
Do as I say, not as I do: On my failings as an investor
I hold too much employer stock
I understand the tax implications of this, so I might as well sell each lot of restricted stock units as soon as it vests because there's no tax benefit to hanging on longer. And it's not like I think I possess some inside knowledge that the shares are likely to outperform the broad market.
Instead, the key culprit here is inertia. There's a little bit of tax dread mixed in, too, as selling them would trigger a big tax bill. I've been in the process of divesting from company stock for the past several years, but the allocation is still high.
I hold too much cash
Even when cash yields are higher, as they are today, inflation still gobbles up most of the interest.
Cash has stacked up in our account following bonuses or other windfalls, or during fallow spending periods like 2020. And it just never feels like an especially great time to move the money into long-term investments.
Perhaps most important, having cash on hand confers valuable peace of mind. I like knowing that almost anything could happen, and we'd be able to cover it without touching our long-term investments. I think of cash as one of my luxury goods.
I don't hold much in bonds
My husband and I should have a good slug of retirement assets in fixed-income investments at our life stage. But our portfolio is oddly barbelled, with a healthy dose of cash alongside a long-term portfolio that'smainly invested in equities.
In a way, I think the cash and the equities work together from a psychological perspective, with the liquid assets giving us peace of mind to stay the course with stocks.
But the lack of bonds isn't really deliberate. Instead, inertia is probably the main reason. We set up our long-term portfolios with heavy equity allocations in our 30s, and we've never really wavered. But this is something that I'd like to address as retirement approaches.
I don't have a perfect record with 'asset location'
There's a fantastic fund I own—but in our taxable brokerage account. If I could do it again, I'd buy this fund in a tax-sheltered account, because it has made some significant capital gains distributions over the years, which have boosted our household's annual tax bills.
Asset-location problems can be difficult to fix. Even though our reinvested capital gains have helped boost our cost basis, we would still owe a big tax bill if we liquidated the position because of the fund's gains.
I'm slow to make IRA contributions
Ideally, IRA contributions would go in right around the first of the year, to benefit from tax-sheltered compounding for a longer period. And our IRAs sit right alongside our taxable brokerage account, so transferring funds from the brokerage account to the IRA and converting them to Roth is simple.
But I've sometimes made those IRA contributions right before the deadline, a full 15 months later than when we were first eligible to make them. I've also been slow to make the conversions to Roth, periodically letting a few years' worth of contributions stack up in our IRAs before converting.
The baby bear market of March 2020 provided a good opportunity to convert all the traditional IRA assets to Roth with no tax repercussions. I've been walking the straight and narrow—with timely contributions and conversions —ever since.
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CNBC
3 days ago
- CNBC
'Trump accounts' come with a $1,000 baby bonus. Then the rules get complicated, tax experts say
President Donald Trump's massive tax and spending package includes a new child savings account with a one-time deposit of $1,000 from the federal government for newborns. The premise is simple: So-called "Trump accounts," a type of tax-advantaged savings account, will be available to all children who are U.S. citizens starting in July 2026. Beyond that, the rules get somewhat confusing, tax experts say. Under Trump's "big beautiful bill," children born in 2025 through 2028 will also receive a $1,000 deposit each in their Trump account, funded by the Department of the Treasury. There are no income requirements. Parents and others will be able to contribute up to $5,000 a year in after-tax dollars up until the year before the beneficiary turns 18. Employers could also contribute up to $2,500 to an employee's account, which wouldn't be counted as income to the recipient. Both caps will be indexed to inflation. The balance will be invested in a low-cost fund that tracks a U.S. stock index. From a tax perspective, the accounts would function like an individual retirement account. Earnings grow tax-deferred, and qualified withdrawals are generally taxed as ordinary income. Here's where it starts to get tricky. Trump account funds may not be easily accessed for decades. Money in a Trump account generally can't be withdrawn before the beneficiary turns 18. After that, "it turns into a traditional IRA," said Ben Henry-Moreland, a certified financial planner with advisor platform Because the final version adheres to IRA rules, savers would pay a 10% tax penalty on withdrawals before age 59½. In earlier versions of both the House and Senate bill, withdrawals could begin at age 18, at which point account holders would have been able to tap the funds for education expenses or college alternative programs, the down payment on a first home or as capital to start a small business. "The IRA distribution rules requiring owners to wait until they reach age 59½ to make penalty-free withdrawals would presumably still be in effect," according to Henry-Moreland's analysis of the legislation. