Brent D. Gardner, ChFC wrote:
- quote -

So you're saying that when you buy a stock or bond that you do not part
with money now in return for an expected gain in the future? How do you
get your stocks and bonds for free?

- quote -

That's awfully melodramatic, if I did this I would hardly be betting my
life. But if you are so sure of the outcome, why have you offered to
charge Karen for a Black-Sholes analysis when you already know the results?

-Will

"Will Trice" <wwtrice[at]paragondynamics.com> wrote in message
news:41DAB7F8.6020300[at]paragondynamics.com...
- quote -

Actually, it was incorrect, as are you.

- quote -

Would you bet your life on your statement, years in advance?

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/
http://forum.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Brent D. Gardner, ChFC" <bgardner20[at]cox.net> wrote in message
news:cSlCd.15642$c%.12411[at]okepread05...
- quote -

When you buy a bond it is with the future expectation that the debt will be
repaid. This may not happen. When you buy stock, you own equity. You expect
the equity to increase, but it may decrease.

- quote -

This is a false assumption on your part. Some people pay a tax expecting a
change in future rates.

Planning is about making assumptions on what changes the future might bring.
Financial planners who believe they know more about the client than the
client knows about himself may have false expectations about the present.
The client reveals about himself only what he wishes the financial planner
to know.

Elizabeth Richardson

Brent D. Gardner, ChFC wrote:

- quote -

Actually, her analogy is logically correct.

- quote -

Generally true, but not in this case. She gets to take withdrawals tax
free. That's considerably more than nothing.

"Karen Younge" <karenyounge[at]earthlink.net> wrote in message
news:41D9052B.20BFE8F2[at]earthlink.net...
- quote -

No words were ommitted. Let me very clear. You will change. Your situation
will change. What you expect to happen will not, and what you do not expect
to happen, will.

- quote -

Non sequitur. Your analogy is poor and irrelevant.

When you buy a bond, you buy own someone's debt. When you buy stock, you own
equity.

When you pay a tax - voluntarily and unnecessarily, you get nothing, except
your own hopes and wishes that nothing will change. The problem is,
everything does.

This should be intutitive.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/
http://forum.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Rich Carreiro <rlcarr[at]animato.arlington.ma.us> writes:
- quote -

Unless you are subject to AMT, as more and more folks
will be in the coming years.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

"Brent D. Gardner, ChFC" wrote:

- quote -

Has a word or two been omitted from that last sentence? I don't follow your
thought there.

- quote -

When one invests in stocks, bonds etc, one parts with money now, in the ex-
pectation of income and/or increased value later, and the results rely on many
more than one unpredictable variable (even omitting the investor's own
inability
to predict his or her future state of mind). Should we take your statement to
mean that nobody should invest in stocks and bonds because of the potiential
for making a bad decision? Just because there are a lot of poor choices that
one
might make doesn't mean that *all* the available choices are poor ones, does
it?

Karen

I have to do better than constant absoute dollars to make this work. To retire
at 52 with a constant dollar amount would be asking to starve, IMO. I might
well live for another 45 or 50 years after retirement. I come of a rather long-lived

family--one grandmother lived to 84, I have two aunts 81 and 84, and both my
parents are approaching 80. The aunts and parents are all still in reasonable health

and have all their faculties. Four percent inflation over 50 years would mean prices

multiplied by a little over 7 times during the remainder of my life. If I can't find
a
way to compensate for that, I will just have to give up on retiring so young.

Karen


Will Trice wrote:

- quote -

Will Trice <wwtrice[at]paragondynamics.com> writes:

- quote -

They all have since 1986, as do the std deduction and
personal exemption amounts.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Karen Younge wrote:
- quote -

Just for thought, the boundaries of the tax brackets are frequently
(always?) indexed for inflation, though I think under W's Jobs & Growth
Tax Relief Reconciliation Act of 2003 only the 10% bracket automatically
adjusts (I could be wrong, all the brackets may automatically adjust).
So if your income in retirement will be the same or less than now in
absolute dollars, you may end up in a lower tax bracket as the bracket
boundaries move up.

-Will

"TB" <borekfm[at]pacbell.net> wrote in message
news:T0%Bd.5657$5R.2779[at]newssvr21.news.prodigy.com...
- quote -

Do you work for free?

