Saving for 2019 ROTH; keep in savings or brokerage

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aerosurfer
Posts: 42
Joined: Fri Feb 02, 2018 6:10 am

Saving for 2019 ROTH; keep in savings or brokerage

Post by aerosurfer » Thu Nov 08, 2018 11:23 am

Planning my (and wife’s) 2019 Roth contributions in full come Jan 19, I’m currently holding Ally’s no penalty CD with enough to cover both Roth’s. I can add/sweep funds from my regular brokerage account, which is all VOO and SWPPX, but am confused about tax drag moving the funds. Same goes if I open a Money market or treasury.

I realize the potential interest gains of kept in treasury type account would be minimal this year, but saving in 19 for 2020 would be same effect...

Edit... because of the Ally promotion last month, my 19 Roth Contributions won’t be made til Feb, fwiw.

Cunobelinus
Posts: 199
Joined: Tue Dec 04, 2012 5:31 pm

Re: Saving for 2019 ROTH; keep in savings or brokerage

Post by Cunobelinus » Thu Nov 08, 2018 12:19 pm

Trying to unpack your question(s).
I think you're stating that you have 2019's Roth IRA's full contribution amount in an Ally CD. You're asking if you ought to sell your funds (VOO and SWPPX -- S&P 500 index funds) to further save for calendar year 2020's Roth IRA contributions?

I think this is a standard question of "should I sell X?" If you sell shares of VOO or SWPPX (or any fund), you will incur short-term and long-term capital gains taxes. To avoid taxes on that and let the shares appreciate, you could also just divert a small amount of money from your paycheck(s) to put into an account to save for 2020, 2021, 2022. You could also look into a CD ladder for this purpose.

The general rule of thumb is that if you plan on needing a certain amount of money, then you shouldn't put it in the stock market. If you're comfortable having your 2020's contribution drop by 50% by 2020, then leave it in the index funds; otherwise, it should be in a safe spot where it's not likely to lose significant value (CD, savings account, etc.)

From the wiki: https://www.bogleheads.org/wiki/Placing ... ed_account
"Emergency funds should be placed in a highly liquid, low risk vehicle (e.g., money market, bank savings account"

While not exactly an emergency fund, I'd treat money that you don't want to lose similarly. I feel like there was a wiki page about where to place short-term cash needs, but I can't find it presently.

I hope I've provided some information to help you make a decision, or at least do some further reading.

aerosurfer
Posts: 42
Joined: Fri Feb 02, 2018 6:10 am

Re: Saving for 2019 ROTH; keep in savings or brokerage

Post by aerosurfer » Thu Nov 08, 2018 1:48 pm

Cunobelinus wrote:
Thu Nov 08, 2018 12:19 pm
Trying to unpack your question(s).
I think you're stating that you have 2019's Roth IRA's full contribution amount in an Ally CD. You're asking if you ought to sell your funds (VOO and SWPPX -- S&P 500 index funds) to further save for calendar year 2020's Roth IRA contributions?

I think this is a standard question of "should I sell X?" If you sell shares of VOO or SWPPX (or any fund), you will incur short-term and long-term capital gains taxes. To avoid taxes on that and let the shares appreciate, you could also just divert a small amount of money from your paycheck(s) to put into an account to save for 2020, 2021, 2022. You could also look into a CD ladder for this purpose.

The general rule of thumb is that if you plan on needing a certain amount of money, then you shouldn't put it in the stock market. If you're comfortable having your 2020's contribution drop by 50% by 2020, then leave it in the index funds; otherwise, it should be in a safe spot where it's not likely to lose significant value (CD, savings account, etc.)

From the wiki: https://www.bogleheads.org/wiki/Placing ... ed_account
"Emergency funds should be placed in a highly liquid, low risk vehicle (e.g., money market, bank savings account"

While not exactly an emergency fund, I'd treat money that you don't want to lose similarly. I feel like there was a wiki page about where to place short-term cash needs, but I can't find it presently.

