Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

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Crisium
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Crisium » Wed Jan 02, 2019 9:56 am

Orders in already to buy mutual funds at the end of the day. Lump sum beats DCA 2/3 of the time so it's a no brainer.

It does mean I have an inflated cash emergency fund toward the end of the year, but I consider that acceptable. Note that I cannot dream of maxing my 401k + IRA + HSA, so I'd rather not have short term taxable investment accounts for my IRA money. So as it builds throughout the year sits in my High Yield Savings until the end of the year.

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billthecat
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by billthecat » Wed Jan 02, 2019 9:58 am

Yes, moved $7,000 from taxable to traditional IRA, converted it to Roth, and placed an order for SWTSX (Schwab total stock market) in full.

Because of that, you may want to wait, because I expect the market to decline after today. :(
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by linenfort » Wed Jan 02, 2019 10:05 am

I max fund immediately and buy gradually.

b4nash
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by b4nash » Wed Jan 02, 2019 10:12 am

House Blend wrote:
Tue Jan 01, 2019 4:21 pm
Stinky wrote:
Tue Jan 01, 2019 10:20 am
b4nash wrote:
Mon Dec 31, 2018 10:42 pm
Math and history says you should.
Agreed. I will be doing it tomorrow.
You have that exactly backwards.

Math and history says that sitting on a lump of cash waiting for January 2 to arrive is worse than investing cash whenever you have cash to invest.

You can invest $6,000 or $600,000 on any day that the market is open.
We're talking about IRAs here. :oops:

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House Blend
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by House Blend » Wed Jan 02, 2019 10:23 am

jhfenton wrote:
Tue Jan 01, 2019 7:15 pm
House Blend wrote:
Tue Jan 01, 2019 4:21 pm
Stinky wrote:
Tue Jan 01, 2019 10:20 am
b4nash wrote:
Mon Dec 31, 2018 10:42 pm
Math and history says you should.
Agreed. I will be doing it tomorrow.
You have that exactly backwards.

Math and history says that sitting on a lump of cash waiting for January 2 to arrive is worse than investing cash whenever you have cash to invest.

You can invest $6,000 or $600,000 on any day that the market is open.
We're talking about IRA contributions. You can only add $6,000 per year ($7,000 if you are 50 or older).
So am I. My point is that you shouldn't let IRA rules limit how much or when you invest.

Don't pretend that you are investing your money as soon as possible if you've been holding on to $6,000 in cash waiting for the calendar to turn over.

NB. "You" == generic you, not jhfenton.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Accrual » Wed Jan 02, 2019 10:41 am

I have the money, but will be DCA'ing throughout the year in monthly $500 increments.

I realize the math / history says otherwise. I don't care. This is a behavioral issue, not a math issue.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by AnalogKid22 » Wed Jan 02, 2019 10:47 am

$6,000 to Roth IRA complete and it's on a down day...

MikeDun
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by MikeDun » Wed Jan 02, 2019 12:21 pm

I've been maxing contributions to Roth ira on the 1st trading day of new year for a while now, so same this year. I like to get it off my mind asap.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Ben Mathew » Wed Jan 02, 2019 12:56 pm

Yes, except for a few days' delay because of the backdoor Roth. Contributed $6K+$6K=$12K to our traditional IRAs today. Once that settles, will convert to Roth and invest per our AA, which happens to be 100% equities. If AA is not 100% equities, I don't see why people would invest their 2019 IRA contribution all in equities.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by KnowNth » Wed Jan 02, 2019 1:22 pm

What is your definition of big drop? 10%? 20%? Thanks.
livesoft wrote:
Mon Dec 31, 2018 9:24 pm
Nope. Never do that. I usually invest it on the first big drop of the year that goes below the 12/31 value.

There are very few years when the stock market doesn't go below the 12/31 value, so my investment that year almost always outperforms the total return for the year.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by livesoft » Wed Jan 02, 2019 1:25 pm

KnowNth wrote:
Wed Jan 02, 2019 1:22 pm
What is your definition of big drop? 10%? 20%? Thanks.
In this case, maybe 2%. Maybe 1.5%.

One can see that for broad market index funds, they don't drop 20% that often.
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KnowNth
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by KnowNth » Wed Jan 02, 2019 1:32 pm

Even with the catch-up contribution, the strategy only gains 2% of 7K = $140? Seems too much hassle for such a small gain. Or maybe you are talking about backdoor roth.

livesoft wrote:
Wed Jan 02, 2019 1:25 pm
KnowNth wrote:
Wed Jan 02, 2019 1:22 pm
What is your definition of big drop? 10%? 20%? Thanks.
In this case, maybe 2%. Maybe 1.5%.

