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TheMetetron
12-03-2005, 07:48 PM
First of all... why the hell would I want to open an IRA? I tried to ask this is Internet Gambling and everyone was running around with their head cut off.

I'm not willing to concede that as a self-employed individual I will be making less between 60-70 years of age than I am now. It's definitely not a certainty.

Also, if someone can convince me to open an IRA and why, what is the best kind to open?

I make between 150-250k per year. I don't own a home (yet). My savings are low for my yearly earn. I maybe have 40k in liquid assets as of now.

Help?

Edit: I tried to search. That was useless.

Also, why wouldn't I want to just take the money and invest it on my own. Then I don't have to worry about some stupid 10% early withdrawal fee in case I need the money?

TheMetetron
12-03-2005, 07:57 PM
I'm thinking of just putting into a taxable account and paying a capital gains tax of 15% when I withdraw it.... am I correct in this thinking?

What about paying taxes on the gains each year.. is this an option?

DesertCat
12-03-2005, 08:39 PM
[ QUOTE ]
I'm thinking of just putting into a taxable account and paying a capital gains tax of 15% when I withdraw it.... am I correct in this thinking?

What about paying taxes on the gains each year.. is this an option?

[/ QUOTE ]

In taxable investment accounts you have to pay the taxes every year. As a professional poker player, you will have to pay at the highest rates. If you make $200k+ per year you should contact a reputable accountant and look into SEP-IRA's and Individual IRA's. The benefits are that you'll be able to save up to $40k per year, pre-tax (so you pay less taxes), if you file correctly.

Once in those accounts any gains will accumulate tax free until you retire. Of course you'll have to pay the 10% penalty to withdraw before age 59.5. At your income levels it's worthwhile to max out your IRA/401k, and save some more on the side for houses and emergencies.


Let's say you can earn 10% investing in the stock market, but pay 2% per year taxes in a taxable account. The difference between between getting 10% and 8% turns $40k into $270k in 20 years, instead of 186k. Now imagine how much money you'll have if you save $40k a year in your SEP-IRA for 20 years? I don't have time to do the calculation, but it's a lot...

Sniper
12-03-2005, 09:04 PM
Bottom line, you want to put money into retirement accounts to take advantage of the significant advantage of compounding your retirement savings tax free over your working life.

Every extra $100/month that you can invest over 40 years (assuming a 10% return) will be worth about 650K to you!

Think of it this way... Would you rather build your poker bankroll on a rakefree table for as long as you could (knowing that in 40 years you'd have to go back to a raked table), or on a table with standard rake structures?

Recent IRA threads...

IRA/401K Question (http://forumserver.twoplustwo.com/showflat.php?Cat=0&Board=stocks&Number=3293180)

SEP IRA Tax Question (http://forumserver.twoplustwo.com/showflat.php?Cat=0&Board=stocks&Number=4070931)

Other links...

Money - The IRA Advantage (http://money.cnn.com/pf/101/lessons/13/page4.html)

Roth IRA advatages (http://www.selfemployedweb.com/roth-ira.htm)

Yahoo Finance IRA Special edition (http://biz.yahoo.com/special/ira05.html)

Roth IRA Web Site (http://www.rothira.com/)

About.com Retirement planning (http://retireplan.about.com/)

Investopedia retirement center (http://www.investopedia.com/articles/retirement/)

TheMetetron
12-03-2005, 09:59 PM
Thanks for the links, I'll check them out.

I definitely make too much for anything but a traditional IRA, correct?

TheMetetron
12-03-2005, 10:08 PM
Question:

When you deduct your IRA contribution from your taxes, is that done in the same place as your standard deduction (meaning I can't take a standard deduction to enjoy the full benefits) or somewhere else?

If it goes in your standard deduction, I may not want to put my money into an IRA, yet, as I don't itemize ($5000 standard vs $160 or whatever I actually have to deduct).

broiler
12-03-2005, 10:18 PM
The IRA deduction comes before AGI on your tax return. Your standard deduction will not be touched because of an IRA deduction.

broiler
12-03-2005, 10:26 PM
I would just add that retirement plan contribution limit for 2005 is $42k and will be $44k for 2006.

Also, if you have a retirement plan that allows early distributions, there are ways to get the money out before 59.5 without paying the 10% penalty. The easiest way is through susbstantially equal payments that last for at least 5 years. There is also a financial hardship provision that I have seen used. You also don't have to take the money out until the year after you turn 70.5, so you have a very long time period to push off paying the tax on the money in the plan.

TheMetetron
12-03-2005, 10:34 PM
New question:

What about indivial 401k's?

