Are you guys still maxing Roth IRA in January?

[achen9291]

Normally I have maxed the Roth in January every year... but for 2023 for some reason I feel like waiting due to recent events.. although I have the money now to invest but I also bought some land that I want to pay off too.. I have about $17k left to pay and the interest rate is 6.5%... not sure what I should prioritize..

[Silverado]

I don’t invest on feel, and don’t know about any recent events? Things seem the same as every January.

What would it take to do both? (Besides more money…)

That’s a decently high interest rate, but you’ll never get Roth space back.

[hnd]

i invested the same way I do every year because I have 0 idea what is going to happen this year.

[dvvader]

I started the backdoor Roth process today. Contributed the max to both mine and my wife's traditional IRA today. Will convert to Roth and invest once the cash settles tomorrow or Thursday.

I did the same last year and it was obviously a huge bummer, but so it goes. Plan to execute, execute the plan.

[Hyperchicken]

Tying Roth IRA contribution to market exposure is not the correct comparison here.

You could have invested in taxable account instead of Roth IRA. Thus, the correct comparison is not between not investing the money at all, and contributing it to Roth IRA and investing there. Instead, it is between keeping the money in cash and investing at, and a separate independent comparison is between taking or not taking advantage of tax-free Roth IRA space.

The answer to the first comparison is not trying to time the market, and investing when you have cash available to invest. The answer to the second is to fund Roth IRA when you have certainty about your earned income - both lower and upper limits. You may have certainty on January 1st of the year of the contribution, or you may have it sometime early next year, or anywhere in between.

[mattshwink]

Already did. Should have left the bank account today. Usually takes a few days to settle into the Traditional account and then I'll do the conversion. Should be done by end of the week.

Paying debt is a perfectly acceptable use of accessible funds. But you can't makeup IRA space. But don't react to what you think what markets will do. Nobody knows nothing. That advice is as true this year as it is any year.

If you choose to wait, you have until tax day 2024 to contribute to your IRA.

There is only one year (once I was saving enough money) that I deferred my contribution, and that was when I bought my second house and had some renovations going on. I wanted the free cash flow. Once the finances were more certain, I contributed in March (two month delay).

[Cranberry44]

Earlier today (and in fact, the last couple weeks) I felt the urge to wait or “tinker” (I.e. not buy my typical fund, FZROX — fidelity total market MF, and buy something fancy).

I resisted the urge and put in an order for $6,500 worth of FZROX in my Roth IRA this afternoon. It feels great — like a victory! So yes, I’m still maxing my Roth in January. I’m not investing for today, or the next five years, but for 25+ years from now. Not waiting, and not getting distracted with new fancy funds, helps prevent me from checking and comparing various funds or stocks on short time frames and falling down that unproductive rabbit hole.

[Normchad]

Yes indeed. Doing it all this week, then it’s all done and dusted for the year.

[runner3081]

Never have, always divide it by 12 and spread it out over the year.

[TierArtz]

Absolutely; 2022 was full of unusual expenses, which sucked down my cash. Last night maxing my and DW IRAs took $15,000 of the $15,073 dollars in my MM account. Probably sub-optimal to get so short on cash, but I did it anyway to maintain the tradition

NP Friday is Payday, which should also include about $5K in ESPP excess contributions. Will build up a bit of cash buffer ASAP.

[Johm221122]

Normally I have maxed the Roth in January every year... but for 2023 for some reason I feel like waiting due to recent events.. although I have the money now to invest but I also bought some land that I want to pay off too.. I have about $17k left to pay and the interest rate is 6.5%... not sure what I should prioritize..

Absolutely I have into the investment I needed to rebalance my portfolio to my desired asset allocation

[Hyperchicken]

Reading these responses is insightful - thank you for sharing.

This made me wondering however - how many people have taxable investment accounts?

Adding to my previous response in this topic, I moved $6,500 from taxable to Roth IRA today. I sold ETF in taxable and bought similar but not substantially identical ETF in Roth IRA. Felt like... nothing, really. Just a motion of moving assets between accounts.

As a side benefit of doing that, I realized taxable losses, which gives me tax deferral. Essentially, I combined Roth IRA contribution with TLH. None of that substantially changed my market exposure. Neither it affected my cash flow.

[FIRWYW]

Waiting for the traditional contributions to settle on both mine and my wife’s accounts so we can convert. Hopefully done by week’s end. Worked poorly for me last year but hopefully will be different this year

[arcticpineapplecorp.]

yeah, had to buy more vtsax since it did worse in 2022 than total international stock market index fund (vtiax) and my allocation was off, but that $7500 into vtsax will rebalance nicely.

