Day: September 6, 2024

• A Gen Xer has grown her savings from $50,000 to $375,000 over the past decade.

• Her goal is to grow her savings to at least $1 million and retire by age 55.

• “Trimming” purchases and paying down debt have helped her boost her wealth.

Miriam wants to retire by age 55, and she thinks she’d need at least $1 million in savings to do so comfortably. At age 43, she’s confident her financial strategies will get her to that milestone.

Miriam’s retirement savings journey began around 2007 — when she said she had nearly nothing in savings and started contributing to a 401(k) for the first time. By 2014, her savings had grown to about $50,000, according to a document viewed by Business Insider.

It was around this time that Miriam, who said she makes roughly $80,000 a year working as an associate director at Georgetown University’s financial services office, began to get even more serious about boosting her finances. She said she started learning about the FIRE (financial independence, retire early) movement and sought out every personal finance book and blog she could find.

“I got really motivated to save and invest more in my retirement accounts,” Miriam, who asked for her last name to be excluded for privacy reasons, told BI via email.

The strategies she’s adopted over the past decade have started to pay off: She’s grown her savings from about $50,000 in 2014 to nearly $375,000 as of July. If she continues to save at the same rate (as much as $1,000 a month) and sees similar stock market returns, she’ll reach her $1 million goal over the next decade, according to her calculations — before her target retirement age of 55.

“Once I reached over $300,000, I knew I had the capability to reach my goal,” she said.

While many Americans are having trouble saving for retirement, some are putting themselves in a position to stop working ahead of schedule. Many of these people consider themselves members of the FIRE community, but they’ve used a wide variety of savings and investment strategies to grow their wealth — including taking on side hustles, investing in real estate, and finding creative ways to reduce their living expenses.

Miriam shared her top savings and investment tips that have been key to growing her wealth — and that she hopes will help her reach her retirement goal.

“Trimming” purchases and paying down debt have boosted her wealth

When Miriam was a teenager, she worked as a waitress and earned $2.65 an hour plus tips, she said. It was during these years that she developed a desire for the “sweet taste of freedom” that having her own money provided.

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She hasn’t always known the best way to fulfill this desire, but over the years, she’s developed a financial approach that works for her.

One of Miriam’s top strategies for boosting her savings and investments is “trimming” purchases. When she plans to make a significant purchase, she said she estimates roughly how much it will cost — and then tries to reduce or “trim” that number by 10%.

“If a trip costs $2,000, then I reduce costs by $200 to $1,800 and invest the difference, she said. “It’s a simple way to invest more.”

Focusing on reducing her debt levels has also gone a long way. Miriam said paying off her $450 monthly car payment 15 years ago was one of the biggest developments that helped grow her wealth. She took the money she was putting toward her car and started investing it in the stock market — she said she hasn’t had a car payment since.

Miriam also began taking advantage of her employer’s 401(k) match — “you can’t beat free money” — cutting back on subscriptions, and started a personal finance blog that has helped hold herself accountable, she said.

To develop her savings goals, Miriam experimented with various online retirement calculators, which helped her find the right number.

When it comes to investing her money, Miriam said she tends to gravitate toward diversified investment funds, though she’s also made individual investments in companies such as Apple, Alphabet, Amazon, and Nvidia.

To be sure, the stock market is notoriously difficult to forecast, and Miriam knows that she can’t bank on her prior investment success continuing in the years to come.

This is among the reasons that, despite her savings success, she hasn’t stopped seeking out financial advice. She said she regularly reads books by personal finance authors such as Suze Orman and the autobiographies of wealthy people, like Mark Cuban.

“I feel like if you want to be wealthy, your house should look like a Barnes & Noble,” she said.

While she’s disciplined about sticking to her savings plans, Miriam said she tries to splurge from time to time on things like trips, restaurants, and concert tickets — she was thrilled to score tickets for Beyoncé’s Renaissance Tour last year.

“When I hit money milestones, I like to go on adventures and reward myself for maintaining my focus,” she said.

Additionally, while she tries to invest much of her savings, she said she also tries to ensure she has a sufficient emergency savings fund.

Overall, Miriam credits her financial success to the personal finance knowledge she’s accumulated over the years.

“Becoming financially literate was my secret weapon against debt and to instead build wealth,” she said.