I don't.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/
http://forum.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Karen Younge" <karenyounge[at]earthlink.net> wrote in message
news:41D8671D.C25C83E3[at]earthlink.net...
- quote -

Incorrect. What you fail to foresee is your own future. You think you know
yourself today, but do you know yourself tomorrow? Let me help you: You
don't.

Will your decisions be the same with less money than with more money?
Studies fly in the face of anything other than you will change.

Anytime one volunteers to part with money in the expectation of some future
result that relies on more than one unpredictable variable, they have an
uncanny knack for making poor choices. There's an entire body of work and
lenghty studies dating back generations that support and explain this, but
these common mistakes remain common.

But Uncle Sam just LOVES for you to pay some extra tax. =)

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/
http://forum.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Brent D. Gardner, ChFC wrote:
- quote -

Brent, speaking of wagers, I have a wager out that you're not going to
tell us how you plan to use Black-Sholes so Karen can figure out whether
or not to convert to a Roth. That would be an awfully creative use of an
option pricing model. Please settle this so I can collect my buck.
(There may be a Nobel waiting, if the math works right...)

-Tad

"Brent D. Gardner, ChFC" wrote:

- quote -

Sure, the bonds might be callable. But my point was that whatever rate of
return
I am able to obtain over the 19 years, it will be the same whether I convert or
not.
If I convert and buy callable bonds, they'll get called. And if I don't convert
and
buy callable bonds, they'll still get called. Whatever will happen, will
happen.
But it will happen regardless of what I decide on the conversion question.

- quote -

What I understand a wager to be is, a sum of money is named, and one of two
or more options is chosen by the wagerer. If I as the wagerer choose correctly,

I get to keep my money . If I choose wrongly, I lose my money, and perhaps
more besides. In the context of a Roth conversion my choice would be "I will
receive earnings on my investments, my tax rate will not fall, I won't get
more deductions in the future than I have at the time of retirement, and laws
won't be changed that make my Roth money taxable". The sum of money named
is the tax due. If I am correct, I keep the tax money (less the cost to
convert), but
if I am wrong, I end up paying the conversion money and the taxes too (or
having
an equivalent loss some other way, that I could have avoided by not converting
my 457). How would you describe a wager in this context?

- quote -

Why is this is a poor bet? It's true that I can't predict the future. I can
only ask
"What do I expect to happen?" In your experience, do tax rates tend to go down,

one's taxable income tend to decrease, or prudently invested money tend to be
lost, over the long haul? If not, the probabilities would seem to be in my
favor--I am betting on the favorite, so to speak. But these are assumptions on
my part and if they are incorrect, obviously my decision will be wrong too.

As an aside on the tax rate in my individual circumstances, it's true that many

people's income decreases in retirement, and I expect mine to also, but (based
on the instructions from last year's 1040--the most recent info I have) I would

not drop into the next lower bracket unless I had a near-total loss of my
assets
and income outside of my pension, a huge new deduction became available to
me due to changes in the tax code, or the income span on lower brackets was
greatly increased. Even if these things did happen, they wouldn't mean I have
to pay taxes on my Roth, just that I would owe less tax on my other income,
such as pension and Social Security. So such potential changes would benefit
me outside the Roth, without harming me within it. I'm starting to think that
the only legislation that would really hurt if I converted would be to lose the

tax-free status on Roth distributions. Unless the changes were extreme, they
wouldn't reduce my taxable income enough to make distributions from a trad-
itional IRA (my other alternative for the 457 funds) tax-free, or even to the
break-
even point of only owing as much tax on the total value of the uncoverted IRA
as it costs to convert to Roth. If the Roth stays tax-free, I'd feel the money
for
conversion had been well-spent, and consider any other changes that reduce my
tax liability as a nice added bonus.

But what I expect to happen in these areas is based on opinion and memory,
which can be unreliable guides to say the least. If you have data that I don't,

which is entirely possible, your expectations would be different. Any such
facts you have would be of great value to me in deciding what to do with the
457 plan over the next few years and at the time of retirement. The more, and
the more accurate, information I have to base my decisions on, the better
decisions I can make.