Seems like another viable alternative that I could borrow against.

I need to make an appointment to see an accountant.

Sniper
12-03-2005, 11:02 PM
[ QUOTE ]
I need to make an appointment to see an accountant.

[/ QUOTE ]

Definately recommended, likely along with a financial planner. Also, given your web site, it may make sense to be operating under some type of corporate umbrella, which opens additional tax saving opportunities!

Scotty O
12-03-2005, 11:33 PM
[ QUOTE ]
What about indivial 401k's?

[/ QUOTE ]

I believe this is only open to Companies with a certain amount of employees. I believe the SEP-IRA is other alternative.

I put together a little spreadsheet to show the difference between retiring ages and APR you could get from the market. The spreadsheet assumes Iterest paid yearly with an annual deposit if 10k. You can see the big diffence in 20, 30 and 40 years out of the retirement.

Scotty O
IRA Table (http://www.scottyoweb.com/index.php?page=ira)

TheMetetron
12-03-2005, 11:43 PM
[ QUOTE ]
[ QUOTE ]
What about indivial 401k's?

[/ QUOTE ]

I believe this is only open to Companies with a certain amount of employees. I believe the SEP-IRA is other alternative.

[/ QUOTE ]

Indivual 401k's are open to companies with no employees other than the owner's spouse. You can either be incorporated or a sole proprietorship (which I am).

Seems that I would qualify and it's another option to explore. Finances are hard /images/graemlins/frown.gif

Shoe
12-04-2005, 01:38 AM
[ QUOTE ]
In taxable investment accounts you have to pay the taxes every year.

[/ QUOTE ]

Is this true for stocks? It was my understanding that If you buy stocks, you will only have to pay capital gains once you sell the stock (but any dividends would be taxable that year), or do you actually have to pay taxes on the amount your stocks increase year over year?

I don't have any yet bet have been looking into start buying stocks once I get my Roth maxed.

Scotty O
12-04-2005, 03:58 AM
[ QUOTE ]
[ QUOTE ]
In taxable investment accounts you have to pay the taxes every year.

[/ QUOTE ]

Is this true for stocks? It was my understanding that If you buy stocks, you will only have to pay capital gains once you sell the stock (but any dividends would be taxable that year), or do you actually have to pay taxes on the amount your stocks increase year over year?

I don't have any yet bet have been looking into start buying stocks once I get my Roth maxed.

[/ QUOTE ]

In a non-qualified account (cash, non-retirement) you are correct about both Gains and dividens. In a qualified account (Brokerage IRA, etc.) you can sell and buy without any consequences (except for fees for the trade)

Scotty

Degen
12-04-2005, 09:42 AM
your bankroll is also an asset, are you already counting this? if so, you need to learn to live below your means a little...

TheMetetron
12-04-2005, 11:35 AM
[ QUOTE ]
your bankroll is also an asset, are you already counting this? if so, you need to learn to live below your means a little...

[/ QUOTE ]

I'm 21 and worked for near minimum wage until about March of this year when I went pro. From march to about June, I was a low limit donk. From July to November I made $120,000.

Out of that, I've saved $48,000 for taxes and have another $40,000 in my bankroll/savings. Did you really want me to live on less than $32,000? I had to buy a new car, move into a new place, furnish it, etc during the time as well. I don't think I've done so bad though I do admittedly travel too much. But I wouldn't have it any other way.

DesertCat
12-04-2005, 01:38 PM
[ QUOTE ]

Is this true for stocks? It was my understanding that If you buy stocks, you will only have to pay capital gains once you sell the stock (but any dividends would be taxable that year),

[/ QUOTE ]

This is true, but the problem is most people turn over (sell stocks in) their portfolio too much. If you can hold for a year, you benefit from very low long term capital gains. But even if your holding period is 1 year + 1 day, you essentially are taking an annual 15% + state tax haircut on your gains. That's close to 20% in Arizona. If you hold for two years, you give up the same percentage (and pay close to the same total tax), but the extra year of compounding slightly increases your return. It's still close to a 20% haircut in the short run, but lessens over time.

And if your holding period is less than 1 year, you are paying your total income tax rate (state + fed) which is likely 30% or more.

In my example, I used 20% (10%-2%) as a "blended" rate to cover the gamut. But if you are an active trader, an annual 30% tax obligation means after 20 years you have $154k instead of $270k (by trading in a tax free account). It's the power of compounding.

