Roth IRA after retirement?

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lakpr
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Re: Roth IRA after retirement?

Post by lakpr »

@ocman,

I suggest that for bonds, look at Series I Savings Bonds from Treasury Direct. You can let the $7,000 contributed for 2022 remain in a Total Stock Market ETF (either VOO or VTI), and the $3,000 you have in your brokerage account be used to purchase the I bonds at Treasury Direct.

It requires you to open a Treasury Direct account, but the advantages are:
1) No earned income requirement,
2) tax on interest earned on the I bonds can be deferred until 30 years or you sell the bond whichever occurs first,
3) You can redeem the bond partially with the only catch bring the minimum partial redemption is $25 and 1 cent increments thereafter
4) State and local tax free, which may be of interest to you seeing that you live in California (I think CA exempts retirement income from state taxes, so not sure if this applies to you)

There is a 1 year lockup period for the money invested in I bonds, and a 3 month interest penalty if you redeem earlier than 5 years. They are guaranteed to never lose value, unlike the BND ETF that lost 16% last year.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

Katietsu wrote: Fri Jan 13, 2023 10:31 pm I think there is some confusion in the responses because OP seems to have an annual income of $100k, 22% tax bracket, savings of $200k and good health coverage. Many of us would not call that income small.
You are correct, at least about the confusion on my part. I had missed the edit in the middle of the thread that added some of that information.

ocman, with $100k income in SS and pension, a single person is definitely in the 22% tax bracket and will stay there until 2026 when the bracket will revert to a 25% rate. That income will definitely put you out of reach for the saver's credit so no need to consider that any more. And yes, 85% of your SS is being taxed and there is no way to avoid that. I do not think a deductible contribution to tIRA will do it.

After this year's last check, you will have to have earned income in the future (part time job perhaps?) in order to contribute to an IRA at all. If there is no retirement plan at work, you will have a choice of making a deductible contribution to tIRA or contributing to Roth IRA.

You apparently have about $200k in savings, and plan to use more than half of as a downpayment on a condo. I assume your pension/SS income will cover a mortgage.

That is going to leave you with maybe $80k in savings (probably less after the details of setting up a new household). The question is what to do with that savings. My suggestion is to keep most of it in some high yield savings account or money market account. Everyone needs something to fall back on and you don't want that fall back money tied up in stocks at all. The stock market is too risky and the money may not be there when you need it.

If you are willing to open another account, at Treasury Direct, I think using I bonds for some of your money would be fine. Just understand that the money is not available to you at all during the first year.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 8:16 am The question is what to do with that savings. My suggestion is to keep most of it in some high yield savings account or money market account.
I have the savings in a Barclays Savings account at 3.4% interest.
retiredjg wrote: Sat Jan 14, 2023 8:16 amIf you are willing to open another account, at Treasury Direct, I think using I bonds for some of your money would be fine. Just understand that the money is not available to you at all during the first year.
I will look into I bonds for sure.

Still trying to figure out percentages on a 3 fund portfolio as far as my Roth IRA and 3k brokerage account.

Also, the best way to proceed in retirement with my current income.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Sat Jan 14, 2023 10:15 am Still trying to figure out percentages on a 3 fund portfolio as far as my Roth IRA and 3k brokerage account.
Did you decide on a stock to bond ratio? Your first idea was way too aggressive in my opinion.

