Understanding IRA & Roth IRAs

DISCLAIMER: I’m not a financial planner. The opinions stated in this blog post are my opinions based on my current financial portfolio and the hours of reading and research. I suggest everyone to also perform your own research since everyone’s financial portfolio are uniquely different.

Last year (2020), I did a deep dive into my current retirement portfolio and adjusted my investments to mainly have small, mid and large cap value and also large cap growth. This balance seemed reasonable at the time. This past year, I opted to hire a financial planner for just 1 year basis to check on how I’m doing with my overall portfolio and to suggest on areas I might need improvement on. Overall, he was fairly impressed at the state of my portfolio and had a few suggestions that I plan on adopting. One of these suggestions is to fund a non-deductible IRA account.

What is a non-deductible IRA? If do you a google search, many of the website talk about non-deductible IRA as a step to for the back door Roth IRA. Specifically, you’re transferring after tax (non-deductible) money into an IRA account which will immediately be converted into the Roth IRA. The money in the Roth IRA will grow and more importantly not be taxed during withdrawal. Keep in mind, some of the search results may point you towards funding a deductible IRAs and then a conversion into a Roth IRA. There are some key differences and I spent a good amount of time reading and re-reading to try to understaand these differences.

1) The total allowable contribution to an IRA (Individual Retirement Account) or a Roth IRA (or any combination of the two) is currently $6000 for 2021. If you’re older than a certain age, you can contribute more.

2a) An IRA comes in two types: deductible and non-deductible. A deductible IRA allows a person to take tax deductions whereas a non-deductible does not allow for tax deductions.

2b) To fund a deductible IRA, a person must meet certain income requirements for the tax deduction. The amount of tax deduction is determined by the income level. Since a person contributed pre-tax dollars into an IRA during working years, the distributions during retirement are then taxed accordingly to the income tax brackets during retirement. This assumes that retirement income in during retirement will be at lower tax bracket than during a person’s working years.

2c) To fund a non-deductible IRA, a person will need to contribute “after-tax” money into the IRA. Since this person is outside the income requirements, he/she can no longer benefit from the tax deduction. Form 8606 must be sent to the IRS in order to note the after-tax contributions. It is important to keep a record of all the Form 8606s so that proper accounting can be done during retirement and distributions. Any growth in the IRA are subject to taxes. However, the original contribution amount will not be taxed (as long as you keep a record of form 8606).

2d) Reading up on deductible and non-deductible IRAs, it seems from a tax perspective funding only non-deductible IRAs make sense. There’s some tax liability associated with mixed deductible and non-deductible accounts

3) To fund a Roth IRA directly, a person must also meet certain income requirements. The direct contribution amount also varies by income requirements. Roth IRAs are slightly different than IRAs in that Roth IRAs are funded with after-tax contributions. Furthermore, during retirement, the distributions from Roth IRA are NOT taxed regardless of growth. This makes Roth IRAs one of the best types of retirement investment accounts. For a young person just starting their working career, I recommend to fund a Roth IRA yearly and invest in mutual funds that are indexed (follow) the S&P500. Using time and the safe mutual fund growth, the account value will grow exponentially over time.

4) To fund a backdoor Roth IRA, a person must first fund a non-deductible IRA and then immediately convert the amount into a Roth IRA.

There are actually some difficulties associated with non-deductible IRAs. The main issue seems to be the record keeping needed to keep the account in order. To add more difficulty, if a person also has a deductible IRAs, the tax liabilities in maintaining both types of IRAs come into play via the “Pro-rata rule” which from my understanding will start to tax a part of the contribution/rollover becuase of the total deductible IRAs in the account. Fortunately, I don’t have any deductible IRAs.

I wish I had known more about Roth IRAs much earlier. Being able to start earlier would have been nice especially since there would be more time for the investments to grow. In this case, time = money truly is accurate. If at all possible, always try to invest in Roth IRAs or leverage non-deductible IRAs for backdoor Roth IRAs. The tax free withdrawals is an amazing tool for maximizing retirement income.