Karen

Brent D. Gardner, ChFC wrote:

- quote -

How's that different from the load on a mutual fund?

"Karen Younge" <karenyounge[at]earthlink.net> wrote in message
news:41D5C575.942B8D28[at]earthlink.net...
- quote -

Are those bonds callable? 19 years is a LONG time.

- quote -

You misunderstand what a wager is. You can't predict the future, but you're
going to volunteer to pay a tax today that you may never pay in the future.
That's a bet, and a poor one, at that.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/
http://forum.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

and I used 28% because I was looking at my last year's 1040 instructions to
find
out what the brackets are. I had no idea what the incomes or tax rates were,
because I always just use the tables when I do my taxes.

Karen

Will Trice wrote:

- quote -

Elizabeth Richardson wrote:

- quote -

I used 28% because that was the rate suggested by Karen in her
computation. And there is a 28% tax bracket still. It used to be the
31% bracket before W.

-Will

Karen Younge wrote:
- quote -

If you decide to convert you may want to use partial conversions over a
couple of years to avoid getting bumped up into a higher tax bracket.
For example, if you converted $10,000 this year at 25% and $10,500 next
year (assuming the unconverted portion grows 5% during 2005) at 25% then
your total tax bill for the two conversions will only be $5125.

Of course, just because you get bumped into a higher bracket doesn't
mean that your entire conversion will be taxed at the higher rate. Only
the portion in the higher bracket gets taxed at the higher rate. For
example, let's say that you made the conversion in 2004 (I don't know
what the bracket income ranges are for 2005) and that your taxable
income before the conversion is $107,250. This puts you in the 25%
bracket (I'm using the married filing jointly table), but only $10,001
away from the 28% bracket. So you convert your $20,000 and you'll pay
$5300 in taxes (25% on the first $10,000 plus 28% on the second $10,000
that leaked over into the next higher bracket).

- quote -

This is a perfectly valid way of looking at it, except that you charged
yourself tax on the $5600 that you invested with Option B. The tax is
calculated as:

($50539.00 + $14150.92 - $5600) x 25% = $14772.48
Option B gives $50539 + $14150.92 less 25% tax = $49917.44

- quote -

I should point out that never having bought savings bonds, I don't know
if this is the correct way to calculate the tax on them (although you
certainly won't be taxed on your original $5600 investment).

This works out close to a wash, but slightly in favor of the Roth
because you fall into the area I mentioned before:

- quote -

I tend to agree with you. If you convert and 19 years from now it turns
out that you were wrong, I really doubt that you're going to hate
yourself over $5600 that you spent 19 years before (especially since the
only way it will ALL go to waste is if your retirement taxes go to
zero). If you don't convert and you find yourself in an onerous tax
bracket in 19 years, you might very well kick yourself for not
converting (plus the very fact that some of your money is tax free may
drop you into a lower bracket than if you had kept your 457). But this
is just the way I look at it.

Another way to look at it is to evaluate it as a bet. If the
assumptions you made for Options A and B are really your best guess,
then you are essentially risking $5600 now for a $621.56 payoff 19 years
from now (the difference between Options A and B). Looked at this way,
if you can't spread out your conversion over 2 or 3 years (if you need
to spread the conversion over many more years than this because you're
so close to the top of the 25% bracket, then it may be better to convert
all in one year) then this may not be worth it. Your assumption about
your retirement tax rate has to be right on for this to pay off. If you
can convert over two years, the potential gain 19 years from now is
$1877.44. One could potentially look at this as an additional 1.66%
return on top of the 5% you think you'll get anyway. That makes the
conversion a lot more attractive and gives you some room for your
assumptions to be wrong but for the conversion decision to still be right.

Food for thought,
-Will

Karen Younge <karenyounge[at]earthlink.net> writes:

- quote -

Would you rather have $200,000 of income and paying somewhere around
$40,000 in taxes? Or having zero income and paying zero taxes? The
latter certainly minimizes the tax paid :-)

Another (less extreme) example would be someone in a low tax bracket
investing in municipal bonds. You'll pay lower taxes, but you'll
likely have lower after-tax income.

Point being, there are a number of things that lower taxes
but leave you worse off after tax.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us