talk about legitimate ways of sheltering money

Ok, I am game, Lookout help me out here.

What do you want to know?

Keep in mind that I don't know you, your financial situation, etc. And oh yeah, this a publically accessible thread so I have to be very careful about what I say.

I'm very good at sheltering money. Like, at the bar, I'll put it under my napkin so it doesn't blow away.

:lol:

Shawnee, you kill me.

And, like, if it shows up at your door, you let it sleep on the couch without a second thought, right?

Am I stupid for putting my money into a 401K instead of a regular mutual fund?

I mean it's tax deferred, which means I have a bigger pile of money earning returns than if taxes had come out of it. Sounds good so far. I get that. That's a big bonus.

But when I retire, I will have to pay tax on what I take out. Seems only fair. However, my house will be paid off then and my dependents will all be off on their own. :fingerx: So I won't be able to take anywhere near as many deductions as I do now, and I will be taxed at a higher rate than I am now. Won't that higher tax rate cancel out any benefit that the pre-tax 401K gave me? Is there any way to calculate that? Is the entire 401K idea a huge fraud perpetrated on our generation?

bus shelter money

glatt;387710 wrote:

Won't that higher tax rate cancel out any benefit that the pre-tax 401K gave me? Is there any way to calculate that? Is the entire 401K idea a huge fraud perpetrated on our generation?

In that it is usually paired with the elimination of pensions, perhaps. But you do need to take into account that you are compounding your gains on the pre-tax amount.

i'll take a 401K over a pension any day of the week.

your taxdeferred earnings compounding over a long period of time is incredibly powerful. Keep in mind that you aren't going to take your entire 401K balance out at once at retirement. You will leave your company, roll the 401K to a traditional IRA and begin withdrawing only what you need - you control the taxes. In fact, you should meet with your planner and accountant to run numbers on converting your traditional IRA to Roth so that you have even greater long term gain and control your money even further.

If you aren't funding a Roth (and you're eligible) do it, even if that means not putting as much into your 401K. Hopefully you can fully fund both, but if you can't fund your 401K to the amount you need to get any available match, then fund your Roth, then finish what you can in your 401K. Obviously I don't know, your particulars so talk to your planner, accountant, and grandmother.

[SIZE="1"]<insert a bazillion disclosures here>[/SIZE]

barefoot serpent;387719 wrote:

Uniform Transfer to Minors Act

UTMA/UGMA accounts basically allow you to maintain control of the money until the child's 18th birthday. On that day you lose all control of the funds and cannot regain it. The child can choose to buy a hummer (of any variety) and there is nothing you can do about it. Also, although rare, there is precedent for the Custodian of the UGMA account being sued for not making prudent investments for the benefit of the child. Think about a vindictive now-exwife who doesn't think ex-hubbie should have bought XYZ stock.

In short UGMA's are not a "shelter" for money. they are a way of putting money aside for kids, usually for college. The growing popularity and additional control of 529 plans have seen the UGMA concept fall to the wayside for most people.

I'm funding my 401K enough to get the full match, plus an additional couple percent. Are you saying it's better to put that additional couple percent into a Roth instead?

edit: I acknowledge receipt of all the disclaimers, etc.

Clodfobble;387706 wrote:

And, like, if it shows up at your door, you let it sleep on the couch without a second thought, right?

Absolutely.

(Sorry guys, I know this is a serious thread...it's Friday and I'm slap happy.) I'll quit now.

Happy Monkey;387718 wrote:

But you do need to take into account that you are compounding your gains on the pre-tax amount.

also you should consider any of the 'custodial fees', expense ratios, backend loads, etc. that may apply.

@lookout123 - Yeah, I forgot about 529 plans... (see! it pays to know an investment advisor who is on the ball!)

@shawnee - an investment in humor is never lost in The Cellar;)

glatt;387727 wrote:

I'm funding my 401K enough to get the full match, plus an additional couple percent. Are you saying it's better to put that additional couple percent into a Roth instead?

edit: I acknowledge receipt of all the disclaimers, etc.

the questions you need to ask yourself are:
1) Do I really need the tax deduction on a couple thousand this year, or would i rather have that money grow tax-freeeee forever more?
2) Do you have better (more) investment choices available to you inside of your 401K or in your Roth?
3) Do you like having the money unreachable in your 401K or would it be comforting to know you could get at it penalty free in case of an emergency.

I can't give you the answer, but those are the questions I would ask you if we were speaking privately.

also you should consider any of the 'custodial fees', expense ratios, backend loads, etc. that may apply.