This Incompetent Bank…

Ugh… what the fuck are you doing?

Recently, I received communication that my mortgage loan servicer was changing to a big branded national bank. I’m not sure why the original servicer wanted to sell my mortgage but I guess it happens frequently enough. I also currently use credit cards with this big branded national bank for a few years now and haven’t really had issues using their online portal to check on my various accounts.

About a week after, I still haven’t seen the mortgage account on my online portal. I called the provided customer service line and they apparently could not reconcile the differences between the information from the mortgage with the existing information in the credit card. Somehow they fixed it and the account showed up within an hour.

Fast forward about 5 days, I noticed that “my profile” is wrong now. The order of my name is all jumbled up where my middle name is now my “first name” and my first name becaume my “last name.” I messaged Chase to have them fix it and they said it’ll be done in 72 hours. 5 days later, it’s still not fixed and my mortgage account disappeared from the portal!?!

Seriously!? I called again and they were able to re-link the mortgage account but still haven’t fixed the name. Fortunately, I was able to get the phone number for “direct call-in.”

This is just stupid.

Blueprint Coffee

December’s Trade Coffee comes from Blueprint Coffee. These single origin beans are from Ethiopia’s Guji region. Reading the bag label is pretty nice. Blueprint shows the transperancy behind the sourcing of the beans starting from the where the beans come from. Blueprint has an article about “green buying” to read.

Making my latte, I’m greeted with a sweet fruity flavor that morphs into a pleasanet chocolate after taste that lingers at the back of the mouth.

The Dems f-cking it up!! >[

The fact that Sinema and Manchin were “holding out” from joining the Democratic causes that propelled the Dems into the congressional majorities should have been the FIRST warning sign that neither of these senators are going to give a shit about the Democratic causes in Build Back Better. What’s in Build Back Better? The White House website (wiki, link 1, link 2) has a fairly good synopsis. After also reading the other links, here’s my interpretation of it…

Build Back Better (BBB) will probably help families with kids through tax credits, childcare subsidies, universal pre-school programs and probably most importantly paid family leave (link). In US laws, there currenlty is 12 weeks of UNPAID leave (60 working days or 240 hours). Some states have added exceptions and require paid family leave.

BBB also has a concerted effort in pushing US towards a green infrastructure platform to combat climate change and hopefully establishing a future clean energy technology growth. Climate change needs to be enacted at the governmental/federal level. The overwhelming majority of climate scientists (97%) believe there’s climate change (link 1, link 2, the 3%?, another 3%?).

BBB is also trying to bring affordable healthcare to everyone. Although short of providing single payer healthcare to everyone, it will at least try to shore up some of the deficiencies from the ACA (Obamacare). The US healthcare is horribly inefficient at receiving healthcare based on how much it pays (link 1). Spending nearly 20% of annual GDP and with citizens one medical emergency away from bankruptcy, the US’s laissez faire approach to healthcare needs to change.

BBB will try to help the middle income families through affordable housing and affordable college education. The average student loan debt of a graduating senior has been increasing and for 2021 sits at $30,600! There are a number of different options you can use with that amount. A college graduate could buy a reliable Japanese car like Honda/Toyota and drive 10 years before it breaks. And to be realistic, a college graduate doesn’t neccessarily need to drive a high end luxury car like BMW, Mercedes or Lexus straight out of college unless they’re in a customer facing job like sales. Or alternatively, the 30,600 could fund a 10 year passive investment account with a 5% rate of return and $200 monthly contributions which would yield nearly 80K at the end of 10 years. Or, if there’s affordable housing, the graduate could use the money on a down payment for a condo/house which leads to real estate investment wealth.

BBB says it’s “fully paid for” which I highly doubt (confirmed). However, these kinds of programs are meant to be investments in the future. And even if the future is unknown, the US government needs to act quickly because not doing anything might be worse thing to do. Unfortunately, the US government is anything but fast.

