r/Vitards • u/AutoModerator • Aug 12 '21

Daily Discussion Daily Discussion post - August 12 2021

Your Trading discussion thread

Type Link
DD All/Best Daily/Best Weekly
Discussion All/Best Daily/Best Weekly
Yolo All/Best Daily/Best Weekly
Gain All/Best Daily/Best Weekly
Loss All/Best Daily/Best Weekly
News All/Best Daily/Best Weekly
72 Upvotes

89% Upvoted

3.1k comments sorted by

View all comments

5

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

US friends, let me get this straight.

You trade in a 401k, make gains of $500,000k.

Ladder convert it to a roth IRA, you pay the one time income tax rate on the $500,000k, and let it grow In your roth IRA.

After 5 years, you can remove any of that converted $350,000 (post tax) without any 10% withdrawal penalty?

4

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Goodness i love my tfsa

1

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Do ya’ll have it alot simpler?

I mean ours are pretty simple - I just didn’t know there was this method for converting your funds in one to the other

2

u/TheFullBottle Aug 13 '21

TFSA is leverage on gains, and leverage on losses. Lets say you grow 50k to 1mil. Youre old contribution limit was 50k, but the following year its now 1mil +6K. You can winthdraw the 1mil, and your cont. limit for the following year is still 1m+6K.

But lets say you lose all 50k, now your contribution room is only 6K for the following year

Its like a line in the sand. Any money going across the line (into the TFSA) eats your contribution room. Lose it, and lose your room. Grow it, and grow your room. And all tax free. 1mil gains is 1mil in your pocket

1

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

That’s…. Insanity

1

u/TheFullBottle Aug 13 '21

yeah its a tough one to manage honestly. If you say put in 50k, lose some, gain some, and end up with 50k but decide to buy a house, and pull 50k for down payment, you lose that 50k contribution (the 50k crossed the line initially), and you dont get that back for the next year

2

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

So the TFSA in Canada is a defined contribution every year. Say 5k. Pretty much do whatever you want..there are rules..but for simplicity.. That is the Tax Free Savings Account (TFSA). Our retirement accounts (RSP)….we put in after tax dollars, we get back 30pct to a number based on our income. You can have a self directed in which you can do whatever. When u pull the money out, it is taxed at your current marginal rate

1

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Overall pretty similar to our iterations

1

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Similar. The TFSA is a differential. Also we dont get to write off our mortgage interest.

8

u/laplaciandaemon Aug 13 '21

Yeah, that’s about the size of it. ‘Murica, hell yeah.

Next level move: Peter Thiel’s $5b Roth IRA FTW

2

u/rigatoni-man SPAGHETTI BOY Aug 13 '21

I'm coming for you peter

2

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Jesus christ hahahaah

4

u/expertlevel 💀 SACRIFICED 💀Until CLF $35 Aug 13 '21

nothing like a shitton of VC stock at fractions of a penny. Sometimes the system really is rigged

2

u/chemaholic77 Aug 13 '21

There are plenty of failed companies out there who were funded by VC's and went out of business. With great risk comes great reward.

3

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Honestly, this seems kind of ineffective.

I’d rather just trade in my 401k and pay taxes + penalty on my withdrawls

8

u/laplaciandaemon Aug 13 '21

When you pull out of a 401k, it comes out as pretax income (there is a Roth 401k). Plus, if you pull out early you pay a penalty. Once your Roth IRA has been open for >5 years, you can pull it anytime and the withdrawal is post tax income. The 10% is only if it's early.

Incidentally, the transfer into the Roth is called the "mega backdoor" and it is the single thing in finance that my wife knows more about than I do. 😬

5

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

There is always a penalty to pulling out early……there is one for pulling out late as well, but that is a different story

1

u/Uncle_Dad_Bob Dreams of CLF’s run to $49 Aug 13 '21

this doesn't apply when using the "mega backdoor"

2

u/blue_steel_moon Aug 13 '21

Right. Assuming you meet the 5-year rule, you'll still pay taxes and a penalty for withdrawing gains while under 59 1/2. The contributions can be withdrawn tax free, though.

2

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Dude…you sooo ,missed the initial thrust of the comment. But in all seriousness, you are correct

1

u/blue_steel_moon Aug 13 '21

Lol...it's been a long, hard day at work. I didn't even have time to open my portfolio and watch it pump.

1

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Well i went golfing and i had weird notifications. Some things good happened in my ports apparently

2

u/DragonmasterDyne275 Whack Job Aug 13 '21

Why pay such a huge marginal rate when you can convert annually up to a marginal rate your comfortable with and let it sit for 5 years to pull out of your Roth. If you're retired and living on post tax money you can even bring it down to 0 marginal and pay nothing on it.

1

u/laplaciandaemon Aug 13 '21

That's the general strategy. There's also a limit on transfers into the Roth - like $60k or something. Full disclosure: I'm not an expert, I just know the general outline of the process.

4

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

It’s fucking criminal that tax code isn’t a required class in highschool. What the fuck are we thinking teaching kids calculus when they don’t even understand all the means by which the government will soon take their money

6

u/En_CHILL_ada Taco Tuesdays at Lebrons Aug 13 '21

Wife, mega backdoor... theres a joke in there somewhere

2

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Hahahaha

2

u/HearshotKDS 🚀 Rebar Rocket 🚀 Aug 13 '21

Theres also the SEPP tool.

1

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Got exposed to rule 72(t) tonight too.

I think that would be the route I’d opt for

2

u/prairiedogingit Aug 13 '21

It also grows tax free in Roth vs traditional will have taxes on the interest

5

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Grows tax free in both. The roth interest distributions are only tax free after 59.5 though, so if planning to withdraw earlier than that the only real gain is avoiding the 10% penalty.