Have your savings and wealth grown significantly in recent years? Are you willing to share your top financial strategies? Reach out to this reporter at jzinkula@businessinsider.com.

Read the original article on Business Insider

(Bloomberg) — Broadcom Inc., a chip supplier for Apple Inc. and other big tech companies, fell in late trading after delivering a disappointing sales forecast, hurt by the portion of its business that isn’t tied to artificial intelligence.

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Sales will be roughly $14 billion in the fiscal fourth quarter, which runs through October, the company said in a statement Thursday. Analysts had projected about $14.1 billion.

The forecast suggests that Broadcom’s non-AI operations are growing more slowly than anticipated. Though the company has benefited from a surge in artificial intelligence spending, its other divisions aren’t as connected to this bonanza. The company has a wide variety of offerings, including mainframe products, security and data center software, mobile-phone chips and data storage gear.

Broadcom shares declined about 6% in extended trading following the announcement. The stock closed at $152.82 in regular New York trading, leaving it up 37% for the year.

The company is projecting $12 billion of revenue from AI-related products for the full year, beating the average analyst projection of $11.8 billion. That suggests that the shortfall in the total quarterly sales forecast came from other areas.

Chief Executive Officer Hock Tan said that most of his non-AI chip businesses are at or through their worst point. Revenue in some of those markets has begun to grow again sequentially even though it remains well below where it was a year go. Bookings — an indicator of future sales — are up 20%, he said. There’s no reason why those markets can’t return to previously high levels, he said.

“In aggregate, we have reached bottom in our non-AI markets, and we’re expecting recovery in the fourth quarter,” he said on a conference call with analysts. “AI demand remains strong.”

Third-quarter profit was $1.24 a share, excluding some items. That compared with an average estimate of $1.22. Revenue rose to $13.07 billion, compared with a projection of $13.03 billion. The company is much larger than it was a year ago, partly because of its acquisition of VMware Inc., which it bought for roughly $69 billion.

Broadcom’s semiconductor division had revenue of $7.27 billion in the three months ended Aug. 4. Software sales were $5.8 billion.

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For next year, Tan said he remains confident that AI will continue to be strong.

The CEO turned Broadcom into one of the largest players in the chip industry through a series of acquisitions. His strategy is to find businesses that are dominant in certain fields, purchase those companies, and then refocus them exclusively on those areas. Tan also has used that formula to expand into software.

The AI spending boom has turned Broadcom’s chip peer Nvidia Corp. into the biggest, most valuable company in the industry. Nvidia sells so-called AI accelerators that help develop tools such as ChatGPT, but Broadcom has benefited as well by supplying related components and software.

Data center providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cybersecurity and data center optimization.

Over the long term, Tan believes that the AI chip market will move to custom, in-house designs. That would mean shifting away from Nvidia components — a change that could benefit Broadcom, since it helps customers produce their own chips. He declined to provide a precise prediction of when this might happen and admitted it could take several years.

Apple is a top customer as well: Broadcom provides key components for the iPhone. During earnings calls, Tan typically gives updates on Broadcom’s often-contentious relationship with that company, which he refers to obliquely as his “North American customer.”

On that point, Tan said on Thursday’s call that he expects next-generation devices to help drive Broadcom’s wireless revenue up 20% sequentially in the fourth quarter — though it would still be flat compared with a year earlier.

Broadcom’s CEO — when asked what he called a “beautiful question” about whether he might look for a new acquisition in the semiconductor area — told his audience not to expect anything soon. The executive said he was focused on integrating VMware, a process that could take two years.

“Right now, I’m having my hands really full,” Tan said.

(Updates with more from conference call in final five paragraphs.)

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Shares of Broadcom (NASDAQ: AVGO) delivered impressive gains of 82% in the past year thanks to the company’s solid position in the market for custom artificial intelligence (AI) chips, which led to robust growth in the company’s semiconductor business. It also helped that Broadcom was named the second-most important AI chip company after Nvidia by JPMorgan analyst Harlan Sur.

That designation is not surprising, as the company is the dominant player in the market for application-specific integrated circuits (ASICs) with an estimated share of 55% to 60%. More importantly, the company’s dominance in this area is paying off nicely.

Broadcom’s strong rally in the past year is the reason why it now trades at an expensive 17 times sales and 70 times trailing earnings. This expensive valuation may deter investors from buying more Broadcom stock and have them looking for alternatives.

