This article is the first of a five part newsletter series I published about a year ago on investments – Letting Your Winners Run and Protecting Your Downside (this stuff never gets old!) Part 1 0f 5 – Investing to protect assets and minimizing losses: This week I am beginning a five part posting on general investing. I used to have my series 7 and 66 brokerage licenses and have managed my own investment accounts for about 18 years. There are many ways to find stocks, bonds and other assets to invest in – investment newsletters, research services, your brother in law, etc. but the most important item is to protect your investments so that you minimize losses and let your winners run. The old addage of buying low and selling high is so obvious we usually pay it lip service, but it is amazing how many people don’t really follow it. Next in Part 2 I will talk about general asset allocation and industry diversification – ways to help prevent a disaster in one particular area that can kill your portfolio. See you then. For financial, accounting and tax musings, You can count on us to count for [...]
Musings of a Burbank CPA: What is the Rule of 72?
(This blog is a reprint of one I wrote a year ago talking about an investment tool to broadly predict an investment return.) Well, you have an investment strategy that will earn a certain amount. How long do you have to use this strategy to double your money? You can either use software like TValue or a scientific calculator to come up with the exact amount of years, or you can use ‘The Rule of 72!’ So now you ask, what is ‘The Rule of 72?’ (Glad that you asked.) It is an easy and approximate calculator someone can quickly use to either figure out how long it will take to double your money earning a fixed percentage annually or how much you have to earn to double your money in a certain time (?????) Okay, you have $100,000 that you figure you can get a nine percent return on. Divide 72 by 9 and you get 8. It will take you eight years earning 9% to double your money. It is easy to use because 72 has a lot of whole number divisors (36, 18, 12, 9, 8, 6, 4, 2) so as a quick way to [...]
Tax Musings of a Burbank CPA: Be Careful Converting Non-Deductible IRA Contributions to Roth IRAs
The new fad in IRA contributions is for taxpayers who have too much income to make a Roth IRA contribution to make a non-deductible contribution to a traditional IRA, then convert this to a Roth IRA. A loophole in the tax code (for now) allows this conversion to a Roth without income tax consequences. But be careful! If you already have traditional IRA accounts, trying to make this conversion can have unintended tax consequences, because all traditional IRA balances (including non-deductible contributions) are all lumped together when making distributions or conversions to Roth IRAs. See this posting in MarketWatch by Dan Moisand to get more details on this: www.marketwatch.com/story/why-you-cant-convert-a-nondeductible-ira-into-a-roth-ira-2015-06-05 So say you have $45000 in traditional IRAs, of which $25000 is contributions and $20000 is earnings. You make a $5000 non-deductible IRA contribution, which you then convert to a Roth IRA. No earnings to pay tax on, right? Wrong; you now have $50000 in traditional IRAs and only a $5000 basis (because you took a $25000 tax deduction for the original IRAs). So you owe tax on $4500 of the $5000 ‘non-deductible’ contribution. This will continue each time you try this conversion technique. I am bringing this up as an [...]