ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

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bluerafters
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ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by bluerafters »

http://www.rothira.com/roth-ira-rules

I'm in the very fortunate camp, although I would like to acknowledge that I worked my @ss off to get to that level, that I could max out my ROTH on January 1st 2018 for the full $5,500. I maxed out the 2017 year, however, I had to do it slowly, monthly, throughout the 2017 year. Does anyone else pursue this kind of strategy? Instead of automating a monthly or quarterly contribution you just fund it all on day one and forget about it. Any particular pro's and con's to doing it this way?

I suppose the opposite would work as well. There might be some of you who wait until April 18, 2018 and set up a ROTH...
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flamesabers
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by flamesabers »

I've been doing the lump-sum investment for my Roth IRA for years now. It simplifies my life as it's one less thing I have to budget for the rest of the year and it gives my Roth IRA contribution more time to grow tax-free.
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Just sayin...
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Just sayin... »

I contribute the max to DW & my IRA on the first trading day of every year, then convert it to Roth one week later. Been doing it for a while now...
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mhc
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by mhc »

I lump sum in early January. I do it when I get around to it, not necessarily Jan 1 unless I remember to do it that day.
TonyDAntonio
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by TonyDAntonio »

Toward the end of my working career when I made the most money and my kids were done with college I was making the max Roth contributions at the beginning of each year.
iasw
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by iasw »

A lump sum in January is in the market that much longer, and statistically is more likely to do better. There are studies and simulations to show the difference. Of course it isn't guaranteed.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by TheHouse7 »

DCA vs Lump sum has been extensively studied.

Lump sum asap if you can. Get the most time in the market as possible.
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Meaty
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Meaty »

TheHouse7 wrote: Wed Dec 13, 2017 1:28 pm DCA vs Lump sum has been extensively studied.

Lump sum asap if you can. Get the most time in the market as possible.
Agree. This is why I lump sum. I do it with my 401k early in the year too as I have a true up provision
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Da5id
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Da5id »

I do it first week of January, but don't bother necessarily submitting the request on January 1 to execute January 2...
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Traveller
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Traveller »

mhc wrote: Wed Dec 13, 2017 12:24 pm I lump sum in early January. I do it when I get around to it, not necessarily Jan 1 unless I remember to do it that day.
+1
SillyRabbit
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by SillyRabbit »

Related question:

Assuming that tax advantaged space will be filled by the end of the year in any case, is it better to front-load pre-tax 401k contributions to get the company match or front-load the Roth contribution? If 401K, the company match will have more time in market, but if Roth, after-tax money will have more time in market. Which is generally thought to be better?
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by KlangFool »

OP,

I don't because I need to make sure that my job last enough to provide earned income for the contribution. Normally, I contribute in a lump sum around February or March.

KlangFool
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Da5id »

SillyRabbit wrote: Wed Dec 13, 2017 2:17 pm Related question:

Assuming that tax advantaged space will be filled by the end of the year in any case, is it better to front-load pre-tax 401k contributions to get the company match or front-load the Roth contribution? If 401K, the company match will have more time in market, but if Roth, after-tax money will have more time in market. Which is generally thought to be better?
Preload 401k seems like win. More money working for longer. And if you leave the job you get the extra match money. But note that at least where I work if you max out the 401k early in the year your match is less. There is some max per paycheck match and they don't true it up at the end of the year.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by SillyRabbit »

Da5id wrote: Wed Dec 13, 2017 2:26 pm
SillyRabbit wrote: Wed Dec 13, 2017 2:17 pm Related question:

Assuming that tax advantaged space will be filled by the end of the year in any case, is it better to front-load pre-tax 401k contributions to get the company match or front-load the Roth contribution? If 401K, the company match will have more time in market, but if Roth, after-tax money will have more time in market. Which is generally thought to be better?
Preload 401k seems like win. More money working for longer. And if you leave the job you get the extra match money. But note that at least where I work if you max out the 401k early in the year your match is less. There is some max per paycheck match and they don't true it up at the end of the year.
Thanks. That makes sense.
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Tamarind
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Tamarind »

I could but I don't. Every dollar already has a job. I could take a small part of my emergency fund to do this but prefer not to reduce the emergency fund. Instead I make equal automated investments each month after first paycheck.

When I have enough to need a taxable investing account, I'll probably switch to lump summing it.
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simplesimon
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by simplesimon »

Since wife's variable income may or may not push us over the contribution limit for a given year, I wait until the following year to contribute to avoid complications.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Ron »

Markets are closed on January 1st :twisted: ...