Another way to capitalize on the growing demand for custom AI chips is Marvell Technology (NASDAQ: MRVL). Let’s look at the reasons why.

AI is giving Marvell Technology a nice lift

Marvell Technology released fiscal 2025 second-quarter results (for the three months ended Aug. 3, 2024) on Aug. 29. The company’s revenue fell 5% year over year to $1.27 billion, while non-GAAP earnings fell 9% to $0.30 per share. However, Marvell stock surged more than 9% following its results. That may seem surprising at first, considering the contraction in its top and bottom lines, as well as the fact that its numbers were almost in line with consensus estimates. Wall Street was expecting earnings of $0.30 per share on revenue of $1.25 billion.

However, a closer look at the company’s data center business helps explain why investors gave its results the thumbs up. Marvell sold $881 million worth of data center chips last quarter, an increase of 92% from the same period last year. This segment produced 69% of the company’s top line in fiscal Q2, and the good part is that Marvell’s data center growth could accelerate as it is ramping up production ramp of its AI chips.

In the words of CEO Matthew Murphy on the latest earnings conference call:

Murphy added that he expects data center “revenue growth to accelerate into the high teens sequentially on a percentage basis” in fiscal Q3, which would be an improvement over the 8% sequential growth this segment clocked last quarter. More importantly, Marvell management believes that the company is on track to exceed the $1.5 billion in fiscal 2025 AI-related revenue it forecast earlier this year.

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The company anticipates that the ramp-up in the production of its custom AI chips, a strong order book, and the fact that it has secured enough supply to meet the end market demand should allow it to sustain the healthy growth of its AI-related revenue in the current fiscal year and the next one. More importantly, the custom AI chip market presents a healthy long-term growth opportunity for Marvell.

JPMorgan analysts estimate that the custom AI chip market presents a cumulative revenue opportunity of $150 billion over the next four to five years. While the investment bank points out that Broadcom is in a great position to capitalize on this opportunity, investors should note that Marvell is the second-largest player in the ASIC market, with an estimated share of 15%.

That share is translating into impressive growth in the company’s data center business, as we saw earlier, and the guidance indicates that the trend is here to stay. Marvell guided for $1.45 billion in revenue and $0.40 per share in adjusted earnings for the current quarter. That’s going to mark a return to top-line growth for the company, as it recorded $1.42 billion in revenue in the same period last year. The company’s earnings decline would almost come to a halt as it reported $0.41 per share in earnings in the same quarter last year.

Additionally, Marvell expects all of its end markets to return to sequential growth in the current quarter. Again, that’s not surprising as the weakness prevailing in its other business segments was gradually waning.

Strong earnings growth and a reasonable valuation make Marvell stock worth buying

Marvell’s earnings in fiscal 2025 are expected to decline slightly from the previous fiscal year’s reading of $1.51 per share. But as the chart below indicates, its earnings growth is set to kick into a higher gear beginning in fiscal 2026.

The market could reward this impressive acceleration in Marvell’s earnings with more upside. That’s the reason why investors looking for an alternative to Broadcom should consider buying Marvell hand over fist. It sports a relatively cheaper price-to-sales ratio of 12.5 and has a forward earnings multiple of 30, almost in line with the Nasdaq-100 index’s forward earnings multiple (using the index as a proxy for tech stocks).

Assuming Marvell manages to generate $3.41 per share in earnings after a couple of years and it trades at 30 times earnings at that time, its stock price could jump to $102. That would be a 34% increase from current levels, though the possibility of more gains cannot be ruled out, considering the massive AI chip opportunity that this semiconductor company is sitting on.

Should you invest $1,000 in Marvell Technology right now?

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.

Missed Out on Broadcom? Buy This Artificial Intelligence (AI) Semiconductor Stock Before It Skyrockets was originally published by The Motley Fool

(Bloomberg) — Stocks whipsawed ahead of US jobs data that will be key in determining the size of a Federal Reserve rate cut in September.

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In a session of several twists and turns, the S&P 500 finished lower. That’s despite a rally in a handful of big techs. Treasury yields fell slightly, with traders still pricing in over 100 basis points in Fed easing this year — which implies a potential super-sized reduction. Given Jerome Powell’s recent emphasis on the labor market, many on Wall Street say Friday’s US payrolls will dictate whether the Fed cuts by 25 or 50 basis points this month.