One can see that for broad market index funds, they don't drop 20% that often.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by acegolfer » Wed Jan 02, 2019 1:34 pm

Anyone heard of "January effect"?

livesoft
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by livesoft » Wed Jan 02, 2019 1:34 pm

$140 is 14 sushi lunches.
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by livesoft » Wed Jan 02, 2019 1:35 pm

acegolfer wrote:
Wed Jan 02, 2019 1:34 pm
Anyone heard of "January effect"?
Yes. We saw it in action in January 2018.
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by headedwest » Wed Jan 02, 2019 1:36 pm

Bought at 9:32 a.m. in my Roth despite the fact that doing so last year resulted in what is currently a loss. I'm in it for the long term.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by fposte » Wed Jan 02, 2019 1:42 pm

An advantage of the market drop is that I'm able to do an in-plan Roth conversion on my whole pre-tax 457b; it was going to be a partial conversion as of two months ago. Not exactly market timing, but I'm pleased with the timing.

foo.c
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by foo.c » Wed Jan 02, 2019 1:44 pm

Both Roth IRA contributions made. Keeping about 25% in cash for later purchases.

Milujo
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Should I fully fund IRA each January?

Post by Milujo » Wed Jan 02, 2019 1:51 pm

[Thread merged into here, see below. --admin LadyGeek]

Is it wisest to fully fund one's Roth IRA at the start of each year, instead of doing monthly contributions or waiting until the April deadline the following year? I'm not trying to time the market, but rather maximize my money's time in the market. Am I thinking about this correctly? Thanks.

bluquark
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Re: Should I fully fund IRA each January?

Post by bluquark » Wed Jan 02, 2019 2:09 pm

Yes it is! I frontload my 401k to draw most of my first paychecks in the year as well. Lump sum outperforms dollar cost averaging 2/3rds of the time.

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Re: Should I fully fund IRA each January?

Post by Thesaints » Wed Jan 02, 2019 2:11 pm

Milujo wrote:
Wed Jan 02, 2019 1:51 pm
Is it wisest to fully fund one's Roth IRA at the start of each year, instead of doing monthly contributions or waiting until the April deadline the following year? I'm not trying to time the market, but rather maximize my money's time in the market. Am I thinking about this correctly? Thanks.
How well would have that served you in 2018 ?
You don't see a lot of excited threads "I maxed out my IRA contributions at 12:01am on Jan 1st !!!", differently from last year...

By spreading contributions over several dates (monthly, bi-monthly, quarterly, etc.) you also spread the risk and in particular will avoid its tails.
Of course, nothing comes for free and you also will reduce your time in the market and, therefore, your expected return and miss the positive tail.

Look at it this way, by spreading contributions uniformly over the year, your time in the market decreases by 6 months. That's not a lot over, let's say, 35 years of contributions (i.e. 17.5 years worth of "time in the market").
Furthermore, by increasing the number of investing events 4-fold (quarterly contributions), or 12-fold (monthly contributions) you also stand to gain more from the volatility of the underlying asset by increasing the spread between average price vs. average price paid.

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Re: Should I fully fund IRA each January?

Post by uberme » Wed Jan 02, 2019 2:14 pm

I’m a big fan of dollar cost averaging because I know my risk tolerance which is conservative. Don’t think there is a right or wrong answer.

headedwest
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Re: Should I fully fund IRA each January?

Post by headedwest » Wed Jan 02, 2019 2:17 pm

As of last year, I started fully funding my Roth in January, but doing it in such a way that my contribution fits my overall allocation across accounts. In 2018, that meant I shifted some equity indexes into fixed income in my workplace account to compensate for the all-equity ETF contribution into my Roth IRA. (Another approach would be to buy a mix of fixed income and equities in the IRA.) This year (i.e, this morning), I just bought an all-equity ETF in my Roth IRA since recent market shifts have left me below allocation in equities.

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Re: Should I fully fund IRA each January?

Post by brushwood » Wed Jan 02, 2019 2:19 pm

I'd say now is as good a time as any but dollar cost averaging is fine too. If your time horizon is long, it won't really make a difference and there's no way to predict was is optimal anyway. That's how I feel about investing in equities in a lump sum at the beginning of the year at least. If you want to dollar cost average over the year, there's no reason not to full fund the IRA at the beginning of the year and put some of it in a money market fund, then dollar cost average from there. Once again, it doesn't make much difference in the long run but you may as well take the tax advantage as soon as possible.

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car733
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Re: Should I fully fund IRA each January?

Post by car733 » Wed Jan 02, 2019 2:23 pm

I have always lump summed but this year I am going to try to dollar cost average.

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CAsage
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Re: Should I fully fund IRA each January?

Post by CAsage » Wed Jan 02, 2019 2:32 pm

Funding your IRA every January is dollar cost averaging across years, and in most cases the best bet - more years the market goes up than down. There is no single right answer - if you have the money, it's not a bad plan. Quibbling about the frequency of the investing is probably the least important factor - fund regularly, max it out, think about taxes.
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Re: Should I fully fund IRA each January?

