to pursue in my life in the last 2 years. Having stumbled on you site, it appears it is exactly what I have been looking for. I have so many questions of what path to take....stocks, real estate, starting a business....to achieve my financial goal of not working a traditional job, but the upcoming economic status and the meltdown of the dollar have me so confused as to what would be a smart avenue and hedge against inflation. I feel like we are heading for a stock market crash in the next couple years due to our gov't spending and collapse of the dollar. How do you protect your paper assets? Buy Gold? lol. I would love to start financial coaching (given that it makes sense) but I was wondering whether you recommend going through the "7 steps to 7 figures" steps first or just shoot for personal coaching?

Background: I am 28 and had a dream to be retired by 30. I have been itching to start my own business or figure out what to do to make extra money. We live in america and the irony in that is that there are 50 million ways to make money...too many choices! I am extremely motivated to follow a system and work hard to achieve my goal, I just need to know what to do to not waste time. I have a net worth of around $200,000 (not all liquid) and have close to $100,000 in non-Roth IRA (combining my mine and my wife's). No kids. My wife and I both work retail and have a combined income of $100,000/yr. We are currently living off just my paycheck to payoff my student loans (they will paid off in under 2 years from now). After that, our only debt is our house which has a really low fixed interest rate. I am interested in the best/fastest way to being able to pursue other interests and being my own boss! Any thoughts would be a blessing!

Thanks,
Derek

Todd:

At the age of 48 I am returning to school to become a health-care professional. I owned a business the past 8 years and sold it due to the bad economy. I have found it very difficult to find any work in my profession over the past 2 years. I love business but also love my chosen health-care profession. I was accepted by a very prestigious Ivy league university to pursue my doctorate degree. It will take 3 years to complete and $150-$180K in fed loans (at 4 - 6 %) 10 year terms. I have 4 kids 15 -3 yrs old and my wife works full-time and is the sole bread winner at this point. My oldest son will begin college the day I graduate. We have a few hundred thousand in retirement funds (and 2 years tuition in a 509 which was originally being set up for the kids). My job prospects when I graduate are excellent and the pay is good ($75K -$100K+). I figure I will have a 15 -20 year career working until 65 - 70 years old. My goal is to start my own practice within 3-5 years of graduating. In your opinion is it crazy to take out this kind of loan debt at my age and not work for 3 years 4 if you count the 1 year I just did to do pre-reqs? I go back and forth on it ultimately settling on the fact that I will be employed right out of school and work hard for the next 15 - 20 years. And if I were to get another "job" I could be let go at anytime. Wish I was younger and doing this but I am not. Thanks for your perspective.

Do you subscribe to the adage "it takes money to make money"? If so, do you think in today's market it is prudent first and possible second to take a business line of credit and invest it to make money investing in real estate? Essentially "investing" yourself wealthy.

thanks
Joe

Can I make money on the side helping people improve the quality of their websites? For instance this embarrassing typo shows on every page on your site:

"The Money Wheel - Is you financial plan balanced?" should be
"The Money Wheel - Is your financial plan balanced?"

I see stuff like this all the time. But what is it worth?

Sounds like a plan!

Yes, that definitely helped! I'll look up guaranteed bank deposits and money market funds, since I have no idea what either of those are. I already have shopped around for the best high-interest account I could find (~6 percent pa and no fees, as long as I fulfil certain deposit and withdrawal conditions, which I have no problem with).

Your advice also gave me some much-needed perspective. Now I get that I'm trying to do everything with my money at once at a stage in my life where it's not practical or wise to do so. And also that there's no point in getting grand ideas before I build a good foundation. Probably things my parents could have told me, had I but asked--but there you go.

I think I will pay off that debt ASAP and get the up-front discount and peace of mind rather than make wild, uneducated guesses about my future income stream... Also, since I posted the previous comment, I started having a good look at your articles on investing, and I've realised that I need to get a good grounding in how to be a smart investor before I start investing (as well as get to the stage where not all the money I have is money I can't afford to lose).

Finally, thanks for reminding me about time being my best asset. You can bet I'm going to do everything I can with that.