To Steve Sosnick at Interactive Brokers, a “Goldilocks” scenario around consensus – ‘not too hot, not too cold’ – is what equity bulls require.

“The danger in really ‘bad news’ is that even if the Fed is prepared to react aggressively, it might be too late to stave off real economic weakness,” he said. “But there is a worry that if the news is ‘too good,’ the Fed might be reticent to cut rates as fast as the market has come to expect.”

In the run-up to the figures, economic data was mixed. US services expanded at a modest pace, companies added the fewest jobs since the start of 2021, while unemployment claims trailed estimates.

“After today’s mixed numbers, it’s up to tomorrow’s jobs report to give investors a clearer read on the state of the labor market,” said Chris Larkin at E*Trade from Morgan Stanley. “Markets are still trying to figure out if the economy is slowing too much, and whether the Fed is behind the curve.”

The S&P 500 fell 0.3%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average dropped 0.5%. A gauge of the “Magnificent Seven” megacaps rose 1.6%. The Russell 2000 declined 0.6%. US 10-year yields slid three basis points to 3.73%. The dollar slipped.

In corporate news, Nvidia Corp. climbed, with Bank of America Corp. analysts saying the recent plunge created a buying opportunity. Tesla Inc. jumped on plans to launch the driver assistant in China and Europe. In late hours, Broadcom Inc. slumped on a tepid forecast.

Following a disappointing jobs report last month, it’s no wonder that investors are “skittish” ahead of Friday’s data, according to Bret Kenwell at eToro.

“While the odds currently favor a 25 basis-point cut at the Fed’s September meeting, a woefully disappointing jobs report could shift those odds to favor a 50 basis-point cut,” he said. “If the Fed feels forced to go right to a 50 basis-point cut, it may suggest there’s a bigger worry about the jobs market than previously acknowledged.”

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Kenwell says that ideally, we should see a “better-than-feared” report on Friday, showcasing a labor market that has softened a bit — but isn’t weak — and allows the Fed to usher in a series of 25 basis-point rate cuts.

To Andrew Brenner at NatAlliance Securities, if the economy shows strength in nonfarm payrolls, equities should do better initially — but if rates “get slaughtered,” that won’t be good. Conversely, if rates rally because of a weak number, that won’t be good for stocks either.

“So we are in a tails we lose, heads we lose,” Brenner concluded.

The jobs report is expected to show payrolls increased by about 165,000, based on the median estimate in a Bloomberg survey of economists. While above the modest 114,000 gain in July, average growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021.

A survey conducted by 22V Research shows most investors (44%) think the market reaction to Friday’s data will be “risk-on,” 27% said “risk-off” and 29% “negligible/mixed.”

The tally also underscored a notable shift — with the unemployment rate gaining more attention this month. Meantime, the focus on wage growth has dropped further. And 52% of respondents expect payrolls to beat the 165,000 projection.

To Stan Shipley at Evercore, Thursday’s ADP private employment tally and other labor-market metrics suggest a “soft payroll” for August.

“Tomorrow’s payroll report could be softer than expected given the slowdown in ADP estimates” said Jeffrey Roach at LPL Financial. “If the payroll report surprises investors and comes in weaker than expected, the likelihood of a 50 basis-point cut increases at the upcoming Fed meeting.”

While the ADP report has been a poor prognosticator of non-farm payrolls in recent years, its correlation to the print has been improving this year.

Corporate Highlights:

• JetBlue Airways Corp. raised its sales forecast for the current quarter after the carrier said it benefited from re-booking passengers from rival airlines whose flights were disrupted by a technology outage in July.

• Verizon Communications Inc., which agreed to buy Frontier Communications Parent Inc. for about $9.59 billion in cash, said it’s focused on paying down debt as it works on closing the deal.

• Paramount Global, the parent of CBS, will be controlled by software billionaire Larry Ellison after a group led by his son David completes its purchase of the Redstone family’s interest in the film and TV company, according to a regulatory filing.