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart There are ways to avoid the IRA early withdrawal penalty for those under 59½, including if the funds are used to pay for qualifying higher-education expenses or first-time home purchases, as well as for emergency expenses, among certain other exceptions. However, since Trump accounts include a mix of after-tax contributions, initial seed money and investment income, distributions are still partially taxable. That means there are fewer tax planning opportunities compared with traditional and Roth IRAs, where there's either a tax break on contributions or on withdrawals. Trump accounts have neither. "It seems like this is a good idea, complicated with unfavorable tax characteristics," said Zach Teutsch, a managing partner at Values Added Financial in Washington, D.C. For example, "in a Roth account, you don't have to pay tax on the income or the gains, and that just seems better," he said. Experts say that additional details on the tax treatment of distributions will need further clarification from the Treasury Department or Internal Revenue Service. "This is really a retirement account for children," Henry-Moreland said. "It's a way to put money in an account at a young age that gets saved but doesn't have the earned income requirement that a traditional or Roth IRA would have." But because Trump accounts are also restricted to stock funds, that means that savers won't be able to benefit from rebalancing with less risky fixed-income options, such as bonds or cash. After age 18, the "eligible investment" rules may no longer apply and the beneficiary can invest the funds in any way allowed within an IRA, according to Henry-Moreland. Republican lawmakers have said Trump accounts will introduce more Americans to wealth-building opportunities, particularly by investing in the stock market. Sen. Ted Cruz, R-Texas, who spearheaded the effort, said in a May "Squawk Box" interview that the accounts give children "the miracle of the compound growth, the ability to accumulate wealth, which is transformational." A $1,000 initial deposit boosts the attractiveness of these accounts, too. Although some states, including Connecticut and Colorado, already offer a type of "baby bonds" program for parents, most tax professionals agree that the biggest benefit of Trump accounts is the seed money for children born from Jan. 1, 2025, through Dec. 31, 2028. "There's going to be a nice big check coming into the account," said Evan Morgan, a certified public accountant and tax principal at Kaufman Rossin, in Fort Lauderdale, Florida. Just as advisors recommend deferring enough into a 401(k) plan to benefit from your employer's full 401(k) matching contribution, there is no reason to pass this up. "If the government is giving you free money, you should take it," said Teutsch. Otherwise, most experts say a 529 college savings plan is a better alternative for families because of the higher contribution limits and tax advantages. This year, individuals can gift up to $19,000 to a 529, or up to $38,000 if you're married and file taxes jointly, per child without those contributions counting toward your lifetime gift tax exemption. Generally, 529 plans offer age-based portfolios, which start off with more equity exposure early on in a child's life and then become more conservative as college nears. By the time high school graduation is around the corner, families likely have very little invested in stocks and more in investments like bonds and cash. That can help blunt their losses. "At least in a 529 plan you have more flexibility on what to invest in," Morgan said. Although there are limitations on what 529 funds can be used for beyond higher-education costs, restrictions have loosened in recent years to include continuing education classes, apprenticeship programs and student loan payments. Withdrawals from 529s for nonqualified expenses can be subject to tax and a 10% penalty. Also, as of 2024, families can roll over unused 529 funds to the account beneficiary's Roth IRA without triggering income taxes or penalties, so long as they meet certain requirements. "If you were looking at this compared to a 529, I would almost pick a 529 every time," Henry-Moreland said. In some cases, wealthier families could benefit from fully funding a 529 plan and then putting additional funds in a Trump account, as a way to get a jump start on retirement savings without having to satisfy the earned income component of a traditional IRA or Roth, according to Teutsch. However, "most Americans don't even put one dollar into 529 plans, let alone maxing them out," he said.