I'd suggest

Taxable 30%
30% Total Stock index

Roth IRA 70%
5% 500 index (much like total stock, but will not cause a wash sale)
15%% total International
50% Total bond index

Also, the best way to proceed in retirement with my current income.
Your income is more than adequate, even generous, if your expenses are low. However, you mentioned SoCal and there is a real challenge for low expenses in SoCal. And state tax is not low either.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 10:45 am Did you decide on a stock to bond ratio? Your first idea was way too aggressive in my opinion.
Not yet, was thinking of going aggressive because of a short horizon for that 10k, but should extend the horizon.
retiredjg wrote: Sat Jan 14, 2023 10:45 am I'd suggest

Taxable 30%
30% Total Stock index

Roth IRA 70%
5% 500 index (much like total stock, but will not cause a wash sale)
15%% total International
50% Total bond index
This makes more sense.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Sat Jan 14, 2023 10:55 am Not yet, was thinking of going aggressive because of a short horizon for that 10k, but should extend the horizon.
I understand you want to be aggressive in order to make some money. However, risk is a sword that cuts both ways. You may get richer or you may get poorer. Ir order to benefit from risk, you actually have to take the risk...and that means a higher possibility of actually losing your money.

I don't think you can afford to lose what you have. At this point, preservation of your savings, hoping for some slow growth, is more important that getting richer.

Your income is good and will sustain you if you keep your expenses low. You are very fortunate in that. :happy Your best bet is to find a way to live on less than your income and save some each year to grow your savings. And maybe make a few dollars each year if you want.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 11:29 amI don't think you can afford to lose what you have. At this point, preservation of your savings, hoping for some slow growth, is more important that getting richer.
Thanks for the clarity!
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 10:45 am I'd suggest

Taxable 30%
30% Total Stock index

Roth IRA 70%
5% 500 index (much like total stock, but will not cause a wash sale)
15%% total International
50% Total bond index
Just to clarify the tax situation. After looking at the Tax-efficient fund placement wiki, the bonds would go into the Roth IRA because you wouldn't be taxed yearly on them. At the same time the stocks will usually have a much higher return and that will create higher taxes even though if would be under capital gains.

Your thoughts?
WhiteMaxima
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Re: Roth IRA after retirement?

Post by WhiteMaxima »

Roth conversion man.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

My thoughts are that you don't have a good place for bonds. (Unless you hold the bonds in taxable in the form of I Bonds.) So I put them in the Roth IRA because it might be better than taxable.

But on second and third thought....putting that much of your Roth IRA into bonds is not a great idea either...because (when all things are equal) you want your higher producers in Roth because the earnings will not be taxed (if you wait long enough).

So maybe there is a better idea - if you don't use I bonds, maybe putting some of the bonds in taxable and some in the Roth IRA.

And there is another thing that is starting to seem more attractive, even though it contradicts what I said earlier. If you are going to hold a chunk of savings in HY savings or money market and keep it there forever, you could actually invest this $10k more aggressively than I was talking about earlier.

Your thoughts?

Another possibility is to put your next IRA contribution into traditional IRA and put bonds there.
Last edited by retiredjg on Sat Jan 14, 2023 1:16 pm, edited 1 time in total.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

WhiteMaxima wrote: Sat Jan 14, 2023 1:09 pm Roth conversion man.
Huh? There is nothing to convert.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 1:14 pmSo maybe there is a better idea - if you don't use I bonds, maybe putting some of the bonds in taxable and some in the Roth IRA.
Got it
retiredjg wrote: Sat Jan 14, 2023 1:14 pmAnd there is another thing that is starting to seem more attractive, even though it contradicts what I said earlier. If you are going to hold a chunk of savings in HY savings or money market and keep it there forever, you could actually invest this $10k more aggressively than I was talking about earlier.
That was my initial thought was to be aggressive because I could for the amount of 10k.
retiredjg wrote: Sat Jan 14, 2023 1:14 pmAnother possibility is to put your next IRA contribution into traditional IRA and put bonds there.
I need to get a part time job! Is it still possible to open a traditional IRA now for 2022 since I worked until August 2022?
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

The $7k for IRA is split between traditional IRA and Roth IRA. I think you have already used all $7k for Roth IRA for your 2022 contribution.