Don Pablo Coffee

Recently, I saw that Costco was selling this huge can of Bourbon Infused Coffee. It’s coffee…. I had to try it. From the description, these beans are first soaked in bourbon and then roasted. Opening the container, it never occurred to me just how big 25 oz of beans actually is. I included pictures of the size comparisons between a 12 oz and 25 oz. Opening the bag, I’m greeted with a strong bourbon aroma with slight oak smell and some yogurt-like fermentation. I’m a bit surprised at the fermentation aromas since it doesn’t seem like these beans were aged in barrels. However, the aromas remind me of the other bourbon infused coffee beans from Pappy& Company that I bought earlier in the year. Those earlier beans were roasted first and then aged in bourbon barrels.

Making my latte, the strong bourbon aroma translates to a strong “bourbon-like” taste. I say this becuase it doesn’t taste quite like bourbon and also doesn’t taste quite like coffee. There’s an initial shock of oak flavors followed by the bourbon aromas ending with slight floral and fruity flavors. The aftertaste though definitely has that bourbon aftertaste. The initial soak and subsequent roast must have permanently altered the aromas and flavors of the coffee beans. I’m not sure if that’s a good thing. But as a specialty “gimmick” coffee, I suppose it could be appreciated to some coffee drinkers. After making quite a few lattes, I’m not a huge fan of this kind of this kind of infusion.

Higher Grounds Coffee

November’s Angels Cup comes from Higher Grounds Coffee. These beans are from the Congo and I don’t recall having tasted Congolese beans in recent memory. Opening the bag, the typical nutty, floral and citrusy aromas permeate the kitchen. Making my latte, the citrus flavors really stands out immediately followed by a smooth nutty flavor that coats the back of the tongue. However, after subsequent sips, the flavors become subdued with a pleasant chocolate milk after taste.

Selling Sunset Season 4

The Netflix’s reality TV show “Selling Sunset” is about selling real estate in Hollywood women who are simultaneously juggling their careers, relationships and of course love life. And what almost inevitably happens… drama.

This new season is no different…. Full of drama… Full of arguements… Full of excitment! In terms of filming, I get the feeling they are filming the show probably during summer and early fall of 2021. During this time, people were starting to go back out to eat at restaurants. You can see quite a lot of restaurant workers wearing masks in the show. Surprisingly though and maybe through editing, you don’t see many people wearing masks walking around.

What I find most interesting about this show is how they managed to connect one of the agents to Simu Liu. With the success of Marvel’s Shang-Chi, the show even had Simu Liu come on the show looking for a house. I guess a celebrity requires a celebrity real estate group to find a house in LA.

Steady State Roasting

November’s Trade Coffee comes from a roaster out in Carlsbad, CA called Steady State Roasting. The beans are Ethiopia’s Guji region. Frequent readers will recognize that I’ve actually received many roasted beans from this region in the past. The lattes I make are generally very delicious and always a solid choice.

However, this bag is slightly different. I find that the normal latte recipe gives a watered down espresso taste. This watered down taste takes away from the latte. Even the normal “coffee flavor” of the latte doesn’t have the normal strength typically tasted in the lattes. As a result, I’ve been decreasing the amount of water needed to brew inside the Aeropress to get rid of this watered down effect. So far, after a few tries, it’s made the latte very strong (typical) but suprisingly hasn’t really brought out more of the flavors. Puzzling….

319 Coffee Roasters

October’s Angels Cup comes from 319 Coffee‘s Spring Blend. I’m not sure why there’s a “spring blend” when it’s currently Oct/Nov and Fall/Winter. As a blend, the beans come from Ethiopia, Brazil and Columbia. Aside from the relatively non-descript packaging, the aromas are amazing. Everytime I open the bag, I smell fruits and nuts. Making my latte, I taste sweet honey and berries leading to a very caramelly nutty aftertaste that lingers at the back of the tongue.