Saving for 2019 Roth IRA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
VCO
Posts: 12
Joined: Sat Nov 07, 2015 4:20 pm

Saving for 2019 Roth IRA

Post by VCO » Mon Jan 01, 2018 12:01 pm

Each year, on or about January 1, I transfer $5500 from a high-yield savings account to Vanguard, and immediately do a backdoor IRA. I save for this the year's contribution the following year on a monthly basis. Thus, for all of 2017, I had a Capital One 360 sub-account labelled "Roth IRA -- 2018" and had $460 direct deposited each month. I've now relabelled that account "Roth IRA -- 2019."

This was a system I developed years ago when it was still a bit tough for me to max out my 401k, Roth IRA, HSA, etc. Now, however, I have a rather large taxable account as well that I contribute to on a monthly basis. As such, there is no real reason for me not just increase my monthly contribution to my Vanguard taxable account instead of letting the money sit in a high yield savings account for a year.

Does any one else have any strong opinions on this? Obviously, the strongest benefit of switching to just increasing my taxable account, and then withdrawing at the start of each year, is that the money will have "more time in the market." That said, given the monthly contributions, on average I'd only have $2250 extra in my taxable account over the course of the year, I wonder if the hassle factor is sufficiently large to just continue my current approach. To be clear, my taxable account is sufficiently large that, even if the annual Roth contribution were to plummet in value during the year, I'd still make the Roth IRA contribution from other funds in taxable, and adjust allocation across accounts accordingly.

Right now, that $460/month is not part of my asset allocation, but I guess in the back of my head I imagine it as a third-tier emergency fund.

In other words, how are others saving for the next year's (2019's) Roth IRA?

Grt2bOutdoors
Posts: 19301
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Saving for 2019 Roth IRA

Post by Grt2bOutdoors » Mon Jan 01, 2018 12:06 pm

You are following the "buckets" strategy by labeling accounts.
As you say, since you have a large taxable account, you can assign your $460 monthly deposit to your asset allocation or alter your asset allocation to make it slightly more conservative to ensure your $5,500 will be available on January 2nd of each subsequent year. Money is fungible.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

OldSport
Posts: 309
Joined: Tue Jul 25, 2017 7:01 pm

Re: Saving for 2019 Roth IRA

Post by OldSport » Mon Jan 01, 2018 12:10 pm

Do you need to contribute to an IRA directly from a bank account, or can you contribute to a Vanguard IRA directly from Prime Money Market or another Vanguard fund?

I usually fund current year IRA contributions from my annual bonus paid in the first quarter.

exigent
Posts: 746
Joined: Fri May 07, 2010 8:49 am

Re: Saving for 2019 Roth IRA

Post by exigent » Mon Jan 01, 2018 12:10 pm

We don’t specifically save for this in a dedicated account, or anything like that. Rather, we have dividends in our taxable account paid to cash and then we manually reinvest them in whatever is low in our allocation. This helps minimize the need to rebalance, and also reduces our total number of tax lots. In January, we use funds from year-end distributions for IRA contributions and then reinvest the rest in whatever else we need.

mortfree
Posts: 1296
Joined: Mon Sep 12, 2016 7:06 pm

Re: Saving for 2019 Roth IRA

Post by mortfree » Mon Jan 01, 2018 12:18 pm

Do you have to save over a 12-month period for the Roth?

Maybe you can start saving a larger amount per month later in the year (say June) so your Roth money isn’t out of the market too long.

Continue investing in taxable over 12 months or whatever your desired plan allows.


Good problem to have.

User avatar
House Blend
Posts: 4501
Joined: Fri May 04, 2007 1:02 pm

Re: Saving for 2019 Roth IRA

Post by House Blend » Mon Jan 01, 2018 1:37 pm

VCO wrote:
Mon Jan 01, 2018 12:01 pm
Right now, that $460/month is not part of my asset allocation, but I guess in the back of my head I imagine it as a third-tier emergency fund.

In other words, how are others saving for the next year's (2019's) Roth IRA?
Your taxable account could be your 3rd tier emergency fund.

Like you, I invest more per year than fits into tax-advantaged accounts.

Each month, after I've figured out how much cash is available to invest, I invest it. If Roth IRA space is available that month, I'll prioritize that first, but otherwise it goes into taxable.

I don't let surplus cash accumulate.

Post Reply