However, you have some kind of check coming in soon as W2 income...which you will receive in 2023. As far as I know, that can be counted as 2023 income and you could put money into traditional IRA for 2023 based on that income.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sat Jan 14, 2023 1:14 pmIf you are going to hold a chunk of savings in HY savings or money market and keep it there forever, you could actually invest this $10k more aggressively than I was talking about earlier.
Like 70/30 or 80/20?
Katietsu
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Re: Roth IRA after retirement?

Post by Katietsu »

ocman wrote: Sat Jan 14, 2023 5:26 pm
retiredjg wrote: Sat Jan 14, 2023 1:14 pmIf you are going to hold a chunk of savings in HY savings or money market and keep it there forever, you could actually invest this $10k more aggressively than I was talking about earlier.
Like 70/30 or 80/20?
You have $100k income and $200k savings. I think you are only planning on “investing” $10k. Putting the $10k all in equity is not aggressive because $10k represents a small part of your available resources. I would put all the Roth IRA into equities. You have until April 18 to make a 2022 contribution. Make sure you specify 2022.

Depending on how much simplicity you are willing to give up, you could also buy an I bond. Or you could buy a treasury or use a treasury fund. Shorter term treasuries/funds are over 4% with no state taxes.
bmcgin
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Re: Roth IRA after retirement?

Post by bmcgin »

With your $200k savings, many high-yielding products are available from FDIC insured savings accounts, to short term treasuries and money market funds. It's pretty easy to get more than 4% and stay liquid.

$200k at 4.25% will earn around $700 per month.

It looks like 5% will be available soon. When that happens, many people will question if putting money at risk is worth it and I expect stocks to fall. This year's market is looking like a tug-of-war between a recession and the fed pausing.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Sat Jan 14, 2023 5:26 pm
retiredjg wrote: Sat Jan 14, 2023 1:14 pmIf you are going to hold a chunk of savings in HY savings or money market and keep it there forever, you could actually invest this $10k more aggressively than I was talking about earlier.
Like 70/30 or 80/20?
Depends on how much more of that savings you intend to invest. Maybe start at 70/30 for your $10k?

The problem is that you don't have the experience of seeing half your IRA disappear. Even at 70/30, a good third of your IRA can disappear. That might be more painful than you expect since this new to you.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Sun Jan 15, 2023 8:00 amThe problem is that you don't have the experience of seeing half your IRA disappear. Even at 70/30, a good third of your IRA can disappear. That might be more painful than you expect since this new to you.
Right, I worked a lot of overtime and saved for 10 years to be able to buy a condo (timing is bad now).
ebeb
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Re: Roth IRA after retirement?

Post by ebeb »

ocman wrote: Sun Jan 15, 2023 10:43 am Right, I worked a lot of overtime and saved for 10 years to be able to buy a condo (timing is bad now).
If you haven't bought the condo you may be lucky. Better to wait couple of years until the prices drop further like after 2008 crash. Also condos have other risks like huge repair assessment on condo owners sometimes if HOA didn't do proper planning.
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PeteAndRepeat
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Re: Roth IRA after retirement?

Post by PeteAndRepeat »

In terms of your asset allocation, there has never been any 20 year period In the United States stock market, where the market ended up meaningfully down over any 20 year time. In general over long periods of time the stock market or performs other traditional investments. So for money you anticipate not needing for 20 years do you want that to grow which means that should be invested in equities. Most people here would say low cost index fund like VTSA X, or V OO. There have been a very small number of 15 year times when the market has been meaningfully down and a few more than that at 10 years. So for a younger person who is more aggressive you might want to keep the money you know you will not need for 10 years or 15 years in that equity pool. As we know, there is a real risk that money might be down 50% or even more over a shorter period of time so if you need the money in less than 10 or 15 years, it is inappropriate to have that in equities. It might be down 50% or more when you really need it.

