Tag Archives: Traditional IRA

Investing, Retirement

Stock CEO

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Merriam-Webster definition: Rockstar: a famous and successful singer or performer of rock music.

Greenbacks Magnet definition: Stockstar: a successful investor of stocks and index funds.

I knew there were only six ways to get rich rich: marry money, inherit money, build a successful business, exploit a talent, get lucky i.e. win the lottery, and spend less than you make and invest your savings wisely over a long period of time. That is basically it. The rest are details.

There are many roads and paths to wealth, but all of them come down to six once you weed out all the details. Wealth has to be pursued. It will not just fall into your lap. You have to work for it. The result of hard work is success. The success is measured in dollars. Even though money is just a tool and one barometer for measuring success it is the yardstick that lets you keep tabs on how far you can come in a job done well.

But as we all know building wealth is easier said than done.

It can be as elusive as getting those Taylor Swift Eras tour concert tickets! And like her, I have a blank space and I’ll plan to write millionaire after my name. Ha!

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After reading books like The Automatic Millionaire, The Simple Path to Wealth, Your Money or Your Life and a ton of celebrity autobiographies, it occurred to me that even on a modest income, you can rise out of the poverty ashes and rise like the phoenix to wealth.

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You just need a plan. If you tried your hand at the first five ways to wealth and failed, you could always be working on the sixth path of saving and investing your way there simultaneously.

If I could not be a ballplayer, rapper, or business owner, I could always invest my money and be the CEO of my stock portfolio. I could be a stock CEO. I could be a stockstar. No college diploma required.

There are 5.3 million millionaires and 770 billionaires living in the United States. Millionaires make up about 2% of the U.S. adult population. Therefore, if you make it to $1 million in investable assets, you are wealthier than 98% of the U.S. population.

Statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich. Having $1 million will put you in a very exclusive club. The double comma club.

Although, the top 1% can earn as much as $955,000. Those annual earnings can seem far out of reach in a country where less than 10% of all households earn more than $200,000, according to the U.S. Census Bureau.

Working toward $1 million is still a lofty and worthy goal. Forbes reported in 2022 that the bracket’s minimum net worth is much higher — a cool $11.1 million. That would mean to be in the top 10% would be a minimum net worth of $1.1 million. This is an achievable goal. See some of my investments below.

My index funds are shown in dollar and my individual stocks are shown in shares.

Stock Portfolio

Investments2012201820202022/23
VTSAX$20,000$100,000$158,000$220,000
Amazon102
Apple2050100
Google330

Over time, I have increased my exposure in individual stocks while also investing in my index funds. I also decided to open up four different retirement accounts: Traditional IRA (Rollover from a previous job), Roth IRA, 401k and Roth 401k. I was able to get both the Roth and regular 401k from my employer(s) over the years. The IRA’s are what just happened over time.

Each retirement vehicle offers different benefits. In order to have more flexibility with my money I have two of each IRA and 401k. See below for definitions and pros and cons or the Roth 401k and IRA and more her from Empower.

What is a Roth 401k?
A Roth 401k is an employer-sponsored retirement plan. But unlike a traditional 401k, contributions are made with after-tax dollars.

The Roth 401k was introduced in 2006 to give Americans a new type of retirement savings vehicle to complement the popular Roth IRA, which was introduced in 1997. Roth IRAs and Roth 401ks are similar, but there are some pretty significant differences you should understand when deciding which one is right for you.

Pros and cons of a Roth 401k
A big advantage that the Roth 401k has over the Roth IRA is the possibility of an employer matching your contributions up to a certain percentage. Employer matches are the closest thing there is to “free money,” so if you’re deciding between a Roth 401k vs. a Roth IRA — keep this in mind. It’s also important to note here, though, that if you receive an employer Roth 401k match, the matching funds could also go into a traditional 401k.

A con, however, is that a Roth 401k account can sometimes have fewer investment options than a Roth IRA.

Pros and cons of a Roth IRA
On the flip side, Roth IRAs generally offer more investment options than Roth 401ks. With a Roth IRA, you generally have a large number of investments to choose from, including stocks, bonds, cash alternatives, and alternative investments. With a Roth 401k, you are limited to the investment options offered by your employer’s 401k plan.

