Archives For September 2006

Merlin Mann of 43 Folders is asking for readers’ opinions on which blogs are the “43 Folders” of personal finance. It’s no surprise that Merlin mentioned IWillTeachYoutobeRich and GetRichSlowly, which have gotten TONS of attention lately.

Anyway, it’s nice to see a blog as popular as 43 Folders giving personal finance blogs some attention.

Emails Like This Make Me Laugh

September 29, 2006

I have received quite a few emails recently that say basically the same thing that this email says:

Dear Webmaster,

My name is Deepamol, and I run the web site CashnetUSA:

I recently found your site and am very interested in exchanging links. I’ve gone ahead and posted a link to your site, on this page:

As you know, reciprocal linking benefits both of us by raising our search rankings and generating more traffic to both of our sites. Please post a link to my site as follows:

Title: CashnetUSA
Description: CashNetusa is the fastest way to obtain online Cash Advance and Payday Loans. Applying and qualifying for a CashNetusa payday loan is quick and easy, and in many cases there are no documents to fax. If you need a quick cash loan with the lowest fees, this is the place.

Once you’ve posted the link, let me know the URL of the page that it’s on, by entering it in this form:

You can also use that form to make changes to the text of the link to your site, if you’d like.

Thank you very much,


I don’t ever respond to these emails but if I did, I would say, “no thanks.”

As of right now, those who file jointly, with Modified Adjusted Gross Incomes of over $160,000 ($110,000 for single filers) cannot contribute to a Roth IRA. They may still contribute to a non-deductible traditional IRA. However, the problem with this is that there’s no tax benefit upfront and the withdrawals will be taxed at retirement.

In a few years there will be a way around all this! Here’s how:

According to the Tax Increase Prevention and Reconciliation Act of 2005 (here’s a link to a Wikipedia entry on the act) that was signed into law earlier this year, beginning in 2010 conversions to Roth IRAs will be allowed by anyone, regardless of income. As of right now, conversions are only available to those with Modified Adjusted Gross Incomes of less than $100,000. So, until then, a person could contribute to a non-deductible traditional IRA for 2006 – 2009 and then convert that IRA to a Roth IRA in 2010 and pay the income tax on the conversion in 2011 and 2012.

Keep in mind that those who do the conversion will have to pay ordinary taxes on everything but your original contributions (known as basis). So, if a person contributes $4,000 per year to a non-deductible traditional IRA for years 2006 – 2009, their basis is $16,000. If the account is worth $25,000 in 2010 when they convert it to a Roth IRA, they will have to pay ordinary income taxes on $9,000 ($25,000 – $16,000 = $9,000). But, the taxes on that $9,000 can be spread out over two years (2011 and 2012), which will add $4,500 to income over those two years.

Who would want to do such a thing?

  • Young high-income earners who have a long time until retirement.
  • Those who like the the flexibility of the Roth IRA. For instance, with a Roth IRA there is NEVER a required minimum distribution unless the Roth is inherited. Also, Roth IRA withdrawals DO NOT count when figuring taxation on Social Security benefits during retirement.
  • Those who think they will be in a higher tax bracket during retirement.

I’m sure I’ll be writing more on this in the future.

As I write this, I’m listening to the Vanguard “Plain Talk On Investing” podcast. This particular podcast is targeted at younger people, which I think is great. You can listen to the podcast online or you can download it to your iPod.

Good stuff.

Check out yesterday’s Getting Going column, which talks about behavioral finance and it’s impact on investors’ decisions. The article is good but what I really like is the box inside the article that highlights four destructive behaviors:

Recency – Thinking what happened last year will happen again THIS year. Remember that things tend to revert to the mean (average) over the long term. I remember during the internet bubble people assumed the 20% returns would continue indefinitely.

Procrastination – Putting things off because they seem so far away. I know from experience how fast time goes by.

Loss Aversion – People don’t like to lose money, no matter how far away retirement is. In reality, market declines are the best thing that can happen for someone routinely saving money in a 401(k).

Self-Control Issues – For some it is much easier to spend than save. Self-control is one of the most important ingredients of any success.

Just understanding that these behaviors exist can go a long way in helping people overcome them.

Here’s a warning from Tom Lauricella of the Wall Street Journal to Beware the Huckster in Adviser’s Clothing. Some advisors have figured out that professional designations give them instant creditability. In their opinion the actual designation doesn’t really matter as long as they have something behind their name. For many advisors, this is just another way to sell more products. Designations are important, but just as important is how the advisor gets paid.

The last part of the article got my attention:

In one of his books, Mr. [Larry] Klein notes that seniors “believe and trust what they read.” So, “If you want to position yourself as an expert in the senior market, become the author of books, newsletters, booklets, pamphlets — anything that appears to be professionally published.”

But don’t worry about actually writing any of this, he says; Mr. Klein’s company can provides all those services. His Web site sports testimonials from brokers about the sales boost and “instant credibility” they got by handing out copies of “Mistakes Retirees Make” and “Retirement Investing.”

The books will say on the cover that they are “Presented by” the individual broker; inside, there’s language indicating the book was written by someone else.

I wonder how many people actually think the advisor wrote the book?

I just read some pretty good advice from John Brennan, Chairman of Vanguard. He recently posted some advice for college graduates. No, there’s nothing “new” here. It is ALL COMMON SENSE. But, that doesn’t mean that people will actually heed the advice. It’s one thing to read it and quite another to actually do something about it. Anyway, his points are:

Live Below Your Means

Participate in the Markets

Invest Regularly

Get Knowledgeable

Nothing earth-shattering here. But, here’s the beauty in it all: we can ALL become wealthy if make the right choices.