Post by Phineas J. Whoopee » Wed Jan 02, 2019 2:36 pm

When I finally got to the point where I had accumulated enough money to fully fund on the first trading day of the year I started doing it. Over the years it worked pretty well. That doesn't mean it was positive each and every year, but I maximized my tax-advantaged time. I can't control returns, but I can control that.
PJW

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Re: Should I fully fund IRA each January?

Post by TropikThunder » Wed Jan 02, 2019 2:53 pm

I try to lump sum my IRA and HSA since I have to DCA my 403b. Diversification. :wink:

fire4fun
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Re: Should I fully fund IRA each January?

Post by fire4fun » Wed Jan 02, 2019 3:43 pm

Seems like DCA'ing a Roth IRA would be problematic/cumbersome if you have to do it via the Backdoor route. Could someone comment on this?

uberme wrote:
Wed Jan 02, 2019 2:14 pm
I’m a big fan of dollar cost averaging because I know my risk tolerance which is conservative. Don’t think there is a right or wrong answer.

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Re: Should I fully fund IRA each January?

Post by Whakamole » Wed Jan 02, 2019 3:44 pm

Thesaints wrote:
Wed Jan 02, 2019 2:11 pm
How well would have that served you in 2018 ?
You don't see a lot of excited threads "I maxed out my IRA contributions at 12:01am on Jan 1st !!!", differently from last year...
They've all been consolidated: viewtopic.php?f=10&t=268254

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by 220volt » Wed Jan 02, 2019 3:52 pm

$13k went in VT immediately today.

I never knew how many market timers are actually on this forum until I read this thread. Buy dips, wait until a first low, go in on a down day, keep cash for later purchases etc...
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Catfish Plumber » Wed Jan 02, 2019 4:20 pm

How are you able to buy an ETF with 2019 IRA funds on the first trading day?

Best I can seem to find involves transferring money into a settlement fund for a purchase at a later date.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by LadyGeek » Wed Jan 02, 2019 4:23 pm

I merged Milujo's thread into a similar discussion.
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Milujo » Wed Jan 02, 2019 4:25 pm

Thanks everyone. Your answers have been quite helpful. Has any scholarly research been done on these different funding strategies?

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Phineas J. Whoopee » Wed Jan 02, 2019 4:53 pm

Catfish Plumber wrote:
Wed Jan 02, 2019 4:20 pm
How are you able to buy an ETF with 2019 IRA funds on the first trading day?

Best I can seem to find involves transferring money into a settlement fund for a purchase at a later date.
With respect to ETFs specifically, as you asked, yes you would have to contribute cash, let it settle, then buy in your brokerage account.

Depending on the provider, you can contribute and buy on the same day if you use traditional mutual funds from the firm's own roster.

I take very little position on the mutual fund vs. exchange traded fund question.

PJW

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Doom&Gloom » Wed Jan 02, 2019 4:54 pm

I just helped college-attending DS open a Roth IRA. Made his first investment on Dec 31 hoping to front-run all the BH money going in today. I must say that I'm disappointed that you folks barely budged the market upwards. No matter as we'll be putting more 2018 money in as soon as he gets his W-2s. We're not sure if he passed $5500 or not or it would have gone in Dec 31 as well.

And his 2019 money will start going in soon after that--assuming his employment is assured of continuing. Hopefully, he'll be well over 6k in 2019 and start playing the annual Jan 1 waiting game with the rest of you :sharebeer

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by 220volt » Wed Jan 02, 2019 6:29 pm

Catfish Plumber wrote:
Wed Jan 02, 2019 4:20 pm
How are you able to buy an ETF with 2019 IRA funds on the first trading day?

Best I can seem to find involves transferring money into a settlement fund for a purchase at a later date.
I transfer money from my Capital One 360 directly into Vanguard's settlement fund and the money is available to buy anything I want in 5 minutes.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Should I fully fund IRA each January?

Post by Tony-S » Wed Jan 02, 2019 7:01 pm

Milujo wrote:
Wed Jan 02, 2019 1:51 pm
Is it wisest to fully fund one's Roth IRA at the start of each year, instead of doing monthly contributions or waiting until the April deadline the following year? I'm not trying to time the market, but rather maximize my money's time in the market. Am I thinking about this correctly? Thanks.
Yes, it is so long as you do it every year on January 2. You have a larger amount of money is in the market longer, so over time you will out perform monthly dollar cost averaging.

https://personal.vanguard.com/pdf/ISGDCA.pdf
Last edited by Tony-S on Wed Jan 02, 2019 7:11 pm, edited 1 time in total.

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Re: Should I fully fund IRA each January?

