Taxable funds to a Roth

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Taxable funds to a Roth

Postby DietPepsi » Fri May 03, 2013 11:09 pm

I put $10,000 into VSMAX (small cap) and $10,000 into VTSAX (total market) in taxable accounts about a month ago. My question is, should I withdraw $5,500 and put it into a Roth IRA? I didn't really think about a Roth ahead of time, I should have. I'm slowly increasing my contribution to my 401k but right now I'm not comfortable contributing the full 17.5k since I like to travel. I'll probably leave it at 20% soon at least until I get a raise (happens in February every year). What is the impact on my taxes if I move the money from taxable into a Roth? What should I put the $5,500 into that my 401k doesn't do well? (I've been told the MSCI EAFE isn't a great international index so maybe total international is better)

Age: 23
State :TX
Federal: 25%
Single
I have an emergency fund

Roth: $0


15% into a 401k + 4% match from employer (I started in Jan.)
401k: $2750

28.55% - S&P 500 Index Fund ER: .025%
26.32% - S&P 400 Midcap Index Fund ER: .0225%
24.33% - MSCI EAFE Index Fund ER: .095%
15.82% - Russell 2000 Index Fund ER: .033%
4.97% - Barclays Capital Aggregate Bond Index Fund ER: .028%
Last edited by DietPepsi on Fri May 03, 2013 11:36 pm, edited 1 time in total.
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Re: Taxable funds to a Roth

Postby tyler_cracker » Fri May 03, 2013 11:27 pm

DietPepsi wrote:I put $10,000 into VSMAX and $10,000 into VTSAX in taxable accounts about a month ago.


what and who? please add fund names.

What is the impact on my taxes if I move the money from taxable into a Roth?


when you sell from taxable, you'll pay short-term capital gains on the earnings. this effectively increases your total wages by that amount. since you've only held the funds for a month, the amount should be negligible.

i definitely think you should contribute to a roth. if selling taxable investments is the only way to make that happen, then go for it.

however, given that you have until april 2014 to make this contribution, maybe you can save the 5.5k without selling. especially if you consider that the usual advice is to contribute to 401k only up to company match, then fully fund a roth before maxing out the 401k.

that said, if those expense ratios you posted are accurate your 401k is pretty amazing, so the usual advice may not apply.

What should I put the $5,500 into that my 401k doesn't do well? (I've been told the MSCI EAFE isn't a great international index so maybe total international is better)


i don't know about MSCI EAFE specifically, but a common issue with international funds is that they don't contain emerging markets and/or small caps that many of us favor. international index funds are a good fit for taxable space, so if you have any doubts then go ahead and consolidate your intl exposure in taxable. then you can concentrate on the options in your 401k that you like.
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Re: Taxable funds to a Roth

Postby DietPepsi » Fri May 03, 2013 11:41 pm

tyler_cracker wrote:that said, if those expense ratios you posted are accurate your 401k is pretty amazing, so the usual advice may not apply.


This is why I think the 401k is worth maxing first. These ERs are tiny and there is only a set $80 record keeping fee. I called today to confirm these numbers and they're correct.
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Re: Taxable funds to a Roth

Postby tyler_cracker » Sat May 04, 2013 12:03 am

then sure: sell small cap in taxable, buy it back in roth. (why not small cap value btw?).

fwiw, traveling was one of the best things i did in my 20s so i think that's a fair reason to skip totally maxing out retirement savings. :sharebeer
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Re: Taxable funds to a Roth

Postby rickmerrill » Sat May 04, 2013 12:33 am

If you have a little extra and want to move it from taxable to Roth that's a good idea- not a tax problem.

Looks like you have a pretty good 401k so I don't think anyone would say you were wrong to max it first. It's a fine line for you. It looks like you've already read the wiki subject about this http://www.bogleheads.org/wiki/Prioritizing_investments and at your age it is just too close to call. You won't go wrong by maxing the 401k and then the Roth or contributing to the match, then Roth, then the rest to the 401k. Having some in Roth may give you some flexibility once retired but you may have other opportunities to move money into your Roth in the future. Since you are 23 and asking you are solidly on the right track. Hope you enjoy some great travels ahead!
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