Anyway, back in the day, I would put away funds on a monthly basis during the previous year, and contribute those funds to my IRA the first working day of the new year.

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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by onourway »

Deciding on how to do this now. Between 401k and HSA contributions, regular savings into our budgeted sinking funds, childcare and school expenses, and my attempt to get a sizable taxable account built up to cover mid-term expenses and give us additional life flexibility I'm having a hard time deciding what to do. I don't like making monthly contributions because we are usually hovering around the phase-outs. I just funded the last of our 2017 space with some excess cash on hand. I could convert taxable investments to Roth early next year, but part of me wants the freedom of a bit more immediate liquidity in the taxable (I really don't want to be tempted to withdraw any IRA contributions).

I think so long as we utilize all available space every year, I'm happy, regardless of when we get it done.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Grt2bOutdoors »

Zero. Zero do because the securities exchanges are closed on January 1st of each year!
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by MathWizard »

Besides the Jan 1 is a trick questions, I assume that you mean contribute in January,

I don't, I contribute for the previous year when I do my taxes. Then I know
whether I can deduct a contribution to a Traditional IRA or not.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by asif408 »

I've done it in the past, and would if I still could. I think it's a great strategy if you have the means to do it. I haven't done it in the last year or so just because I can't do it financially, but I do put in money for it as soon as it's available.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Thesaints »

The expected advantage of the investor who contributes the whole amount on Jan1, over the investor who contributes in equal splits uniformly distributed along the year, is 6 months worth of average returns.

On the other hand, for highly volatile investments, the cost averaging investor will gain from the non-linearity of the investment cost function.

Therefore, it depends on the ratio of volatility and average return.
Last edited by Thesaints on Wed Dec 13, 2017 4:11 pm, edited 2 times in total.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by White Coat Investor »

Market is closed on January 1st. So I usually do it on Jan 2nd if market is open. Then do the conversion on Jan 3.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by bluerafters »

I completely forgot about New Years Day. In my defense, in my line of work, I haven’t actually had a holiday off in a decade or so...
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by wander »

No, but it is on my priority list so I DCA to fill up Roth IRA accounts quickly first few months. The benefit of getting in right on the first day is just noise to me.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Greaterunderstanding »

I max out on Jan 1 each year. Last year, I remember being really nervous about "buying high" and was seriously considering DCAing in throughout the year. I'm glad I stuck to my investment plan.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Thesaints »

You are glad this year, you won't be every year.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Tyrobi »

Normally we max out sometime in the first week of the year.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by DA200 »

We always contribute to an IRA during the first week of January and then backdoor to the Roth IRA the next day.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by MotoTrojan »

In order to maintain my AA AND keep funds in a tax-efficient account, this is difficult, but I wouldn't be opposed if the numbers made sense AA wise.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by grabiner »

I accumulate the December dividends in my money-market fund, rather than reinvesting them immediately. This usually gives me enough money to make my IRA contribution directly on January 2 (and then backdoor it into a Roth); if not, I do a bank transfer.

For me, it isn't an issue of dollar-cost averaging versus lump-summing, but of getting the money into a tax-deferred account. Normally, when I accumulate enough dividends to be worth buying something, I make a purchase in my taxable account, but every January, the purchase is in my tax-deferred account.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Toons »

Before retiring and one of us was employed,
I maxed out both Roth IRAs the first of every year.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by telemark »

In the past I've always contributed the yearly maximum, generally on the first trading day of the year. Next year there's some uncertainty about my continuing employment, so I plan to make contributions as the pay checks come in. I assume only the net pay, after deductions, can be counted for this: can anyone confirm that?
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Thesaints »

telemark wrote: Thu Dec 14, 2017 3:58 pm In the past I've always contributed the yearly maximum, generally on the first trading day of the year. Next year there's some uncertainty about my continuing employment, so I plan to make contributions as the pay checks come in. I assume only the net pay, after deductions, can be counted for this: can anyone confirm that?
"Taxable compensation for the year", therefore pre-tax contribution to retirement/health plan do not count, but tax withholdings/FICA contributions do count.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by telemark »

Thesaints wrote: Thu Dec 14, 2017 4:11 pm
telemark wrote: Thu Dec 14, 2017 3:58 pm In the past I've always contributed the yearly maximum, generally on the first trading day of the year. Next year there's some uncertainty about my continuing employment, so I plan to make contributions as the pay checks come in. I assume only the net pay, after deductions, can be counted for this: can anyone confirm that?
"Taxable compensation for the year", therefore pre-tax contribution to retirement/health plan do not count, but tax withholdings/FICA contributions do count.
That makes sense, thanks.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by marklar13 »