Key events this week:

• Eurozone GDP, Friday

• US nonfarm payrolls, Friday

• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 4 p.m. New York time

• The Nasdaq 100 was little changed

• The Dow Jones Industrial Average fell 0.5%

• The MSCI World Index fell 0.3%

• Bloomberg Magnificent 7 Total Return Index rose 1.6%

• The Russell 2000 Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1105

• The British pound rose 0.2% to $1.3171

• The Japanese yen rose 0.2% to 143.45 per dollar

Cryptocurrencies

• Bitcoin fell 3.4% to $56,090.69

• Ether fell 3.6% to $2,365.8

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.73%

• Germany’s 10-year yield declined two basis points to 2.21%

• Britain’s 10-year yield declined two basis points to 3.91%

Commodities

• West Texas Intermediate crude was little changed

• Spot gold rose 0.8% to $2,515.75 an ounce

This story was produced with the assistance of Bloomberg Automation.

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Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, is in a tailspin. Hindenburg Research recently released a short-seller report about the tech company, alleging that it is once again involved in manipulating its numbers. That has put investors into panic mode. Supermicro’s shares have been down more than 30% in the past month.

Investors were already starting to grow concerned about artificial intelligence (AI) stocks such as Supermicro becoming too expensive, and now there are worries about the overall business itself, including its internal controls and how legitimate its numbers are. Does this short-seller report raise flags about Supermicro that should keep you away from the stock, or could its reduced price simply make now a good time to take a contrarian position in the company?

Hindenburg alleges accounting manipulation

According to the Hindenburg report, after interviewing ex-employees and industry experts and reviewing documents, the research firm believes there are “glaring accounting red flags” suggesting that revenue may be overstated and internal controls may not have been followed. Hindenburg says the people involved in an accounting issue that took place years ago are still involved with the business today.

In 2020, the Securities and Exchange Commission (SEC) charged Supermicro and then CFO Howard Hideshima with understating expenses and recognizing revenue too aggressively from its 2015 to 2017 fiscal years. The fine was $17.5 million. And in 2018, the stock was also temporarily delisted for not filing its financial statements on time.

What should investors make of the report?

Short-seller reports are often biased and can contain incomplete and one-sided information. A few things about this one stand out to me.

For starters, the ex-employees interviewed for the report seem to primarily be sales reps and directors, who would presumably be unfamiliar with accounting policies and controls. And in any business, there will always be pressure to push as much through as possible at the quarter’s end to help meet targets, which the report alleges.

Supermicro’s current CFO, David Weigand, took on the role in 2021 and has been with the company only since 2018, having previously worked at Hewlett Packard Enterprise. CFO is the company’s most important accounting role, and Supermicro changed that position because it got into trouble with the SEC.

The Hindenburg report tries to suggest that Weigand has looser oversight and internal controls than predecessor Kevin Bauer, who left the company after helping it relist and resolve its financial problems. But that’s speculative at best. With a different CFO at the helm, there’s no reason to suggest that the company is applying the same accounting practices and policies that previously raised concerns.

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As with any short-seller report, investors shouldn’t give it too much importance or allow it to influence their decision-making without substantiated evidence.

Supermicro’s business has been booming, and demand for its AI servers and infrastructure is skyrocketing. The company is coming off a strong fiscal year for the period ending June 30, in which net sales of $14.9 billion more than doubled the previous year’s tally of $7.1 billion. Net income of $1.2 billion also jumped significantly from $640 million a year ago. With such solid numbers and demand for its products, Supermicro doesn’t strike me as a business that needs a whole lot of help at the quarter’s end or year’s end to boost its numbers.

Should you buy Supermicro stock?

A short-seller report can be scary, but investors must take it with a grain of salt. The information could come from disgruntled ex-employees or those unfamiliar with the matters at hand. There’s nothing from Hindenburg’s short-seller report that makes me think Supermicro’s business is in serious trouble, as it seems to refer heavily to trouble the company got into before its new CFO took over.

This could be a good time for investors to take advantage of the potentially irrational fear surrounding Supermicro stock. At a price that’s 13 times its estimated future profits (based on analyst estimates), the tech stock could prove to be a steal of a deal.

Should you invest $1,000 in Super Micro Computer right now?

Before you buy stock in Super Micro Computer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $661,779!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

How Concerned Should Super Micro Computer Investors Be About Hindenburg’s Short Report? was originally published by The Motley Fool

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A Roth IRA offers significant benefits for retirees. As an after-tax account, distributions from Roth IRAs are typically tax-free. This can save you a lot of money in retirement, but at the cost of up-front tax payments while you’re saving. You will spend more to build your portfolio today, but will save money later.

A financial advisor can help you plan and save for retirement. Find a fiduciary advisor today.