Post by DouroBound » Wed Jan 02, 2019 7:04 pm

car733 wrote:
Wed Jan 02, 2019 2:23 pm
I have always lump summed but this year I am going to try to dollar cost average.
Why change? If your lump summing in the past was part of your plan, why not just stick to it? Unless, of course, you've decided that DCA suits you better from an emotional perspective and are committed to doing that going forward. That's perfectly reasonable. Just make sure you aren't switching plans because of some sense that things are bound to drop in the short term, as that rings of market timing. If you get burned, you might find yourself switching back next year, forever choosing the strategy that was best the prior year. I'd suggest sticking to whatever plan makes the most sense to you as a general matter, ignoring your feelings about the current state of the market.

I lost out from lump-summing last year (I made 80% of my annual investments pretty much right at the late January peak), but I'm planning to lump sum as soon as the money is available again this year. I may lose out again, but the logic of lump summing is compelling to me, so I cannot justify deviating.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Cash » Wed Jan 02, 2019 7:08 pm

Catfish Plumber wrote:
Wed Jan 02, 2019 4:20 pm
How are you able to buy an ETF with 2019 IRA funds on the first trading day?

Best I can seem to find involves transferring money into a settlement fund for a purchase at a later date.
My checking account is at my brokerage (Fidelity), so all cash/money market transfers are conducted in house and available immediately for trading.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by sassy_penguin » Thu Jan 03, 2019 10:34 am

I just put in to get $6,000 of VTSAX about 10 minutes ago. Does anyone know off-hand if it is early enough in the day that it means my buy will happen at close-of-trading-day prices today? Or will it still possibly wait until tomorrow?

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by livesoft » Thu Jan 03, 2019 10:54 am

sassy_penguin wrote:
Thu Jan 03, 2019 10:34 am
I just put in to get $6,000 of VTSAX about 10 minutes ago. Does anyone know off-hand if it is early enough in the day that it means my buy will happen at close-of-trading-day prices today? Or will it still possibly wait until tomorrow?
You will get today's closing NAV if you are using a real broker.
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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by sassy_penguin » Thu Jan 03, 2019 11:05 am

livesoft wrote:
Thu Jan 03, 2019 10:54 am
sassy_penguin wrote:
Thu Jan 03, 2019 10:34 am
I just put in to get $6,000 of VTSAX about 10 minutes ago. Does anyone know off-hand if it is early enough in the day that it means my buy will happen at close-of-trading-day prices today? Or will it still possibly wait until tomorrow?
You will get today's closing NAV if you are using a real broker.
What is a real broker? I assume what I did counts as that since my Roth IRA is held by Vanguard and the only two funds I buy in it are VTSAX and VTIAX.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Helo80 » Thu Jan 03, 2019 11:18 am

I had a funny feeling that Jan 3 was going to be a bad day as I expected a bit of liquidity as IRA contributions would come in Jan 2.

I don't pretend to be a clairvoyant, but we have a volatile market that is searching for a bottom. With raising interest rates and a slowing housing market, I don't think we can expect stuff to just snap immediately back to DJIA 25,000 and beyond.

I'll probably move my contribution in sometime in the next few weeks, but I wouldn't be surprised if the dow goes below 20k.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by happymob » Thu Jan 03, 2019 11:23 am

Our tax situation is somewhat fluid, so while I would like to contribute max to a Roth on day 1 of the new year, I end up contributing max to a Roth (usually) or traditional IRA (sometimes) on March 30th or so of the following year when taxes are done.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Dottie57 » Thu Jan 03, 2019 11:33 am

No

No earned income. And would buy stocks AND bonds if I did have earned income

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Bulgogi Head » Thu Jan 03, 2019 1:24 pm

How do people invest the first open market day of the year? I did a backdoor Roth on 1/2 but I was unable to convert the TIRA to Roth IRA today because the funds are still only a credit and not yet in the settlement fund.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by TierArtz » Thu Jan 03, 2019 1:34 pm

I'm still stuck in credit/settlement fund/Prime MM backdoor process limbo at VG. Due to market movements, it looks like that might work out OK :)

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by Soon2BXProgrammer » Thu Jan 03, 2019 3:28 pm

livesoft wrote:
Mon Dec 31, 2018 9:24 pm
Nope. Never do that. I usually invest it on the first big drop of the year that goes below the 12/31 value.

There are very few years when the stock market doesn't go below the 12/31 value, so my investment that year almost always outperforms the total return for the year.
I didn't mean to do this.. but.. i didn't get to it yesterday... and remembered today.. and looky looky, it looks like its the first big drop of the year.

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Re: Will you contribute the max to your IRA and then invest it all in equities for the first market day of the new year?

Post by livesoft » Thu Jan 03, 2019 3:32 pm

Woo-hoo! I even got an alert that bond funds have popped today! Win! Win!
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