Those will most likely be the same regardless of account type as those are related to the investments themselves, not so much the type of accounts.

lookout123;387743 wrote:

Those will most likely be the same regardless of account type as those are related to the investments themselves, not so much the type of accounts.

But aren't some fees waived for institutional investors (401Ks) vs. an individual account?

not generally.

annual fees per account are charged regardless - more generous companies just pay it for their employees. Otherwise the standard is $40/year.

commissions/transaction costs - most 401k's are full of no load funds, so that would be the same. Other choices are A/B/C sh, each has pro's and cons.

lookout123;387724 wrote:

UTMA/UGMA accounts basically allow you to maintain control of the money until the child's 18th birthday. On that day you lose all control of the funds and cannot regain it. The child can choose to buy a hummer (of any variety) and there is nothing you can do about it. Also, although rare, there is precedent for the Custodian of the UGMA account being sued for not making prudent investments for the benefit of the child. Think about a vindictive now-exwife who doesn't think ex-hubbie should have bought XYZ stock.

In short UGMA's are not a "shelter" for money. they are a way of putting money aside for kids, usually for college. The growing popularity and additional control of 529 plans have seen the UGMA concept fall to the wayside for most people.

Well I have one for my dau, who is in college, and because I never signed over the account to her, and she does not know it is legally her's, I am still the custodian and she cannot get money out of it without my consent. She is 20 years old. I want to keep it that way. It was my money that was saved and earned over the last 18 years, and since it is a big chunk (30k) I want to be sure it is used for her when she is in school for things I think are worthy. When she graduates I will use the balance to pay down the school loans we took out for her to go to school. Our other kids have only 529's and oldest has one as well that we have not tapped yet. 529's have a more limited use defined but can be rolled over from one kid to the next if they are not used.

lookout123;387686 wrote:

What do you want to know?

Keep in mind that I don't know you, your financial situation, etc. And oh yeah, this a publically accessible thread so I have to be very careful about what I say.

Well then PM me. I need to shelter money. I am not eligible for Roth. I declined the company 401k because it sucked. I have a SEP-IRA retirement account and some non-deductable regular IRA's.

It was my money that was saved and earned over the last 18 years, and since it is a big chunk (30k) I want to be sure it is used for her when she is in school for things I think are worthy.

It stopped being your money the moment you "gifted" it into the account. I'm sure your family situation is hunky dory so you don't have to worry about it, but right now you are in violation of the codes surrounding the account. It was her money from the date of deposit, control of the account is hers as of the date of her 18th birthday. Just because you haven't told her about the account doesn't change your requirement to adhere to the guidelines. Your advisor should have adressed the issue already. Just be aware that if she ever finds out it exists she can walk into the advisors office and order the liquidation and there isn't a thing you can do about it.

As far as the rest of the info, I won't give specific recommendations to someone I don't know well enough to take on as a client (liability and all that).

In general, I've seen very few 401K's that were so bad I wouldn't take advantage of them. At worst they'll have some target date funds available.

A SEP is a great start. It may be time to find out if that is all you can do. Are you structured so that a Owner only 401K will work? How about a max funded defined benefit plan? Are you of an appropriate age and tax bracket where a new breed variable annuity would make sense? (if you are literally trying to "shelter" money then this requires serious consideration). Are you best suited for an overfunded Life Insurance plan with tax free income stream? How about muni strips?

These are some ideas to look at, but if you really don't know then you should sit with an advisor/planner and see if they can come up with an improved plan.

Lookout - what is the best way to find an advisor/planner? I don't know how to evaluate one to make sure he/she knows what they are talking about.

lookout123;387816 wrote:

Just be aware that if she ever finds out it exists she can walk into the advisors office and order the liquidation and there isn't a thing you can do about it.

Not to worried about that.

As for the rest of the post, thanks. I will look into it. Right now I still havent maxed out my SEP, 35K a year, and I need to do that. The investments they are in with TRP have accrued over 25% since I started them. I will look into the other stuff.

theotherguy;387820 wrote:

Lookout - what is the best way to find an advisor/planner? I don't know how to evaluate one to make sure he/she knows what they are talking about.

a positive word of mouth referral is always the best way (i may be a bit partial though. I don't advertise, I work referral only.*)

The key is to figure out what service you actually need. Do you need someone who just has good ideas on what stocks/funds/bonds to buy? Do you need someone to help you with creating a basic plan and setting you up with an appropriate asset allocation? or Do you need comprehensive tax/estate/investment planning?

If you don't even know where to start PM me and I'll point you in the right direction.

[SIZE="1"]*just so everyone is on the same page, I am not now, nor will I ever use the cellar as a place to troll for clients.[/SIZE]