God bless,
Steph

Hi, Todd!

I graduated from high school last year, and am working for a year before going on to university. I want to start building wealth, and I'm saving everything I can--however, I'm on minimum wage and I only have about $4000 in the bank. I also have to pay my own way through university (likely to be about $20 000 for three years).

I kind of have two questions...

Firstly, I know that investments are the best way to build wealth, but when you don't have very much to start with, what do you do? I'd like to know if you have any tips for people my age who are basically starting off with nothing.

Secondly, I don't know what they do in America, but in Australia, the government will take on your university fees, and you can pay them back later at low-interest when you're earning over $40 000 per year. As long as you're earning under this amount, you don't need to pay anything. I happen to be debt-phobic, and would rather pay this back as soon as I can rather than have it hang over me. As an added bonus, you can get a 20% discount on any upfront payments you make directly to the university.

Thing is, since I want to work in the film industry, I may never actually reach a high enough level of income for me to qualify for paying back. I know people in this kind of situation, and it's looking like a very real possibility that I may never technically *need* to pay this debt back (though my conscience may have other ideas). I'm wondering if, while I'm in uni, it'd be a better use of my money to invest what little I have rather than use it to pay off a debt I may never be forced to pay off.

What would you do in my situation?

Also, I just want to say that I like the advice you give in articles like the 10 commandments of wealth and the article on accountability. It applies to so many different things, and definitely made me re-evaluate a lot of my life that wasn't related to finance. So, thanks :)

Todd,

I’d love to get your thoughts on an optimal asset allocation and what asset classes are most important to have represented.

I know this is a highly personalized question, based on one’s age, risk tolerance, dependants, income, net worth, desired retirement age, need for investment income and many other factors.

I’ll therefore give you a little background about myself. I’m a 40 yr old male, married with a non-working spouse, a 2yr old and another (our last) child on the way. We’ve accumulated a net worth of about $1.4M, with about $1M of that in liquid assets. My income is in the $200K/yr range and I am hoping to retire from full time work in the next few years to enjoy my family and seek more creative outputs for my time and energy.

I’d appreciate your thoughts on a proper mix of not just stocks, bonds and cash, but would welcome a deeper analysis that included percentages devoted to specific market cap levels (large, mid and small), investment strategy (growth, value and specialty funds like natural resources and REITS), percentage dedicated to both foreign stocks and foreign bonds (developed and emerging markets) as well as any other categories you felt were important to have represented.

I’m a big fan of your site and the service and forum that you provide and I look forward to your thoughts on this topic.

All the best.

Todd,
thanks for your answer! You are right.
I'm in my 60's and plan on doing AffMkt full time for 3-5 years. The only negative I see - is the greedy plan administrators [costs], and once the gov see this opportunity the [rules] will definitely change.
I'm a bachelor with 2 Roth IRA's, and I'm going to follow this putting a biz in a Roth idea, because if you research the history of tax rates in the USA, it was 50% back in the 60's and if you watch the news now - it's on it's way back to 50% probably within a decade, just to pay the interest on the national debt.
The opportunity to grow your wealth - tax free - in a Roth IRA will not last long. Like Sandy Botkin says "Taxes are your biggest expense."

Hi Todd,
I heard your interview with the Martells about your Affiliate Business/Retirement plan article.
I'm just getting started in affiliate marketing but am wondering what you think about just having my Affiliate Business in my Roth IRA. I talked to the people at Pensco.com last summer, they wanted $5K to set it up.

If an Affiliate Business is like a 1 million dollar $ Retirement Plan, why not run it inside your Roth IRA?

Thanks in advance
Kent

Todd,

Could you describe at a very high level*** what kind of investment strategy you teach in your private coaching? (Or point me to posts on your website that discuss this topic). You've mentioned glimpses like "3% dividends" and variable annuities now and then. But it would be great to get an overall overview of the strategy you propose. ***I understand that of course you can't give away the details...

HelloTodd,

I am curious to learn about why you sold your 162 units real estate holdings in 2006? What prompted you to sell? Which instruments do you invest in order to replace your income form the 162 units?

Thanks in advance for any input

Eric Blankenstein