For example, say that you’re married and in your late 50s. You and your spouse have a 401(k) with $1.6 million and are building toward a strong retirement. Would you benefit by switching to Roth contributions?

In this case, most households may benefit by sticking with their pre-tax contributions, but the answer will depend on a number of factors. Here’s how to think about it.

Pros and Cons of a Roth IRA

As an after-tax account, a Roth IRA doesn’t offer any tax deduction or credit for your contributions up front. The benefit comes in retirement when you can withdraw your money tax-free.

This is the inverse of a tax-deferred retirement account, like a traditional IRA or 401(k). Such accounts provide an income tax deduction on all contributions – up to the annual contribution limits – for the year in which they’re made. Then, in retirement, you pay income taxes on all withdrawals (both returns and principal).

Up-front taxes are the main disadvantage to a Roth IRA. The money you spend on taxes is capital that you could have otherwise invested for long-term, tax-deferred growth. For example, say that you pay an effective tax rate of 20%. With a Roth IRA, you’d have to earn $1.20 for every $1 you save to account for taxes on your contribution. With a 401(k), on the other hand, you can save and invest the full $1.20 in pre-tax earnings.

But there are significant advantages to Roth IRAs. First, and most notably, you can keep all the money you withdraw from this account (provided that you adhere to a few rules). By contrast, all withdrawals from a 401(k) are effectively reduced by your income tax rate.

Second, a Roth IRA is excellent for maximizing growth. The longer this portfolio grows, the more value its tax-free withdrawals will have. Third, Roth withdrawals can help keep your Social Security benefit taxes low since they do not increase your taxable income.

Fourth, and finally, Roth IRAs are not subject to required minimum distributions (RMDs), so you can keep the money invested for as long as you want.

If you’re unsure whether a Roth IRA is a good option for your financial circumstances, consider speaking with a financial advisor.

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Roth Contributions vs. Conversions

There are two main ways to build a Roth IRA if you already have a retirement account: contributions and conversions.

With a Roth conversion, you move the money from your existing pre-tax portfolio into a Roth IRA. There are no limits on how much money you can convert. For example, someone could convert their entire $1.6 million 401(k) in a single year.

With contributions, you begin putting newly earned income into a Roth IRA each year. These savings are subject to standard IRA contribution limits. In 2024, you can save up to $7,000 in IRAs or $8,000 if you are 50 or older. Since IRA contribution limits are different from 401(k) limits, you can contribute up to the limits of both a Roth IRA and a 401(k) in the same year if you have the capital.

Weighing Your Options

In both cases, the money that flows into a Roth account counts toward your taxable income for the year. With contributions, this means you do not get to deduct the money you save in your Roth IRA. With a conversion, you include the amount that’s rolled over in your taxable income for the year. For example, if you converted the full $1.6 million, you would pay taxes on the lump sum.

If you convert a pre-tax portfolio, make sure you have the cash on hand to pay the resulting taxes. This is particularly true for investors over the age of 59 ½, as above this age you can use the money from your portfolio to pay income taxes.

Finally, Roth contributions are subject to the five-year rule. Any earnings that your contributions generate must remain in the account for five years, regardless of your age or retirement status. For example, say you contribute $8,000 in 2024 and $8,000 in 2025. Any interest that the first $8,000 generates must remain invested until 2029. Earnings from the second $8,000 must remain there until 2030. Violating this rule can result in income taxes and a 10% penalty.

Roth conversions are subject to a separate five-year rule that requires the converted amount to remain in the account for five years before it can be withdrawn penalty-free. A five-year waiting window applies to each individual Roth conversion, however.

Luckily, the five-year waiting periods start retroactively, so doing a Roth conversion or making a Roth contribution in December 2024 will mean your five-year period started in January 2024.

If you want to add a Roth account to your mix of assets but don’t know whether contributions or conversions make the most sense, consider matching with a financial advisor and talking it through.

Should You Switch To Roth Contributions?

So, should you switch to Roth contributions? For example, say that you’re 57 with $1.6 million in your 401(k). Is now a good time to prioritize Roth contributions over ongoing 401(k) investments?

While it depends on your individual situation, there’s a decent chance the answer may be no.

The rule of thumb is that a Roth IRA works best for people who expect to be in a higher tax bracket in retirement. As a result, Roth IRA contributions usually have the most value earlier in life, when most households make less money and have more time for their money to grow tax-free.