Bonds and bond equivalence are less volatile and less likely to be down over shorter periods of time, but also generally grow less aggressively. So if you don’t need the money for say five or 10 years you needed to keep up with inflation so you needed to grow a little, but you also needed to be safe. To my mind money that you will not need for between about five and 10 years or five in 15 years should generally be in some thing that works like a bond. It will grow less, but will be less volatile as well. there is still the possibility as we saw this past year. That bonds could really crash. So they are volatile just generally not as volatile as equities.

Finally, as both equities and bonds can crash and might not recover for a few years, if there is money that you need to be there within the next three or five years, that should be in cash or cash equivalents. Over 3 to 5 years of generally it will lose value because of inflation so you don’t want to keep too much money in cash, because inflation will eat it away. But for money that you need in the immediate future, say it within the next three years, that should be in some sort of cash equivalent, like money market or CD.

I am confident that I am speaking below you for the next part, so please don’t take it as an insult! Cash equivalents mean basically cash. Money in a money market or a CD is always there. Bonds are loans to some institution. It can be to a government like treasuries or municipal bonds or to a company like corporate bonds. Junk bonds or high interest bonds pay more return but they pay more return because there is a real risk that the company can go out of business or fail to return your money. So high-yield bonds are not appropriate for your Bond group because that has to be safe money. The bonds are loans, equities instead is in ownership portion where you do well, or do not do well based on how the company does. You are throwing your lot in with the company and betting that it does well in the future. Whereas if something bad happens to the company, the loans will be returned. Your value in equity will not so the bonds should be safer, not including high-yield bonds.

That is how I look at it at least.

In terms of buying Apple, it might be a great decision, and might be a lousy decision. No one knows the future. It might be their best years are in front of them or their best years are behind them. No one really knows. For that reason, most people here will recommend a broad diversified low cost fun where you’ll have some losers, but you also will probably not miss the winners. Your returns will not be the best, but you will not lose everything in contrast to purchasing individual stocks where there’s a chance you will do much better and a chance you will lose everything. All of this, of course depends on your risk tolerance, but the data are clear that actively managed funds run by professionals are nearly always are outperformed in the long run by diversified low cost funds as above.
PeteAndRepeat
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Re: Roth IRA after retirement?

Post by PeteAndRepeat »

Also …
Capital gains rate will be 15 percent. Income tax will be 22-25 percent federal. If you do not have an IRA, you would need a job for income to put into a personal IRA and convert it or directly into a Roth IRA. The income money would be taxed federal at 22 to 24% plus state and local taxes. That would be to Avoid the 15% capital gains tax. I sew it then I think becomes a value question where is it otherwise worthwhile to you to get a job and pay 22 to 24% income tax know to fund the Roth to avoid the 15% capital gains later. This assumes that your pension is taxable. if your pension is not taxable and will be your primary source of income, I would think you would be in the 0% capital gains bracket and then a Roth is immaterial. I am just spit balling this and have not thought too deeply about it.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

PeteAndRepeat wrote: Sun Jan 15, 2023 1:02 pmCapital gains rate will be 15 percent. Income tax will be 22-25 percent federal. If you do not have an IRA, you would need a job for income to put into a personal IRA and convert it or directly into a Roth IRA. The income money would be taxed federal at 22 to 24% plus state and local taxes. That would be to Avoid the 15% capital gains tax. I sew it then I think becomes a value question where is it otherwise worthwhile to you to get a job and pay 22 to 24% income tax know to fund the Roth to avoid the 15% capital gains later. This assumes that your pension is taxable.
If I did work part time, I could probably earn 10-20K pretty easy, yes, my pension is taxable.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Sun Jan 15, 2023 9:44 pm If I did work part time, I could probably earn 10-20K pretty easy, yes, my pension is taxable.
If you are willing and able to do this, I think it is a good idea.

You have a good retirement income. But if you buy the condo, you will not have much of a nest egg to fall back on if needed. Just earning $10 - $20k a year for a few years will be very helpful if you ever need more than you have.

