portfolio strategies

Catch-Up > Ketchup
graphic shows a piggy bank looking on curiously at a bottle of ketchup

These two terms may essentially be homonyms, but one is so much greater than the other. Kiddos sometimes choose huge portions of the condiment ketchup. But beyond a sugar-fueled addiction for dipping our fries in that one is a great opportunity to “catch up” on our IRA contributions.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on last year’s contributions even though the last calendar year is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. Even with the federally-mandated limits, you can contribute thousands of dollars in standard contributions. And for people who turned 50 by year-end, there is an extra “catch-up” contribution option.

Consider even just the standard contribution limits. Imagine if you had $15,000 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for both this year and next year. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money–ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $60,000 available later with zero tax. After five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax too. And if you didn’t withdraw it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

There is a maximum earnings limit on Roth contribution eligibility, and there is a whole world of other lifetime tax reduction strategies related to Roth conversions. We’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

For now, happy catch-up season, one and all!

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

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Catch-up > Ketchup – 228Main.com Presents: The Best of Leibman Financial Services

Spicing Things Up: Catsup, Ketchup, or Catch-Up?
graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2024 contributions even though 2024 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $7,000 for 2024 plus $7,000 for 2025. Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Consider even just the standard contribution limits. Imagine if you had $14,000 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2024 and 2025. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $56,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Spicing Things Up: Catsup, Ketchup, or Catch-Up? – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Catsup, Ketchup, or Catch-Up?
graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2023 contributions even though 2023 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $6,500 for 2023 plus $7,000 for 2024.

Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Imagine if you had $13,500 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2023 and 2024. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $54,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Catsup, Ketchup, or Catch-Up? – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

A 1-2-3 Approach to Investing

© Can Stock Photo / dexns

At times we feel embarrassed to be learning so much at a mature age. But we are grateful for the energy to attempt to improve what we are doing. Here we discuss developments in our portfolio management theory and practice.

One. Recently we figured out that one of our investment themes may benefit from a 1% position in a more speculative holding than we usually want to own. (By that we mean that 1% of a client portfolio could be invested in this company.) While failure could cost a dollar per dollar invested, success might return multiple dollars back, in our opinion.

We believe this makes sense because success might come at the expense of our other holdings. So one investment may serve to offset losses in another. No guarantees, of course.

We also realized that the 1% idea might help us in another way. Value investors have trouble buying exciting growth companies that have yet to develop large earnings, or dividends, or book value. But taking a smaller position in companies with solid prospects for growth can more easily be justified than buying a more sizable position. Perhaps this will let us participate with more comfort in the ownership of faster-growing companies.

Two. The next portfolio development came from our research into the biotech industry. The biopharmaceuticals each have their own specialties, and new products in various stages of development. Based on current earnings and prospects for growth, we wanted to gain exposure. It was too difficult to choose one over another, even among the larger and established companies. So we decided to buy 2% positions in each of four large players.

Three. We reduced our core position size from 5% to 3% for mainstream holdings. After 2015 we became interested in avoiding excessive portfolio volatility. Owning smaller pieces of more companies lets us be more diversified. We will also have more flexibility to let potential successful companies grow into larger fractions of the portfolio over time.

We are excited about the evolution in our thinking about the best ways to put portfolios together. Combined with the development of our trading protocols, we hope to put money to work faster than ever before—and in new ways. We still research carefully and come to conclusions only after thought and study, of course.

If you have questions or comments about how your portfolio is affected, or any other question we might help you with, please call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Stock investing involves risk including loss of principal.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Ask Your Advisor if Asymmetric Returns Are Right For You

© Can Stock Photo / ivelinradkov

Those who know us best have probably noticed one of our investment tendencies. We lean toward those opportunities where we perceive a high probability they will work out over time. One of the hallmarks of our method is seeking bargain valuations . Quite often, these are in boring but essential industries.

One of our major current themes is the evolution of the automobile. It takes 3 cents worth of electricity to go a mile in an electric car or a hybrid in electric mode. But it takes 10 cents worth of gasoline. The seven cent difference figures out to $175 billion per year in the US1. The change won’t happen overnight, but the economics will only get more compelling over time.

Large global auto manufacturers appear to be trading at bargain prices. One of them has sold hundreds of thousands of hybrids. Another is launching the first all-electric vehicle priced at mass-market prices. Sophisticated suppliers that are bringing new things to the manufacturers also figure into our strategy. These companies are attractive, based on our traditional research methods.

There are other players, however, that do not fit our usual specifications. Silicon Valley is full of disruptive visionaries trying to turn the auto industry upside down. Maybe they are geniuses, and maybe they are nutcases. But if an upstart company can capture 3% of the new vehicle market over the next few years, the payoff may be considerable—or, they could go broke in the face of their many challenges.

A dollar invested could be lost—or could turn into many dollars. There are no guarantees here: this is more speculation than investment. This is what is meant by “asymmetric returns.” It probably won’t work out to where you could make only a dollar or lose a dollar—the potential gain and the potential loss would be symmetrical in that case.

One might consider a small investment in an upstart as a hedge on our other holdings—a way to cover all the bases. We’re not going to change our core investment philosophy. Speculative investments are not appropriate for all accounts, and they will never replace the timeless principles that shape the vast majority of our portfolios. This is an evolution in our thinking and methods and we thought we ought to keep you informed. If you would like to discuss these ideas or other parts of your situation, please write or call.

1. Figures derived from US Department of Transportation statistics and the American Petroleum Institute.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. Investments mentioned may not be suitable for all investors.