However, one con of a Roth IRA is the income limit associated with this type of account. If you earn too much money, you won’t be able to contribute to this option. Roth IRAs also aren’t sponsored by an employer, which means that there is no employee contribution match.

The most distinguishing characteristic of 401(k)s, whether Roth or traditional, is the high contribution limit, allowing employees to save up to $22,500 per year in 2023. For workers over age 50, the ceiling is $30,000.

Meanwhile, annual IRA contribution limits are $6,500, while workers over 50 years old may contribute up to $7,500 per year.

A Roth 401(k) has a required minimum distribution beginning at age 73, but starting in 2024, the minimum distribution requirement will be eliminated entirely for Roth 401(k)s thanks to the SECURE Act 2.0, which was passed at the end of 2022. Previously, Roth 401(k) account holders could roll their plans into a Roth IRA and avoid the requirement entirely.

That means if you are one of the lucky ones with access to the Roth 401k, then you can essentially put money away for retirement with after-tax dollars and pay nothing on the earnings when you begin your withdrawals and no tax period in your retirement.

I knew that if I could make sure to always focus on investing a portion of my income that I could build wealth no matter what.

My definition of a stockstar is listed above. However, I have a barometer to measure my goal as well.

In order to be a Stock CEO and be one of the big boys, I looked at the compensation packages of CEOs in America. And CEOs are paid! The average salary of a Fortune 500 CEO is $15.9 million per year. The highest-paid Fortune 500 CEO is Elon Musk. In 2021, Musk saw compensation worth around $23.5 billion. He achieved this by exercising Tesla stock options given in a 2018 multiyear moonshot grant.

CEO pay has skyrocketed 1,460% since 1978.

CEOs were paid 399 times as much as a typical worker in 2021; that is up from 366-to-1 in 2020 and a big increase from 20-to-1 in 1965 and 59-to-1 in 1989.

The average CEO salary in the United States is $821,100 as of May 25, 2023, but the range typically falls between $620,600 and $1,057,900.

However, some CEOs like Warren Buffet accept a salary of $100,000. Some have gone so far as to take a salary of $1. For example, in 2010–11 Oracle’s founder and CEO Larry Ellison made only $1 in salary, but earned over $77 million in other forms of compensation. In some cases, in lieu of a salary, the executives receive stock options. Top CEOs like Elon Musk & Mark Zuckerberg take 1 dollar salary. and know the history of a $1 salary & perks that comes with a one-dollar salary.

Why do CEOs make $1?

The CEOs can afford to earn $1 as they make money through other ways like stocks and equity. This also helps them in avoiding taxes.

Who are the CEOs in the $1 salary club?

Some of the CEOs who take a $1 dollar salary are: Elon Musk (Tesla), Mark Zuckerberg (Meta formerly Facebook), Meg Whitman (Quibi), Larry Page Sergey Brin (Google).

Once I did my homework, I decided that I was going to be a stock CEO.

I may not be running a billion-dollar Fortune 500 company, but could manage a million-dollar stock portfolio.

Every dollar I invest would be my employee.

I would unleash these little worker bees to do their thing and help me build wealth with the power of compounding. That would be my equity pay package and golden parachute when I left work behind.

For example, Presidents / CEOs at companies that have raised Over 30M typically get between 250K and 5M+ shares. However, smaller companies that have raised Under 1M are more generous with their stock compensation as it ranges between 2 and 40%+ for Presidents / CEOs.

Therefore, I could reckon that a CEO of a small firm could get around 100K and between 10K-200K shares. Let’s say a small cap company like Ethan Allen, which has a share rice of $26.40 and a market cap of $667M, then a CEO would have between $263K and $5.28M in stock.

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Therefore, if I had bewteen1K and 10K in stocks or index funds such as GOOGL at $125 a share or the VTSAX at $101 a share, I would have $100K to 1.25M in investments. This is a CEO stock equity level right there. Having 10K in shares or $100K-1M in investments means you are a stockstar.

At 550K in investable assets, you are in the top 20% in net worth. At $1.1M, you are in the top 10% of net worth individuals. Think of it like this, if you can’t be a rap star, baller, or Rockstar, you can be a financial Rockstar. Just keep investing.

Like Rihanna, said:

To be what you wish
You gotta be what you are
Only thing I’m missin’
Is a black guitar index fund

hey baby I’m a Rockstar stockstar!