SillyRabbit wrote: Wed Dec 13, 2017 3:03 pm
Da5id wrote: Wed Dec 13, 2017 2:26 pm
SillyRabbit wrote: Wed Dec 13, 2017 2:17 pm Related question:

Assuming that tax advantaged space will be filled by the end of the year in any case, is it better to front-load pre-tax 401k contributions to get the company match or front-load the Roth contribution? If 401K, the company match will have more time in market, but if Roth, after-tax money will have more time in market. Which is generally thought to be better?
Preload 401k seems like win. More money working for longer. And if you leave the job you get the extra match money. But note that at least where I work if you max out the 401k early in the year your match is less. There is some max per paycheck match and they don't true it up at the end of the year.
Thanks. That makes sense.
Maybe I'm misunderstanding the post here, but you might want to double check how your company match works before "front loading" your 401k. For my match, I know that I need to be contributing every month in order to get the full match. They match my contribution dollar for dollar up to 3% each month. If I max out my 401k allowance for the year by say September, then I won't be contributing anything In Oct, Nov, Dec and will miss out on free employer match for those last months. I have confirmed with my benefits team that this is the way it works (for my plan at least).

So if I am understanding correctly, "front loading" is OK... but you might want to make sure that you are leaving yourself enough room to contribute up to the match every month of the year.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Dottie57 »

mhc wrote: Wed Dec 13, 2017 12:24 pm I lump sum in early January. I do it when I get around to it, not necessarily Jan 1 unless I remember to do it that day.


+1
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by John Doe 123 »

marklar13 wrote: Thu Dec 14, 2017 11:14 pm
SillyRabbit wrote: Wed Dec 13, 2017 3:03 pm
Da5id wrote: Wed Dec 13, 2017 2:26 pm
SillyRabbit wrote: Wed Dec 13, 2017 2:17 pm Related question:

Assuming that tax advantaged space will be filled by the end of the year in any case, is it better to front-load pre-tax 401k contributions to get the company match or front-load the Roth contribution? If 401K, the company match will have more time in market, but if Roth, after-tax money will have more time in market. Which is generally thought to be better?
Preload 401k seems like win. More money working for longer. And if you leave the job you get the extra match money. But note that at least where I work if you max out the 401k early in the year your match is less. There is some max per paycheck match and they don't true it up at the end of the year.
Thanks. That makes sense.
Maybe I'm misunderstanding the post here, but you might want to double check how your company match works before "front loading" your 401k. For my match, I know that I need to be contributing every month in order to get the full match. They match my contribution dollar for dollar up to 3% each month. If I max out my 401k allowance for the year by say September, then I won't be contributing anything In Oct, Nov, Dec and will miss out on free employer match for those last months. I have confirmed with my benefits team that this is the way it works (for my plan at least).

So if I am understanding correctly, "front loading" is OK... but you might want to make sure that you are leaving yourself enough room to contribute up to the match every month of the year.
Most companies do what is referred to as a “true up” contribution at the end of the year if the employee maxes out early. It is wise to confirm that this is the case before doing so.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by quantAndHold »

I do investing “stuff” once a month. When I was working full time, I maxed both my and wife’s IRAs on the January “investing day.” Now that I’m not really working, I have to wait until I have some earned income. As I earn money, it goes into the IRA. I’m not planning on earning money in January. So...no, not this year. Maybe later in the year.
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Rainmaker41
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Rainmaker41 »

Normally we will put $11k in Roth IRAs over the year evenly, and put what is not needed into work retirement plans.

However, we didn't have to spend as much as we anticipated during 2017, so we have too much cash lying around. We have the unusual opportunity to max out the IRAs at the start of 2018. We'll draw down the rest of our surplus cash during the year with work retirement plans.

From 2019 onward I'd be surprised if we found ourselves with 'too much' cash and thus able to max out the IRAs at the start of the year. Now that we can better forecast spending, we can set work retirement plan contributions appropriately. By the time our income starts to look like we might be able to fill everything up, we'll possibly be looking at buying a house anyway.
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Soul.in.Progress
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by Soul.in.Progress »

In the prior years, we have done it in January sometime. Now we are FIRE so not sure of 2018 strategy yet for IRA.
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Re: ROTH IRA Holders: How Many Of You Max Your Contribution On January 1st?

Post by nolesrule »

We'll put the money in after we have received the earned income to support the contribution. So probably in separate contributions, with most in January and the rest in early February.
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