Recent events? There are always events to worry about.

remember though, the market is not the economy:

headline from 1980:
"Coming on Fast. The Slump of 1980 Will be Severe"

actual performance of S&P500 in 1980: +32%

2 headlines from 2009:
"Worst Crisis since '30s, With No End in Sight"
"US Unemployment Rate Hits 10.2%, Highest in 26 years"

actual performance of S&P500 in 2009: +26%

Sure the market fell in 2009 (bottom of Great Recession in March 2009) but even so called experts like Jim Cramer warned his audience to beware of what he thought was a dead cat bounce, because he believed we were in another Great Depression where the market would fall 80% (the market had "only", and would only, fall by 50% by Mar 2009). If you'd listened to him or thought things would get worse, you'd have missed the 60% run up between April-Dec 2009. Whoops. You can't time these things. Don't even try.

if you're paying 6.5% on a loan, that should be the priority probably, because you don't know what the return on your investment will be but you know you'll get a guaranteed 6.5% paying off that loan.

[alluringreality]

Adding to my previous response in this topic, I moved $6,500 from taxable to Roth IRA today. I sold ETF in taxable and bought similar but not substantially identical ETF in Roth IRA. Felt like... nothing, really. Just a motion of moving assets between accounts.

I hadn't planned on loss harvesting, but I decided to do the same with the market down. I sold the December reinvestment and all the same funds in tax advantaged. I'll move the tax advantaged accounts back next month after the wash sale days pass.

[8301]

What does "still" mean?

[achen9291]

Well I just gave in and invested the $6500 for the year so I don't have to worry about it. I also am always tempted to invest in VTSAX instead of VTTSX which has been the fund I've been in since I started this in 2014... but also trying to stay the course and not changing funds in hope to have better returns. The only difference I did this time was do a regular roth IRA instead of a backdoor since I am making alot less this year with a job change. I anticipate a gross income of ~$130k. I will just pay off the land simultaneously, although slower than I'd like, while also maxing a pretax 401k and HSA for 2023. Thanks all.

[riverant]

N/A as I don’t have the extra liquidity to do so in January. However, my annual bonus should land late Q1 and I’ll take care of it then with no hesitation or thought.

[gavinsiu]

My concern would be if there are any legislation that would pass this year they would remove back door Roth? I don’t want to do a backdoor Roth and get into trouble later

[mattshwink]

This made me wondering however - how many people have taxable investment accounts?

Adding to my previous response in this topic, I moved $6,500 from taxable to Roth IRA today. I sold ETF in taxable and bought similar but not substantially identical ETF in Roth IRA. Felt like... nothing, really. Just a motion of moving assets between accounts.

So I transfer cash (bank account) to my Traditional IRAs (mine and spouses) and then do the rollover to the Roth IRA when the funds clear (usually takes a few days).

In the past I had a taxable account. Then used those funds to purchase and renovate a house. Right now taxable is only EF (money market). But I expect to start expanding it this year. This week or next expect to move ~30k to Taxable (VTSAX). And then moving $200-$400 each month (starting in February).

[Hyperchicken]

I hadn't planned on loss harvesting, but I decided to do the same with the market down. I sold the December reinvestment and all the same funds in tax advantaged. I'll move the tax advantaged accounts back next month after the wash sale days pass.

It simplifies things a lot to not have substantially identical funds in taxable and tax-advantaged accounts. That way you never have to worry about dividend reinvestment and such.

[mattshwink]

My concern would be if there are any legislation that would pass this year they would remove back door Roth? I don’t want to do a backdoor Roth and get into trouble later

So it's unlikely they would pass legislation that would affect the current tax year. But anything can happen. They could also pass something at the end of the year.

[Starbase]

My concern would be if there are any legislation that would pass this year they would remove back door Roth? I don’t want to do a backdoor Roth and get into trouble later

So it's unlikely they would pass legislation that would affect the current tax year. But anything can happen. They could also pass something at the end of the year.

They almost passed something in September banning it from Jan 1 2022.
But with the current split government there’s no way it’s going away

[TwstdSista]

Just did it - maxed two Roth IRAs and an HSA for the year. But there's nothing wrong with waiting until later in the year. Contribute at the time that works for you, but do contribute!

[alluringreality]

I hadn't planned on loss harvesting, but I decided to do the same with the market down. I sold the December reinvestment and all the same funds in tax advantaged. I'll move the tax advantaged accounts back next month after the wash sale days pass.