Real Estate

An investment action inspired by Supergirl: how you can use your Roth IRA to buy property

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Buy land, they aren’t making anymore of it. – Mark Twain

I am a firm believer in the learning curve. A learning curve is the rate of a person’s progress in gaining experience or new skills. Through time and experience will your ever-increasing knowledge and skills grow to help you make better and wiser decisions. That includes not only in your personal life, but in your financial life as well.

This post was inspired on an episode from the television series Supergirl (2015-2021). In an early Season One episode, two or three, Supergirl (Kara Danvers played by actress Melissa Benoist) is having a talk with her boss, Cat Grant, at her job with the company CatCo.

See the events of that exchange below.

Cat penned an article for the Tribune on Supergirl’s blunder at the port and ordered Kara to get it ready for posting. Kara wondered why Cat was constantly criticizing Supergirl, claiming that Superman never faced such heavy backlash. Cat expressed that women need to work twice as hard as men to succeed, pointing out that Supergirl, despite her good intentions, is still a novice; she left Flight 237 in the bay after saving it and now caused an oil spill while trying to prevent a fire. Since Supergirl’s job is a learning curve, Cat advised her to start with smaller targets and work her way up, similar to how the latter rose through the ranks at the Daily Planet.

Put simply, no one starts in at the top. You have to work your way there. Wealth building requires the same.

You have to learn to manage one dollar before you can manage one million. You start small and work your way up. Then it hit me. You can use one wealth building tool to help you build another. They are both levers that can be used to help you scale up your wealth.

It is like the S meaning on Supergirl’s costume. It is the family crest for the House of El; it means Stronger Together.

Both your Roth IRA and home investment can help you build wealth faster. They are both stronger together.  

The major fortunes in America have been made in land. – John D. Rockefeller

New Home, Construction, Industry, House

Buying a home takes money. You generally need money for two items: Down payment and closing costs. You can use funds from your Roth IRA to do this.

Roth IRA withdrawal rules allow you to take out up to $10,000 earnings tax and penalty-free as long as you use them for a first-time home purchase and you first contributed to a Roth account at least five years ago.

Normally you would need to wait until you are age 59 1/2 to start withdrawing funds. If you withdraw money from the account before age 59 1/2, you will typically have to pay a 10% penalty on the amount withdrawn. The distribution will also be subject to taxes. However, there are certain circumstances in which you might be able to take out funds from the account before reaching age 59 1/2 and not incur penalties.

One exception to the early withdrawal penalty is for the purchase of a first home. To be considered a first-time homebuyer, you cannot have owned a primary residence at any time during the previous two years.

This $10,000 exception is available for every individual, so a married couple can withdraw $10,000 from each of their IRAs for a total of $20,000 that can be used for a down payment.

In addition to purchasing your own home, you may qualify to help others buy their first house. IRA owners can withdraw funds penalty-free to help their first-time home buying children, grandchildren or parents purchase a home. Sweet!

However, $10,000 is the lifetime maximum for first-time homebuyer withdrawals. Therefore, the total of your withdrawals must remain under the $10,000 mark to avoid the early withdrawal penalty.

Many of you out there may say why not a traditional IRA. There is a method to my madness. Bear with me.

The reason for using a Roth versus Traditional IRA is that while there will not be a penalty on early IRA distributions for a first home purchase, you can expect to pay taxes on the amount withdrawn when using a traditional IRA.

For example, if you are in the 22% tax bracket, a $10,000 withdrawal for a home purchase will lead to $2,200 in taxes. For a couple in the 24% tax bracket who withdraws $20,000, the taxes due would come to $4,800.

However, this is not the case for the Roth because you have already paid taxes on that money so you owe no income taxes on money that is withdrawn for a first time home purchase.

So if you are all in on this plan, then let’s get down to business.

Ninety percent of all millionaires become so through owning real estate. – Andrew Carnegie

The rules for using a Roth IRA rather than a traditional IRA are slightly different. You can withdraw any contributions (not earnings) at any time from your Roth IRA before retirement age without penalties as long as the account is at least five years old. You will be able to withdraw any amount up to the total amount you contributed without being subject to taxes.

