Thursday, March 7, 2024

Lower Tax Now or Tax-Free Forever? Weighing Roth Conversion vs. Traditional Contribution

2023 tax rates for a single taxpayer (federal income tax rates in the United States are the same for 2023 and 2024)


Scenario: Your taxable income is $12,000, placing you in the 12% tax bracket.

Options:
  • You could contribute more to a retirement account, thereby reducing your taxable income to below $11,001.
  • Alternatively, you could perform a Roth conversion, pushing your taxable income up to the upper limit of $44,725.

Weighing Roth Conversion vs. Traditional Contribution


Here's a breakdown of the pros and cons for each option considering the potential sunset of favorable tax rates in 2025 and the benefits of Roth IRAs:

Option 1: Traditional Retirement Account Contribution

Pros:
  • Lower your tax bill for 2024: This will put more money in your pocket now.
  • Tax-deferred growth: Your contributions and earnings grow tax-deferred within the account.

Cons:
  • Tax on withdrawal: When you withdraw the money in retirement, you'll pay income tax at your then-current tax rate.
  • RMDs: After reaching age 72, you'll be required to take minimum withdrawals (RMDs) from your traditional IRA, which can push you into a higher tax bracket.
  • Future tax rates: If tax rates increase in the future, you might end up paying more in taxes than you would now.


Option 2: Roth Conversion
Pros:
  • Lock in today's potentially lower tax rate: By converting to a Roth IRA, you pay taxes on the converted amount now at the current (potentially lower) rate. This guarantees tax-free withdrawals in retirement regardless of future tax rates.
  • Tax-free withdrawals: Qualified withdrawals from a Roth IRA, including both contributions and earnings, are tax-free in retirement.
  • No RMDs: Unlike traditional IRAs, Roth IRAs don't have required minimum distributions (RMDs). You can leave the money growing tax-free and withdraw it as needed in retirement.
  • No limits: While there are income limits on Roth contributions, there have been no such limits for Roth conversions, making this a popular strategy for high-income investors.
Cons:
  • Higher tax bill for 2024: Converting to a Roth IRA will increase your taxable income for 2024 and potentially put you in a higher tax bracket this year.
  • Reduced access to funds in the short term: The converted amount becomes locked in the Roth IRA and subject to contribution withdrawal rules (penalty-free access to contributions only) until you reach retirement age (59 ½ with a 5-year holding period).


Choosing Between the Options


The best option depends on your individual circumstances and risk tolerance. Here are some factors to consider:
  • Your age: If you're young and have a long time horizon until retirement, the tax benefits of a Roth IRA can be more significant due to the potential for tax-free growth over a longer period.
  • Your expected future tax bracket: If you believe tax rates will be higher in retirement, a Roth IRA conversion can be advantageous by locking in the potentially lower current rate.
  • Your current and future financial needs: Consider if you need immediate access to the funds. Traditional IRAs offer more flexibility in this regard.
  • Considering a Roth conversion before moving? If your new state taxes retirement income more (e.g., moving from Texas to California), converting now can save on future taxes.

Conclusion


While knowing the tax rate range is a good starting point, tax planning can get complex. Consider consulting a tax professional for personalized advice based on your specific financial situation.

References

Saturday, March 2, 2024

Can Goldman Sachs' Conviction List Help You Make Money?



Newsquawk reported on March 1st, 2024 that Goldman Sachs removed AAPL from its Conviction List.

Conviction Buy List of Goldman Sachs 


Goldman Sachs offers a curated list of 20-25 stocks they believe hold strong buying potential, known as the Conviction Buy List. These stocks are updated monthly, reflecting changes in the market. Analysts continuously evaluate companies and add or remove them from the list based on their outlook.

Beyond Just Buys: A Balanced Approach

Goldman Sachs also creates a Conviction Sell List to highlight stocks they believe may underperform the market. This balanced approach allows investors to consider both buying opportunities and potential risks.

Diversification Across Industries

The Conviction Buy List spans various sectors, giving investors exposure to a range of industries. From technology and healthcare to finance, consumer goods, and more, the list offers a diverse selection of potential investments.

Conviction List as of 02/01/2024


This is the updated Conviction List as of February 01, 2024, with their upside percentage projection:[2]
  • Constellation Brands Inc. A (STZ) - % upside: 18
  • Target Corp. (TGT) - % upside: 27
  • Ally Financial Inc. (ALLY) - % upside: 39
  • Jefferies Financial Group Inc. (JEF) - % upside: 18
  • Blue Owl Capital Inc. (OWL) - % upside: 14
  • Simon Property Group (SPG) - % upside: 20
  • Merck & Co. Inc. (MRK) - % upside: 6
  • Quanterix Corp. (QTRX) - % upside: 58
  • Vertex Pharmaceuticals Inc. (VRTX) - % upside: 29
  • Installed Building Products (IBP) - % upside: 11
  • JB Hunt Transport Services (JBHT) - % upside: 13
  • PPG Industries Inc. (PPG) - % upside: 22
  • Parker Hannifin Corp. (PH) - % upside: 19
  • Textron Inc. (TXT) - % upside: 22
  • Chevron Corp. (CVX) - % upside: 22
  • First Solar Inc. (FSLR) - % upside: 88
  • The Southern Company (SO) - % upside: 18
  • Apple (AAPL) - % upside: 21
  • Amazon.com Inc. (AMZN) - % upside: 29
  • Cintas Corp. (CTAS) - % upside: 11
  • Nvidia Corp. (NVDA) - % upside: 2
  • TE Connectivity (TEL) - % upside: 23

Conviction List as of 03/01/2024

This is the updated Conviction List as of March 01, 2024:[3]
  • Amgen Inc (AMGN) - New price target: $350
  • Monday.com (MNDY) - New price target: $270
  • Vulcan Materials Company (VMC) - New price target: $292
  • Constellation Brands Inc. A (STZ
  • Target Corp. (TGT)
  • Ally Financial Inc. (ALLY)
  • Jefferies Financial Group Inc. (JEF
  • Blue Owl Capital Inc. (OWL)
  • Simon Property Group (SPG
  • Merck & Co. Inc. (MRK) 
  • Quanterix Corp. (QTRX
  • Vertex Pharmaceuticals Inc. (VRTX) 
  • Installed Building Products (IBP
  • JB Hunt Transport Services (JBHT
  • PPG Industries Inc. (PPG
  • Parker Hannifin Corp. (PH
  • Textron Inc. (TXT
  • Chevron Corp. (CVX
  • First Solar Inc. (FSLR
  • The Southern Company (SO
  • Apple (AAPL)
  • Amazon.com Inc. (AMZN
  • Cintas Corp. (CTAS
  • Nvidia Corp. (NVDA)
  • TE Connectivity (TEL)

References

  1. The Goldman Sachs Conviction Buy List Seeks to Guide Investors Toward Profitability
  2. Target in, JPMorgan out of Goldman’s conviction list
  3. Apple Sinks After Wall Street Titan Pulls Magnificent 7 Stock From Conviction List