It simplifies things a lot to not have substantially identical funds in taxable and tax-advantaged accounts. That way you never have to worry about dividend reinvestment and such.

My 401k doesn't offer the same fund, so it's fairly simple with my holdings. I still have mutual funds, and exchanging funds is one of the few areas where I tend to consider them as having any advantage. While I could stay in the alternate position, a reminder to make a Traditional and Roth transaction gets back to the original position that I prefer. This was only the second time I've taken a loss. I expect if I was planning on taking losses more often, or used ETFs, a single transaction might be preferable to five.

[Cheez-It Guy]

I did. If you want to play this game, then last year would have been a good year not to max in January. But of course you didn't know that at the time.

[livesoft]

I am too old to buy green bananas anymore, so I don't contribute to a Roth IRA unless I have actual eligible earned income. But everyone else can max themselves out if they like that sort of thing!

[Jack FFR1846]

Nope. I don't put a dime into my Roth until my 2022 tax returns are complete and I'm sure I'm within the income limit to do so. We had one year where both DW and I had put the full amount into our Roth and our income jumped over the limit. We had to go through the withdrawal of excess contributions hassle and then pay tax on some of that, which was nothing but hassles. So sometime around March, when our tax preparer finishes, we'll put in the money.

I plan to retire in May, so this year, we have no chance of going over the income limit, so certainly could contribute early. Hmm, that's a thought. We could actually contribute for the 2023 tax year, wait, get our tax returns, then contribute for the 2022 tax year. Great idea! Thanks for the nudge to think about it.

[tonyclifton]

Yes, we saved in a Money Market Fund in 2022 and then transferred to Roth in 2023. I "sold" the Money Market Fund on January 3rd (first business day) and put the "buy" orders in today (January 4th). So this means all of you who wait will do better than me because I am sure this will cause the market to drop, just like I made it do last year at this time

[GP813]

Fund the Roth IRA and use a money market fund to get tax free interest until you're ready to invest or dca, if you don't want to lump sum.

[mw1739]

Will do it in March when I'm expecting a lump sum. Did max out my state tax deduction limit for the kids 529 on 1/1, though.

[mouth]

Reading these responses is insightful - thank you for sharing.

This made me wondering however - how many people have taxable investment accounts?

Adding to my previous response in this topic, I moved $6,500 from taxable to Roth IRA today. I sold ETF in taxable and bought similar but not substantially identical ETF in Roth IRA. Felt like... nothing, really. Just a motion of moving assets between accounts.

As a side benefit of doing that, I realized taxable losses, which gives me tax deferral. Essentially, I combined Roth IRA contribution with TLH. None of that substantially changed my market exposure. Neither it affected my cash flow.

Same here, except I am technically in the middle of the backdoor process. But I grabbed some tax losses on the sale and am now waiting for the IRA contribution to clear by tomorrow so I can do the conversion.

[mattshwink]

My concern would be if there are any legislation that would pass this year they would remove back door Roth? I don’t want to do a backdoor Roth and get into trouble later

So it's unlikely they would pass legislation that would affect the current tax year. But anything can happen. They could also pass something at the end of the year.

They almost passed something in September banning it from Jan 1 2022.
But with the current split government there’s no way it’s going away

Almost being the operative word

I agree though, that it's completely within their power to do so. I just view it as a low risk and contribute at the beginning of the year.

Even though the rule requiring RMDs and to discharge non-spousal inherited IRAs within 10 years was passed, the IRS has punted the past two years on implementing it. So even if passed (especially late in the year) it's possible it wouldn't be enforced that year.

[howard71]

I just did it about 15 minutes ago for both me and my wife.

[grabiner]

I do mine at the start of the year. Since I don't reinvest dividends in my taxable account, I usually have enough cash in the brokerage account to max out the IRA contribution (traditional since I am over the Roth limit, then converted via backdoor).

[locke12]

Yes, maxed it yesterday.

[02nz]

My concern would be if there are any legislation that would pass this year they would remove back door Roth? I don’t want to do a backdoor Roth and get into trouble later

We can't speculate about future legislation. I will note in general that for almost all tax-related legislation I can think of, the effective date has been the following tax year (or later). There are very, very few examples of changes to the tax code that took effect retroactively. If you're really that concerned about this minuscule risk, hold off on your contribution until next year - you have until tax day.

[PeaksAndValleys]

Backdoor roth has been maxed for 2023. As good of time as any to buy, my written investment plan dictates that we fill our roth IRAs every January. Perhaps writing out a clear plan that you can reference may help you avoid some of the errors and stress of market timing?