If you own an index fund in a taxable account, the tax costs should be much less. The index only sells stocks when they "rebalance" and it should be such a tiny portion that you won't end up with much in the way of yearly capital gains. You'll have some taxable dividends, sure, but I'd be surprised if taxable gains and dividends totaled even 2% per year. After tax (mostly 15% divi taxes) that would only lower your 10% gain to around 9.6% or so.

LearnedfromTV
12-04-2005, 02:22 PM
[ QUOTE ]
I make between 150-250k per year.

[/ QUOTE ]

[ QUOTE ]
I'm 21 and worked for near minimum wage until about March of this year when I went pro. From march to about June, I was a low limit donk. From July to November I made $120,000.

[/ QUOTE ]

I made 10K in a week once, I guess my yearly is ~500K.

Scotty O
12-04-2005, 02:23 PM
[ QUOTE ]

Out of that, I've saved $48,000 for taxes and have another $40,000 in my bankroll/savings. Did you really want me to live on less than $32,000? I had to buy a new car, move into a new place, furnish it, etc during the time as well. I don't think I've done so bad though I do admittedly travel too much. But I wouldn't have it any other way.

[/ QUOTE ]

Put in the most you can. If you are unsure of it, get yourself a finacial planner, I have one it is the best thing in the world for me. My fees for the planner are made up and a whole lot more throughout the year in returns.

Scotty O

TheMetetron
12-04-2005, 03:30 PM
[ QUOTE ]
[ QUOTE ]
I make between 150-250k per year.

[/ QUOTE ]

[ QUOTE ]
I'm 21 and worked for near minimum wage until about March of this year when I went pro. From march to about June, I was a low limit donk. From July to November I made $120,000.

[/ QUOTE ]

I made 10K in a week once, I guess my yearly is ~500K.

[/ QUOTE ]

Yeah but I make an easy 20k a month now, with 10k of that being income that is fixed and won't go away for at least a year, if not longer. So my $150k a year estimate for next year is conservative. The reason I've only made $150k or so this year is because the vast bulk of that earn was the last 6 months when I've actually been playing 10/20 and 20/40 short.

It's not like a ran good for a week and extrapolated from that. I've extended my earn for the last 6 months to one year and gone with the low end. Try not to be a dick from now on.

TheMetetron
12-04-2005, 03:30 PM
Got an appointment to talk to a professional this week. I'll report back.

LearnedfromTV
12-04-2005, 03:42 PM
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I make between 150-250k per year.

[/ QUOTE ]

[ QUOTE ]
I'm 21 and worked for near minimum wage until about March of this year when I went pro. From march to about June, I was a low limit donk. From July to November I made $120,000.

[/ QUOTE ]

I made 10K in a week once, I guess my yearly is ~500K.

[/ QUOTE ]

Yeah but I make an easy 20k a month now, with 10k of that being income that is fixed and won't go away for at least a year, if not longer. So my $150k a year estimate for next year is conservative. The reason I've only made $150k or so this year is because the vast bulk of that earn was the last 6 months when I've actually been playing 10/20 and 20/40 short.

It's not like a ran good for a week and extrapolated from that. I've extended my earn for the last 6 months to one year and gone with the low end. Try not to be a dick from now on.

[/ QUOTE ]

Clearly I was exaggerating to make a point. But as a 21 year-old who hasn't done any financial planning and has only *actually* made 150K+ in a year once, you should probably consider the possibility that extrapolating four months into a yearly salary that you'll draw indefinitely isn't the best way to handle your finances. Four months may be enough time to be sure you are a winner in current game conditions. It's a bit of a stretch to assume things will be the same for five or ten years.

In other words, for as long as you continue winning at this pace, save. A lot.

And congrats. Seriously.

schuckmer
12-04-2005, 04:37 PM
[ QUOTE ]
New question:

What about indivial 401k's?

Seems like another viable alternative that I could borrow against.

I need to make an appointment to see an accountant.

[/ QUOTE ]

Definately check into this. I did some of this research myself recently and came across the same thing. My situation was I had a 401k with money in it from a previous employer. My choices were to move that money into an IRA or an Individual 401k. I finally settled on the 401k because it has quite a number of advantages. I ended up working with a lawyer on the west coast (I live on the east coast) who specializes in this and is very helpful with any questions.

PM me if you want any specific links or info. I wasn't sure about putting links to a company in the forum.

Definately, definately research this possibility before putting your money in an IRA because once it's in there, it's in there.

AceHigh
12-04-2005, 06:27 PM
[ QUOTE ]

Also, why wouldn't I want to just take the money and invest it on my own. Then I don't have to worry about some stupid 10% early withdrawal fee in case I need the money?

