On episode 63 of Portfolio Rescue, Ben Carlson and Duncan Hill are joined by RWM CFO, Tax Ninja, and PR all-time-leading contributor Bill Sweet, to discuss how to invest in bonds, RMD calculations, the new Roth rule, and much more! Submit your Portfolio Rescue questions to askthecompoundshow@gmail.com!
►00:00 – Intro
►02:20 – Deconstructing 30-year stock market returns.
►09:03 – How to invest in bonds.
►15:30 – RMD calculations.
►20:44 – Backdoor Roth IRA.
►25:19 – The new Roth rule.
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Investing involves the risk of loss. This podcast is for informational purposes only and should not be regarded as personalized investment advice or relied upon for investment decisions. Duncan Hill, Bill Sweet, and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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A Backdoor Roth IRA is an investment strategy used to circumvent the income limits associated with traditional Roth IRA contributions. This strategy allows high-income earners to take advantage of the tax benefits associated with Roth IRAs, even if their income exceeds the limits set by the Internal Revenue Service (IRS).
The Backdoor Roth IRA is a great way for high-income earners to save for the future and take advantage of the tax-free growth potential of a Roth IRA. However, the strategy is not without its drawbacks. Before deciding whether or not to pursue a Backdoor Roth IRA, it is important to weigh the pros and cons and consider whether the strategy is worth the hassle.
The Pros of a Backdoor Roth IRA
The primary benefit of a Backdoor Roth IRA is that it allows high-income earners to take advantage of the tax benefits associated with a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars, so the money grows tax-free and withdrawals in retirement are tax-free. This can be a great way to save for retirement and reduce your overall tax liability.
Another benefit of a Backdoor Roth IRA is that it allows you to contribute more money than you would be able to with a traditional Roth IRA. The IRS limits the amount of money you can contribute to a Roth IRA each year based on your income. With a Backdoor Roth IRA, you can contribute more than the IRS limit, allowing you to save more for retirement.
The Cons of a Backdoor Roth IRA
The primary drawback of a Backdoor Roth IRA is that it can be complicated and time-consuming to set up. You will need to open a traditional IRA, make a non-deductible contribution, and then convert the money to a Roth IRA. This process requires careful planning and record-keeping, and can be difficult to manage.
Another drawback of a Backdoor Roth IRA is that it can trigger an additional tax bill. When you convert your traditional IRA to a Roth IRA, the money is subject to income tax. This means that you may owe taxes on the money you convert, which can be a significant expense.
Is a Backdoor Roth IRA Worth the Hassle?
Ultimately, whether or not a Backdoor Roth IRA is worth the hassle depends on your individual situation. If you are a high-income earner who wants to take advantage of the tax benefits associated with a Roth IRA, then a Backdoor Roth IRA may be a good option. However, if you are not comfortable with the complexity of the strategy, then it may be best to stick with a traditional Roth IRA.
This episode is sponsored by Liftoff. Visit https://liftoffinvest.com/ to learn more!
I hate this podcast, mindless rambling and bad jokes before they put in 2 sentences about the actual topic
What if I'm already in my 60's?
Great optimism, thanks Ben!
So if the 30 year bond goes up 4%, then I will lose 120%?
Thanks.
Most people can't do Backdoor Roth IRA's because of the pro rata rule. This should have been stated more. Simply put, if you have a Traditional IRA (non 401k) – which most people do – the backdoor Roth IRA loses most, if not all, of its benefits.
Backdoor Roth IRA
There really should have been another name for this.
Love Portfolio Rescue! ROTH IRA for life yesss.
Backdoor Roth IRAs are AWESOME!!! My wife and I have been using them since they became legit under GWB. Tax free returns are the best kind of returns. 🙂
The "backdoor" Roth might be a good place to make your speculative investments that might go up 10X or more before you want to access the money. I have 98% of my retirement savings in conventional vehicles, and the money I'm presently putting into a backdoor Roth I plan on using on more speculative investments at some point. This way if I hit pay dirt, the pay dirt is tax-free. (Thank you Peter Thiel for the lesson!)
Yes FED shirts!! I went looking yesterday and nada! XL please. Very punk rock. I’ll wear it when my band plays shows.
As someone at The Compound pointed out recently (possibly Ben or Josh last week?), one benefit of investing with indices is their winner bias. The Dow is 95% different today than in the 1930s. Similarly, the S&P changes as companies either fade or are acquired, guaranteeing a survivor bias that is highly likely to be to the upside.
Bill (#1) Sweet is a star. Great show, tax information is confusing and it is great to hear from an expert that can explain things as well as he does.
If you are self employed with a 401k, with profit sharing AND about to turn 59 1/2, are you saying to set up the additional Roth to get you to the $66,000 contribution. Can you explain this better in another video with slides. Thanks
Wait Bill, you're assuming the gains are gonna be taxable in retirement from the brokerage. But if this is an average retired American couple you've got $30K SS, $10-11k RMDs, which leaves a lot of room for cap gains to be non taxable due to the 0% rate on taxable income <~$83K. You keep the $ more accessible as you're in the accumulating phase, plus the brokerage acct would get a step up in basis at death so no difference for estate planning vs Roth.
BIG THANK YOU to PORTFOLIO RESCUE! Much appreciate you answering my Inherited IRA question today. Bill advised looking at Schwab's online calculator (I've search their site before and stopped looking thinking they did not have one). They do indeed. I plugged in relevant data and BOOM…got the RMD for 2023. Tip of the hat to Mr. Sweet! FYI…I'll be using part of the RMD from the Inherited IRA (after paying taxing on that distribution) to pay the tax on my 2023 Roth conversion. Big fan of Roth conversions…just not so much as to have a Roth tattoo…
Between the new videos and Cloudflare earnings, I’m all booked up for today!