Yahoo
5 days ago
- Yahoo
Why Your Next Podcast Listen Could Be Worth Thousands
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Newsweek
5 days ago
- Newsweek
GOP Budget Could Increase Energy Bills for Millions of Americans
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Fewer clean energy projects will be commissioned or reach completion as a result of the Republican tax bill pushed through Congress, potentially raising energy bills for millions, according to experts who spoke with Newsweek. "This bill will raise energy prices for all Americans," said Harry Godfrey, the managing director and head of federal engagement at Advanced Energy United, an industry association representing renewable power companies in the U.S. "No two ways about it," he added. "This bill will kill clean energy projects, particularly wind and solar projects, in active development." Newsweek has contacted the White House for comment outside regular office hours. President Donald Trump, joined by Republican lawmakers, signed the One Big Beautiful Bill Act into law during an Independence Day military family picnic on the South Lawn of the White House in Washington, D.C., on... President Donald Trump, joined by Republican lawmakers, signed the One Big Beautiful Bill Act into law during an Independence Day military family picnic on the South Lawn of the White House in Washington, D.C., on July 4. MoreThe final version of the One Big Beautiful Bill Act, signed into law by President Donald Trump on July 4, contains signification revisions and rescissions to clean energy grant programs enacted as part of the 2022 Inflation Reduction Act (IRA). This act, widely considered the centerpiece of Joe Biden's presidency, directed more than $300 billion in funds toward supporting renewable energy projects, primarily in the form of tax credits and grants aimed at expediting private investment. About $160 billion in clean energy investments have been announced since its passage, according to the Clean Economy Tracker, a partnership between Utah State University and the research firm Atlas Public Policy. "The main benefit of the IRA was putting a floor on the amount of renewables that would be built, reducing future uncertainty in electricity prices and emissions," said James Bushnell, a co-director of the Energy Economics Program at the University of California, Davis. "Maybe a lot of these renewables would have been built anyway, but the IRA eliminated scenarios where they might not have been," he told Newsweek. "Those scenarios are now back on the table." The White House has said the new tax bill will "drive down energy costs" through expanded oil, gas and coal production. However, it significantly shortens the window for wind and solar projects to qualify for tax credits, phasing these in over the coming years. To qualify, such projects must either be finished by the end of 2027 or begin construction within the next year. "The most likely projects to be impacted will be those in development that cannot move to construction in the next six to 12 months," Godfrey said. "Some financiers won't wait around to see if the projects meet the new cutoff," he continued. "So very real projects that would have come online at the tail end of this decade—creating thousands of jobs, millions in tax revenue for local communities, representing billions in private investment—they'll go up in smoke." According to Godfrey, as the bill has been debated and revised since Trump assumed office, many energy companies have gotten "cold feet," scaling back renewables projects given the anticipated effects. According to Dan O'Brien, a senior analyst at the climate policy think tank Energy Innovation, individual cases of firms reneging on their renewables investments have become commonplace. He referenced a solar company that announced plans last summer to establish a cell manufacturing plant in Minnesota. However, as the plan to cut tax credits came closer to becoming a reality, it paused construction on the plant and held off on purchasing equipment. While these big-picture effects are significant, Godfrey said the consumer-side effects are "even more worrisome." He added that the bill also terminated the 30 percent tax credit previously available to cut the up-front costs of installing solar panel systems at the end of 2025. "While solar leasing will endure for the near-term, 'mom and pop' solar installers whose businesses are built on solar sales face a bleak picture," he said. A view of solar panels atop the roof of a home in Pasadena, California, on February 25. A view of solar panels atop the roof of a home in Pasadena, California, on February Energy Innovation's research found that the bill would "raise energy prices for all Americans," O'Brien told Newsweek that it would "vary by state." Particular effects, he said, would be felt in the South and Midwest, given the regions' enormous solar and wind potential but the lack of state government support for such projects. "As a result, these states see the highest energy cost increases, to the tune of over $600 increases annually for households in Missouri, Kentucky, and South Carolina," he said, giving the think tank's inflation-adjusted estimates for 2035. "Oklahoman, Texan, and North Carolinian families will also see steep increases of $480 to $540." Nationally, Energy Innovation has found that the bill will result in a 10 to 18 percent increase in energy bills for residential, commercial and industrial consumers by 2035. This is in addition to the effects of the national economic slowdown the think tank expects the bill to cause: $980 billion in lost gross domestic product during the 2025-2034 budget period, alongside 760,000 lost jobs by the end of the decade.