[/ QUOTE ]

Cuz IRA profits are protected from taxes until you withdraw the money. So you can make tons of money in stocks, money you have no intention of touching and watch it grow, safe from Uncle Sam greedy IRS people. If you really are going to be making 250k, how likely is it you will need to grab some of your IRA money? Hopefully it is very unlikely.

TheMetetron
12-04-2005, 08:35 PM
The reason to grab it is to buy a house. Or if this whole thing goes bust in 10 years and I have to get a real job or start a new business.

AceHigh
12-04-2005, 09:47 PM
The question is, do you want to avoiding paying taxes on some of your investment money in return for not having convienent access to it or not? The higher the tax bracket, the better that deal is.

But it's still up to you. Realize if you don't pay social security taxes you won't get much/any social security benefits.

schuckmer
12-05-2005, 03:14 PM
[ QUOTE ]
The reason to grab it is to buy a house. Or if this whole thing goes bust in 10 years and I have to get a real job or start a new business.

[/ QUOTE ]

This is exactly why I went with the Individual 401k. Because it allows you to take out a loan from your own 401k. And then you pay the loan back to yourself with interest. This way you get the benefit of putting the money in to begin with tax free (same as an IRA), have access to your money and pay the interest on the loan back to yourself. Of course, you aren't earning any interest in the market on those funds that you withdraw, but at least you aren't paying the interest to someone else. There are limits to the amount you can loan yourself, and how many loans you can have outstanding, but there are no requirements as to what you can do with the money once you take the loan. I did this myself and am paying interest of prime plus 1% (fixed not variable) for the life of the loan.

TheMetetron
12-06-2005, 03:06 PM
[ QUOTE ]
But it's still up to you. Realize if you don't pay social security taxes you won't get much/any social security benefits.

[/ QUOTE ]

You do realize social security tax caps at 90k in AGI?

I pay the full social security tax every year and still won't see any of it. Life is a bitch.

MrBlue
12-07-2005, 12:32 AM
If we all keep saying we'll never see any SS benefits, it'll become a self fullfilling prophecy! It gives the impression to the politicians that since we're not expecting any money anyway, why bother saving SS?

AceHigh
12-07-2005, 01:17 AM
I wasn't sure how pro players paid taxes and the SS tax. I thought you guys might not have to contribute.

Shoe
12-07-2005, 04:42 PM
SS will fix itself eventually... it's just going to be broke for a few years if nothing changes. For Generation X'ers, there are more people in Generation Y and peopel being born today that will be able to support us. The problem is for the baby boomers and those immediately after.

12-10-2005, 11:49 PM
Consider moving to Vegas, or at least getting another home and doing most of your playing there. No state income tax in Nevada.

If you're playing at Bay 101, post your picture so I can avoid your table. :-)

TheMetetron
12-13-2005, 08:45 PM
[ QUOTE ]
Consider moving to Vegas, or at least getting another home and doing most of your playing there. No state income tax in Nevada.

If you're playing at Bay 101, post your picture so I can avoid your table. :-)

[/ QUOTE ]

I'm moving to Vegas in Feb and I also play at Bay 101. My avatar is my picture, though not a very good one.

-------------------------------

Also, I went and saw a financial planner for an hour long consultation. Her recommendation was overwhelmingly an individual 401k plan which has a maximum contribution of somewhere around $40,000 per year (It's the max 401k contributation, $14k, + the max profit sharing / SEP contribution).

Like a traditional 401k, it allows borrowing against itself for usually around half of the value, but she advised strongly against doing this as you are not earning on the money you have out (though you are paying the interest back to yourself).

She said not to put in more than I could afford to not see until I'm 60, but she also recommended that if I could put in 10% of my yearly earn, I will be very set by the time I retire.

She also did a home-buying scenario based on my financial outlook for next year. It was a really bad deal to buy a house in San Jose, and a bad deal (though closer) to buy a house in Henderson/Vegas. These scenarios did not take into account the house gaining value. The only reason to do so would be if I felt that the housing market was a good investment.

It was her take (and I was in agreement with it) that the housing market and where it is today is not likely to continue it's super gains of 20%+ a year. It will more likely fall into the traditional 3% a year and I can likely do better by paying lower rent and investing more money in higher-yield account, especially with interest rates on the rise.

In fact, it's not likely to make sense to buy for me until interest rates come back down again in 5-10 years, so I'll likely stay renting until then.

She mentioned some other stuff, but I got to go now.

buffett
12-14-2005, 10:01 AM
Just from this brief description, she sounds like a pretty smart/wise lady.