By contrast, a 401(k) and other pre-tax accounts typically work best when you currently pay a higher tax rate than you will in retirement. This lets you maximize the value of the present tax deduction, effectively letting you defer the income taxes on your current income until later in life when you’re in a lower tax bracket.

For example, say that you pay an effective tax rate of 25% and expect that rate to be 15% in retirement. You have $5,000 of pre-tax income to contribute and it will double by the time you retire. With a Roth IRA, you would contribute $3,750 ($5,000 – 25%). In retirement, you would withdraw and keep $7,500 ($3,750*2 – 0%). With a pre-tax 401(k), you would contribute the full $5,000. In retirement, you would withdraw and keep $8,500 ($5,000*2 – 15%) since your marginal tax rate would be just 15%.

Here, the lower rates in retirement would make the tax-deferred account a better option.

For a couple in their late 50s, there are a couple of things to keep in mind.

First, if you have the capacity to make both 401(k) and Roth IRA contributions, this can be a good way to build up your savings and preserve some tax flexibility in retirement.

If you do have to choose between a Roth IRA and 401(k), the 401(k) may actually be a better option. Households in their late 50s are typically at the peak of their earnings and, as result, their marginal tax rate. If your income and taxes decrease in retirement, a Roth IRA may lose its overall value.

Now, households with a particularly strong 401(k) can still get real value from the long-term untaxed gains of a Roth IRA. For example, say you switch to maximized Roth contributions today. With 10 years of contributions and 30 years of growth, your account could grow considerably. While you still likely get more value from the relatively higher deductions from a 401(k), it’s worth considering the long-term tax-free gains.

Overall, talk to a financial advisor to decide what your specific financial situation could look like. However, if you are like most households in the home stretch of their retirement preparations, continuing to save in a 401(k) very well might be the better choice.

Bottom Line

For households approaching retirement, a Roth IRA can provide some strong growth opportunities and tax flexibility, but you may end up paying more in taxes to build this portfolio. If you expect your tax rate to be lower in retirement, the benefits of a pre-tax 401(k) may outweigh the advantages associated with switching to Roth contributions. Then again, Roth accounts offer more income flexibility in retirement since RMDs aren’t mandated and distributions are tax-free.

Roth IRA Management Tips

• One of the key issues with an IRA of any kind is self-management. You need to open this account on your own and, in most cases, you need to manage its investments as well. That can be pretty intimidating, although fortunately it doesn’t have to be.

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

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The post We’re in Our Late 50s With $1.6 Million in Our 401(k)s. Should We Switch to Roth Contributions? appeared first on SmartReads by SmartAsset.

Key Takeaways

• Shares of Frontier Communications fell Thursday after Verizon Communications said it plans to buy the fiber network company.

• The transaction is valued at about $20 billion of enterprise value.

• Verizon is offering Frontier shareholders $38.50 a share in cash, a 44% premium to Frontier’s 90-day volume-weighted average share price on Tuesday.

Shares of Frontier Communications (FYBR) tumbled Thursday after Verizon Communications’ (VZ) said it plans to buy the fiber network company for $20 billion in cash.

Verizon said the deal will expand its fiber network and is “expected to be accretive to revenue and adjusted EBITDA growth” once it closes.

“The acquisition of Frontier is a strategic fit,” Verizon Chairman and Chief Executive Officer (CEO) Hans Vestberg said. “It will build on Verizon’s two decades of leadership at the forefront of fiber and is an opportunity to become more competitive in more markets throughout the United States.”

Frontier shares jumped 38% on Wednesday amid reports of an impending deal, but were down about 9% Thursday morning, trading below Verizon’s eventual offer price. The drop may signal some investor uncertainty around the deal getting regulatory approval. Verizon shares were little changed, sliding less than 1%.

Verizon Offers $38.50 Per Frontier Share

Verizon is offering Frontier shareholders $38.50 a share in cash, a 44% premium to Frontier’s 90-day volume-weighted average share price on Tuesday, the day before The Wall Street Journal reported that a deal was close.

The transaction has been unanimously approved by both boards and is expected to close in around 18 months, Verizon said, subject to the green light from Frontier’s shareholders and regulatory approvals.

Update: This article has bene updated to reflect more recent share-price information.

Read the original article on Investopedia.