I hope I've provided some information to help you make a decision, or at least do some further reading.
Yes and no....

I already have emergency funds set aside and don’t really need to factor in that money. I was essentially hoping to sell funds in the taxable and sweep them into the Roth, in the same or very similar funds. Then replenish the taxable throughout the year. Both in index funds and/or cash funds. I already have plenty in that account already I may actually do that while waiting for the Ally bonus to occur. Right now the Ally no penalty is within 25bp of VMMXX.

I’ll admit my ignorance on Capital gains, I’m working on learning more. Other than the Ally CD or savings, if I go with VMMXX, is it taxed differently when I sell it from a brokerage. Same goes for funds I put in SWPPX for sale the following year

I guess my question is how best to store money earmarked for investing

magicrat
Posts: 478
Joined: Sat Nov 29, 2014 7:04 pm

Re: Saving for 2019 ROTH; keep in savings or brokerage

Post by magicrat » Thu Nov 08, 2018 2:13 pm

aerosurfer wrote:
Thu Nov 08, 2018 1:48 pm
Cunobelinus wrote:
Thu Nov 08, 2018 12:19 pm
Trying to unpack your question(s).
I think you're stating that you have 2019's Roth IRA's full contribution amount in an Ally CD. You're asking if you ought to sell your funds (VOO and SWPPX -- S&P 500 index funds) to further save for calendar year 2020's Roth IRA contributions?

I think this is a standard question of "should I sell X?" If you sell shares of VOO or SWPPX (or any fund), you will incur short-term and long-term capital gains taxes. To avoid taxes on that and let the shares appreciate, you could also just divert a small amount of money from your paycheck(s) to put into an account to save for 2020, 2021, 2022. You could also look into a CD ladder for this purpose.

The general rule of thumb is that if you plan on needing a certain amount of money, then you shouldn't put it in the stock market. If you're comfortable having your 2020's contribution drop by 50% by 2020, then leave it in the index funds; otherwise, it should be in a safe spot where it's not likely to lose significant value (CD, savings account, etc.)

From the wiki: https://www.bogleheads.org/wiki/Placing ... ed_account
"Emergency funds should be placed in a highly liquid, low risk vehicle (e.g., money market, bank savings account"

While not exactly an emergency fund, I'd treat money that you don't want to lose similarly. I feel like there was a wiki page about where to place short-term cash needs, but I can't find it presently.

I hope I've provided some information to help you make a decision, or at least do some further reading.
Yes and no....

I already have emergency funds set aside and don’t really need to factor in that money. I was essentially hoping to sell funds in the taxable and sweep them into the Roth, in the same or very similar funds. Then replenish the taxable throughout the year. Both in index funds and/or cash funds. I already have plenty in that account already I may actually do that while waiting for the Ally bonus to occur. Right now the Ally no penalty is within 25bp of VMMXX.

I’ll admit my ignorance on Capital gains, I’m working on learning more. Other than the Ally CD or savings, if I go with VMMXX, is it taxed differently when I sell it from a brokerage. Same goes for funds I put in SWPPX for sale the following year

I guess my question is how best to store money earmarked for investing
It's a little hard to follow this so I'll give two thoughts:

1. Don't sell anything with capital gains just so you can put the money in a Roth early. No reason to pay tax.
2. Rather than going through these machinations, why not just invest the money you have now, and fund your 2019 Roth in 2019 with money you make and save in 2019?

Olemiss540
Posts: 594
Joined: Fri Aug 18, 2017 8:46 pm

Re: Saving for 2019 ROTH; keep in savings or brokerage

Post by Olemiss540 » Thu Nov 08, 2018 8:46 pm

I do not see any downside to placing these funds into a brokerage act. If you have losses, then you are able to TLH, if gains, then you made more than it just sitting in a bank account.

Anything else is just a thinly veiled attempt at market timing.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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