In addition to your Roth IRA contributions, you might opt to take out some of the earnings in the Roth IRA. You can withdraw an additional $10,000 from the earnings under the first-time homebuyer exemption.

This is where the withdrawal exception comes into play. You may withdraw a combination of both contributions and earnings or just earnings to use toward your home purchase.

Just remember that if you are only using earnings the cap is $10,000. Any penny above that will trigger the 10% penalty in a traditional IRA or just the the income taxes in a Roth IRA.

You can always take out funds above the $10,000 threshold if you are taking out contributions only or in addition to earnings.

Again, simple math can help you build wealth.

We don’t have to be smarter than the rest. We have to be more disciplined than the rest. – Warren Buffett

My method of using the Roth IRA early withdrawal exception.

First, I did some research and found out that if you qualify as a first-time homebuyer, you can withdraw up to $10,000 from your traditional IRA and use the money to buy, build, or rebuild a home.

Second, I learned that with a Roth IRA, you can withdraw your contributions tax- and penalty-free at any time, for any reason, as long as you have held the account for at least five years.

This got me thinking. At the time, I was renting. I had opened up a Roth IRA more than five years ago. I had been squirreling away cash in it since opening it up with T Rowe Price starting with $50 dollars a month.

I also opened up a second Roth IRA with another brokerage at another time as not to mess with the good thing I had going with the first one as you could no longer open a Roth IRA with T Rowe and continue with an automatic contribution of $50 per month.

Do not scoff or turn your nose up at investing small sums of money. Over the years dealing with both accounts and after regular and sporadic contributions over time my T Rowe account grew to over $10,000 as did my other one. I had well over $25,000 in both not counting my 401(k), Rollover IRA, or other cash and investments.

I was skeptical about moving forward at first with this decision to buy property. My first. Then, I thought about what Wayne Gretzy and Michael Jordan said, “You miss 100% of every shot you don’t take.”

This quote helped me as well. Progress always involves risk. You can’t steal 2nd base and keep your foot on 1st.– Fred Wilcox

Therefore, I went for it.

I started by combining both accounts. Then, I cashed out $13,000 of of my Roth IRA.

The first $3,000 was in contributions and the additional $10,000 was in earnings. After, using the funds for closing costs and a small part of it for renovations, I ending up paying taxes on a tiny portion. The grand total: $238.

I was shocked! I couldn’t believe it. I felt like I should have taken the plunge long ago.

Alas, we cannot look backwards, we can only go forward. Within a few months of me owning the property it had increased in value by $14,000. That is more than what I withdrew to get the place.

And owning gave me such a sense of peace. That right there is priceless. I decided to do some updates and renovations to feel better about the space I was in. It took some hard work and time, but it was worth it in the end.

I got inspiration from several places. I knew I wanted the feel of how I always felt every time I walked into a Restoration Hardware.

Restoration Hardware The Gallery at The Estate in Buckhead - Gilbane
Restoration Hardware Front Entrance

I got the idea to base my bathroom feel and design on the Marriott and Caesar’s Palace in Vegas. Clean lines, white, simple and elegant. I also went with frosted sliding shower doors that you could not see through.

Hotel review: Las Vegas Caesars Palace - 9Travel
Caesar’s Palace Las Vegas
First Look: JW Marriott Hotel Macau – Business Traveller
JW Marriott

My bedroom is my center and place of peace. I call it my home base. I also always have a mini home office in my bedroom as I like to roll out of bed in my pajamas and write, work and check the stock quotes.

75 Bedroom Ideas You'll Love - November, 2022 | Houzz
Houzz design

And I love an organized closet. I got inspiration for mine from the Container Store. Although, mine does not look like this, I did make sure it was organized with all of my suits, shoes, and sweaters together like in the picture below.

Custom Closets & Custom Closet Design | The Container Store | Custom closet design, Wardrobe door designs, Closet designs
The Container Store Custom Closet Design

Lastly, the heart of the home. The kitchen was inspired by honey + lime. Stainless steel appliances and organized kitchen cabinets make life easier. Again, although my kitchen does not look like this, it was done with something like the picture shown in mind.

Kitchen remodel, Samsung stainless steel french door refrigerator at Best Buy
honey + lime kitchen design

Every time I think back and ask myself if I made the right decision I think of this quote from FDR.

Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. – Franklin D. Roosevelt

Amen.