Jumping on dividend trains?

[Breand]

Is there anything inherently wrong with jumping on stocks for their dividend payouts and then selling right after? I'm assuming there is of course risk in how the stock performs between ex-dividend date and the actual payout?

[Jakensama]

Stocks usually drop after they pay out their dividend in order to adjust for this. Also, the dividend will be taxed as income rather than a capital gain unless you hold it for some time.

[Vanraw]

Dividends are taxed at income rates, not like capital gains where holding a stock for long term is only 15%.

Nothing "wrong" with the process. In theory the stock should drop by the amount of the dividend payout once announced, but in a market that has little to do with actual financials these day's, I don't think that plays. I would look at the stock you want to do it on, and back test the theory. Look at the stock price at the dividend announcement date, and then the price after the pay out.

Bottom line is it is not illegal.

[Vanraw]

I was thinking about this a bit more in relation to an ROTH IRA. Since a ROTH IRA profits are not taxed, it sure seems like this could be played a lot with a nice out come that would be tax free.

I need to research a bit if there are any gotchas.

[Jakensama]

Only get to put about 5 grand a year in a IRA though..

[Vanraw]

Well I have a ROTH already with a lot more than that. You forget, I'm old.

[Dharus]

Only get to put about 5 grand a year in a IRA though..

And you can't contribute to ROTH if you AGI is over a 188k.

[Breand]

I still need someone to make a convincing argument about investing in Roth. If I assume I'm going to be in a lower tax bracket when I retire than now, why wouldn't I just keep contributing to the standard 401k?

[Jakensama]

A Roth lets you take out money before you retire without taxes or penalties, I think - which could be advantageous to some.

/things you learn from a father who used to run an H&R block. Stimulating childhood discussion, and a reason i stayed the fuck away from finance and pay other people to handle my money

[Vanraw]

Jake, Not exactly. On the ROTH you can take out the principle you invested after 5 years, but you cant touch the profit until 59 without paying penalty and tax. The only exception is first time home buyers that can take out 10k one time from profit.

Breandon, It really depends on where your at and what your tax burden will be, come retirement. My take is that I have a mix. I have a lot in standard 401k, and I will have to pay taxes on that. The taxes will be based on how much I pull out of 401k, and how much I am making on taxed investments and benefits. My plan is to balance how much I take from 401k along with other income, and keep my tax bracket lower by augmenting my income with Roth withdrawals.

My hope is to hold down my tax bracket to a minimum. Take out 401k differed up to the bracket level and live the rest off 401k roth and cash investments. Note that I don't have a regular IRA. My company and many companies offer ROTH IRA, which is not subject tot he income restrictions of a IRA. The ROTH 401k follows the 401k rules / maxes, not the smaller IRA limits.

Rule of thumb.

1. Always do the 401k match. always. Anyone who doesn't is throwing money on the floor.
2. Try Increase 401k deferred as well as tax deductions to pull you down to the next tax bracket or prevent you from hitting the highest.
3. Invest ROTH if you can so you have tax free cash to draw from, and be in a emergency position to draw the principle before 59.

[Breand]

My plan is to balance how much I take from 401k along with other income, and keep my tax bracket lower by augmenting my income with Roth withdrawals.

I like that. Makes sense.

I scream at my co-worker as often as possible because he doesn't contribute the max amount for employee match here at work. I can't understand turning away free money, when the contributions are pre-tax and not that painful. But he's had the same entry level job for 15 years so, that's the kinda guy he is.

[Vanraw]

I do find it interesting that you will find 100 different views on how much you should have for retirement. In one sense you expenses should be lower. House paid off and such. In the other sense, you might have higher medical bills. And then there is the, retirement plan. Are you going to sit on your ass and wait until you die? or go do stuff you could not do when you were working.

I honestly believe that my expenses will be the same as they are now, adjusted for inflation. In fact I am more apt to spend more on travel.



On the contributions you should ask they guy how he likes his voluntary pay cut.

[Grieve]

This is my favorite retirement planning tool - once you put all your numbers in, it has a color-coded display showing how much you'll pull from each type of account (SS, IRA, 401K, etc) each year in the most optimized way. Click on "Future income" to see that. If you to retire early, you need to have plenty of cash saved up...

http://www.marketwatch.com/retirement/to...scrim=true

[Vanraw]

or ROTH principle :0

[Breand]

I do find it interesting that you will find 100 different views on how much you should have for retirement. In one sense you expenses should be lower. House paid off and such. In the other sense, you might have higher medical bills. And then there is the, retirement plan. Are you going to sit on your ass and wait until you die? or go do stuff you could not do when you were working.

I honestly believe that my expenses will be the same as they are now, adjusted for inflation. In fact I am more apt to spend more on travel.



On the contributions you should ask they guy how he likes his voluntary pay cut.

My Dad was telling me they live entirely off his pension and social security and have not had to dip into their 401k funds at all. House is paid off, they live very modestly, don't travel much but are very engaged with the local community (church for my mom and my dad is a craftsman freak: ships in bottles, models, painting etc). What a generation to work during...my Dad really didn't draw a nice salary until his last decade of work, my mom never worked since the day my older sister was born, yet they live a comfortable, if modest, lifestyle in their retirement years, mainly because of his pension (NY State benefits).

[Vanraw]

Pension? What is this word you speak???

Oh yea, Government employees.

I have quite a few friends that have done their 20 and are basically living extremely well. One couple are both drawing from a nice education pension. Pension and benefits. They travel all over the world 2 or 3 times a year. They are not rich, house paid off etc. Low expenses.

Tell your friend that isn't doping the match that when he retires he can be a waiter for the government employees that have pensions...

FYI my Dad has a pension as well, from the Brick Layers union that is nice. Its just too bad that most people in the work force today to understand that this will not be available to them when they retire.

[Breand]

I have a fake pension plan at work. They keep a cash account for you and every year depending on your age, they put a percentage of your yearly salary into the account. 3% for under 35 4% 36-40, 5% 41-45 etc...up to like 10% over 65. Ive been with the company 11 years now...it's not great but more than most other private companies do.