[arandomdude84]

I usually max my IRA contribution and backdoor convert to Roth ASAP in Jan every year, but this year I won't.

I'm contemplating quitting my high paying job for a much (much, much) lower paying startup job, so until I have better clarity on what my income will be for 2023, I'll hold off on contributing so that I'll know how much needs to be backdoor converted and how much can just be a direct ROTH contribution.

[an_asker]

Nope. I don't put a dime into my Roth until my 2022 tax returns are complete and I'm sure I'm within the income limit to do so.[...]

Well, you could backdoor in January, no?

[MattB]

Never have, always divide it by 12 and spread it out over the year.

Similar.

DW and I contribute to our IRAs, convert to our Roths, and then let vanguard auto-invest the money in VTSAX over the following 52 weeks.

[an_asker]

[...]Since I don't reinvest dividends in my taxable account[...]

I'm curious why you don't.

Because if it is to facilitate TLH, wouldn't you need to do the same across all accounts to stay away from wash sale scenarios?

[sailaway]

Nope. I don't put a dime into my Roth until my 2022 tax returns are complete and I'm sure I'm within the income limit to do so.[...]

Well, you could backdoor in January, no?

I am.nit the poster you are responding to, but we never did backdoor Roth because we had tIRA accounts. DH could do it now, but he has also downshifted and so can contribute directly.

[grabiner]

[...]Since I don't reinvest dividends in my taxable account[...]

I'm curious why you don't.

Because if it is to facilitate TLH, wouldn't you need to do the same across all accounts to stay away from wash sale scenarios?

I don't hold anything in my taxable account which is substantially identical to a fund held elsewhere (except for money-market funds), so this doesn't cause a problem with TLH. If I did hold the same ETF in taxable and Roth IRA, then I would need to turn off dividend reinvestment in that ETF to make tax loss harvesting easier.

The reason I don't reinvest dividends in my taxable account is that I don't usually want them in the same fund, and I use new money to rebalance. I hold both US and foreign stock funds in my taxable account. If I am overweighted in US stock, then I will use dividends from US stock, dividends from foreign stock, and new money to buy a foreign stock fund.

[an_asker]

Nope. I don't put a dime into my Roth until my 2022 tax returns are complete and I'm sure I'm within the income limit to do so.[...]

Well, you could backdoor in January, no?

I am.nit the poster you are responding to, but we never did backdoor Roth because we had tIRA accounts. DH could do it now, but he has also downshifted and so can contribute directly.

True dat. I just assumed poster I was responding to didn't have tIRA.

I recently - at the top of the market a year ago to be precise - moved one of our Rollover IRAs (to be precise, it was DW's) into Roth paying a chunk of change in taxes! We managed to move another two of our Rollover IRAs (one each) into our respective curent 401ks.

[an_asker]

[...]Since I don't reinvest dividends in my taxable account[...]

I'm curious why you don't.

Because if it is to facilitate TLH, wouldn't you need to do the same across all accounts to stay away from wash sale scenarios?

I don't hold anything in my taxable account which is substantially identical to a fund held elsewhere (except for money-market funds), so this doesn't cause a problem with TLH. If I did hold the same ETF in taxable and Roth IRA, then I would need to turn off dividend reinvestment in that ETF to make tax loss harvesting easier.

The reason I don't reinvest dividends in my taxable account is that I don't usually want them in the same fund, and I use new money to rebalance. I hold both US and foreign stock funds in my taxable account. If I am overweighted in US stock, then I will use dividends from US stock, dividends from foreign stock, and new money to buy a foreign stock fund.

Got it. Thanks.

Most S&P 500 index funds would count as substantially identical, no? That is probably not the case with most Total Market funds because there are more significant differences across fund families - am I right?

[Jack FFR1846]

Nope. I don't put a dime into my Roth until my 2022 tax returns are complete and I'm sure I'm within the income limit to do so.[...]

Well, you could backdoor in January, no?

Not with nearly $2M in a tIRA. It would all be taxed, pretty much.

[deltaneutral83]

You should be exponentially more excited to do it in Jan of 2023 as we are 20% off highs (not including divs from 2022) vs Jan 2022 when we were at an ATH.

[matti]

Absolutely. I put the order in on January 1.

[UnLearnYourself]

i invested the same way I do every year because I have 0 idea what is going to happen this year.

I direct deposit every other week in increments that max out my Roth IRA, 401k, HSA, so I'm effectively DCAing on a rolling basis basically non stop at this phase of my life (40yrs). I don't bother attempting to time anything.