And do be aware of assessments that can happen with a condo. For example, if a new roof is needed and there is no money saved for such things, each tenant can be charged a big chunk of change in order to pay for the new roof. It's just one of the things that goes along with condo life.
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Mon Jan 16, 2023 2:25 pmAnd do be aware of assessments that can happen with a condo. For example, if a new roof is needed and there is no money saved for such things, each tenant can be charged a big chunk of change in order to pay for the new roof. It's just one of the things that goes along with condo life.
The banks here in California check the books of the Condo associations to make sure they're flush, so hopefully that would help.
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Re: Roth IRA after retirement?

Post by JDave »

If you're a healthy 65, there's a good chance you'll live to 95, even 105 with medical progress. That's a 30-40 year investment horizon. My advice is yes, contribute to the Roth.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

Since I retired last year and maxed out on my Roth IRA contribution and no longer work (may get a part time job) is it ok if I have the dividends reinvested into the ETF funds?
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Re: Roth IRA after retirement?

Post by exodusNH »

ocman wrote: Thu Jan 19, 2023 9:22 pm Since I retired last year and maxed out on my Roth IRA contribution and no longer work (may get a part time job) is it ok if I have the dividends reinvested into the ETF funds?
Anything that happens inside the account is fine. That's not contributing new money.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

I opened the Roth IRA in December 2022, when is the 5 year period up and able to draw gains with no penalty?
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Re: Roth IRA after retirement?

Post by retiredjg »

January 2027
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Re: Roth IRA after retirement?

Post by junior »

ebeb wrote: Sun Jan 15, 2023 10:59 am Also condos have other risks like huge repair assessment on condo owners sometimes if HOA didn't do proper planning.
If it's a town home condominium the risk isn't likely to be much greater than buying a non- town home condominiums. There's not much to maintain except a roof and siding and whatever features are needed on the land surrounding the buildings. Buying a new roof or siding is something you'd eventually need to do anyway, condo or not.

If it's a high rise condominium like Surfise was, the risk may not be heavy if the HOA is well managed, but of course that's a scenario where things could go wrong.
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Re: Roth IRA after retirement?

Post by junior »

ebeb wrote: Sun Jan 15, 2023 10:59 am Also condos have other risks like huge repair assessment on condo owners sometimes if HOA didn't do proper planning.
If it's a town home condominium the risk isn't likely to be much greater than buying a non- town home condominium. Depending on the property type there may not be much to maintain that a normal home wouldn't need maintained. Buying a new roof or siding is something you'd eventually need to do anyway, condo or not.

If it's a high rise condominium like Surfise was, the risk may not be heavy if the HOA is well managed, but of course that's a scenario where things could go wrong.
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Re: Roth IRA after retirement?

Post by ebeb »

junior wrote: Fri Jan 20, 2023 12:20 pm Buying a new roof or siding is something you'd eventually need to do anyway, condo or not.
This is something not a big deal I think. When I had a 1980s house all the sidings and roof kept well and just keep changing few roof tiles and patch holes when needed. Roof and sidings seem to last at least 50 years or more for SFH if maintained :D
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Re: Roth IRA after retirement?

Post by ocman »

junior wrote: Fri Jan 20, 2023 12:20 pmIf it's a town home condominium the risk isn't likely to be much greater than buying a non- town home condominiums.
The banks here in California scrutinize Condo Associations more than Townhomes at least as far as their finances are concerned. So you're better off getting a Condo than a Townhome.
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Re: Roth IRA after retirement?

Post by ebeb »

I think there are 3 things: "high-rise condos", "townhome condos" and "SFH townhomes". Risks of "townhome condos" and "SFH townhomes" may not be much different. While high-rise condos may have different risks like Surfside Florida or unexpected assessments.
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Re: Roth IRA after retirement?

Post by ocman »

I ended up putting BND in the Roth IRA, but now I'm thinking they should've went into the taxable account.

Since bonds pay the more taxable income and stock income will be dividends or capital gains which are taxed at a lower interest rate.
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