Cash for Roth IRA: What should I invest it in until January ‘24 (if anything)

[Cranberry44]

Hi Folks,

I have $6,500 in cash - I have it earmarked to max out my Roth IRA in early January.

My general asset allocation is 80/20/0 (Total US, ExUS, Bonds).

I was thinking I could invest it in something that I could tax loss harvest, without interfering with my ability to TLH the rest of my asset allocation (VTI/ITOT, IXUS/VXUS), if it goes down. Something like VOO, SPY, or safer like a stable value fund, or even VT or AVGE.

It’s currently sitting in fidelity’s FDLXX a federal money market fund paying about 5% APY (basically no state income tax).

Thoughts?

[retiredjg]

I think money market at 5% is good enough for 8 weeks.

[Silk McCue]

It should stay right where it is. No need to complicate things for less than 2 months time.

Cheers

[Cranberry44]

It should stay right where it is. No need to complicate things for less than 2 months time.

Cheers

I think money market at 5% is good enough for 8 weeks.

8 weeks!

Two months!

Lord almighty, where did the time go! I never thought of it that way… somehow I still feel like we’ve got another 8 months until 2024.

Thanks for the advice — that sounds good.

[retiredjg]

Lord almighty, where did the time go!

It happens every year about this time.

For people trying to get something financial done by the end of the year....yesterday would have been a good time to start!

[RichK]

Hi Folks,

I have $6,500 in cash

By the way, the IRA contribution limit has been raised to $7,000 in 2024.

[Cranberry44]

Hi Folks,

I have $6,500 in cash

By the way, the IRA contribution limit has been raised to $7,000 in 2024.

Thanks!

[akam]

I say invest it the same way you would in the Roth. On Jan 2, 2024, if it went up, that's good, you likely made more than you would have in a MMF. If it goes down, that's also good because you get a tax writeoff and immediately buy similar (but not "substantially identical") funds in the Roth.

[MrJedi]

I invest money as I receive it. I don't try to pileup money to lump sum later. That said, saving up a pile of $7k once a year instead of just investing it as you receive won't make a big difference, as long as you actually do it. I've seen some behavioral mistakes as people freeze up before investing the 6-7k in one shot. If you always just invest as you receive that helps take away some of the emotion and help prevent potential behavioral mistakes.

[Cranberry44]

I invest money as I receive it. I don't try to pileup money to lump sum later. That said, saving up a pile of $7k once a year instead of just investing it as you receive won't make a big difference, as long as you actually do it. I've seen some behavioral mistakes as people freeze up before investing the 6-7k in one shot. If you always just invest as you receive that helps take away some of the emotion and help prevent potential behavioral mistakes.

Yes — that’s the plan for next year. This came about from indecisiveness about how large of an emergency fund I need/want… (I still struggle with this to be honest).

[Olemiss540]

I invest money as I receive it. I don't try to pileup money to lump sum later. That said, saving up a pile of $7k once a year instead of just investing it as you receive won't make a big difference, as long as you actually do it. I've seen some behavioral mistakes as people freeze up before investing the 6-7k in one shot. If you always just invest as you receive that helps take away some of the emotion and help prevent potential behavioral mistakes.

This. Invest as early as possible.

[pizzy]

Shouldn't you invest it as if today was 1/1/24?

[Cranberry44]

Shouldn't you invest it as if today was 1/1/24?

I suppose I’m unsure. Is the tax benefit better to wait 8 weeks to guarantee I max out the tax advantaged space?

[retiredjg]

Shouldn't you invest it as if today was 1/1/24?

For me, there is no "should" to this question.

Investing now would be fine if the investor is willing to deal with a loss. Investing now would be fine if the investor is willing to deal with a short term gain (taxed at ordinary rates). Waiting and collecting the 5% from money market is fine as well.

Options 1 and 2 take more actions to accomplish, both in terms of investing/transferring and for taxes. Option 3 is good enough for me....I'm a very lazy investor. Playing with the soap is not interesting for me. Other people might like it though.

In the long run, this decision will not matter at all.. Not even a little tiny bit. Just do whatever you feel like doing and call it good.

[MrJedi]

Shouldn't you invest it as if today was 1/1/24?

I suppose I’m unsure. Is the tax benefit better to wait 8 weeks to guarantee I max out the tax advantaged space?

Not really the right way to look at it. Money earmarked for investment should be willing to be lost.

Let me rephrase with a different scenario. Say you invest $7k in Roth IRA on 1/2/24. Stock market immediately tanks and it is now worth $4k. You've maxed out your tax advantages space but only have $4k invested now instead of $7k. The fact that you maxed it out actually hurts in this scenario, as you have $4k in your Roth IRA and you can't contribute more.

[Cranberry44]

Shouldn't you invest it as if today was 1/1/24?

I suppose I’m unsure. Is the tax benefit better to wait 8 weeks to guarantee I max out the tax advantaged space?

Not really the right way to look at it. Money earmarked for investment should be willing to be lost.

Let me rephrase with a different scenario. Say you invest $7k in Roth IRA on 1/2/24. Stock market immediately tanks and it is now worth $4k. You've maxed out your tax advantages space but only have $4k invested now instead of $7k. The fact that you maxed it out actually hurts in this scenario, as you have $4k in your Roth IRA and you can't contribute more.

Hmm. There seem to be a few reasonable choices here.

Oh, hello there, decision paralysis!

[Cranberry44]

Just updating that back on Nov 8 I decided to just invest the $7,000 in a taxable account (~50/50 US/EXUS). Those shares have gained just over $300 in value since then.

[Hyperchicken]

Invest in taxable in something similar but not substantially identical to what you hold in Roth IRA.

That way you get your intended market exposure as soon as you have the money. Time in the market and everything.

And if the market goes down, you get to harvest the losses.

That way you only miss out on tax-advantaged treatment of your year's worth of contributions between today and January 2024, and you don't miss out on market returns (whatever those will be).