[Maxing out your IRA and other things to do on January 1st]

[JD2775]

[Title was "So, who's maxing out their IRA on Jan 1st?" --admin LadyGeek]

This year I got lucky. I didn't have the cashflow to max out on 1/1, so I ended up putting in 5k (out of 6k) into my Roth in March when the funds were available.

2021 though, I will have the 6k on Jan 1st so will just lump sum it then.

Anyone changing what they do with their IRA contribution in 2021 based on this weird 2020 year?

[tenkuky]

Jan 1 is a holiday and I can only transfer on Jan 4 (Monday).

[JD2775]

Jan 1 is a holiday and I can only transfer on Jan 4 (Monday).

Of course. By Jan 1st I meant the first trading day of the year

[Triple digit golfer]

I contribute when I have money, so unless I was to stop taxable contributions and hold cash at the end of 2020 (which I did not), our IRA contributions will just be done as we have the cash flow every 2 weeks. Once IRAs are funded, then back to taxable for the remainder of the year.

[Soon2BXProgrammer]

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[tiburblium]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

Planning to also frontload 401k and HSA again in 2021, just left enough room to capture match

[Tamalak]

Januaries have had crazy ramps lately, so I'll be doing it as early as I can.. a nagging part of me thinks the ramp is due to people racing to max their ira

[secondopinion]

This year I got lucky. I didn't have the cashflow to max out on 1/1, so I ended up putting in 5k (out of 6k) into my Roth in March when the funds were available.

2021 though, I will have the 6k on Jan 1st so will just lump sum it then.

Anyone changing what they do with their IRA contribution in 2021 based on this weird 2020 year?

No. In fact, I invested my future 2021 contributions in a taxable account during March 2020.

[totality]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

I am in a similar boat. I am planning on delaying my 2021 Roth IRA contribution until after I do my taxes in early 2022. Reduces time in the market but also potential headache.

[talacker]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

Planning to also frontload 401k and HSA again in 2021, just left enough room to capture match

Probably be easier to go ahead and just make a non-deductible contribution into a tIRA and convert immediately, in anticipation of being over the threshold. It would save you the recharacterization step, if it became necessary.

[hnd]

yes through a yearly gift we receive we immediately invest our max roth contributions on first day in January we are able. I will say that there is a small part of me that feels like i should have foreseen the march drop with covid cases on the rise and should of held out. and that little part of my brain is definitely getting a bit louder as we approach the new year. but i'll likely stay the course.

[Colorado13]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

I am in a similar boat. I am planning on delaying my 2021 Roth IRA contribution until after I do my taxes in early 2022. Reduces time in the market but also potential headache.

+1 Typically I invest the max amount in early January but am holding off in 2021 due to the possibility of facing income limits. I am very thankful that my employer allows after tax contributions, which I rollover to my Roth IRA. Those will begin with my January 14 paycheck.

[Pete12]

That’s our plan! Trad IRA contribution (non deductible) on Jan 4, then conversion to Roth around the 7th or so when the funds clear at Vanguard.

[Vtsax100]

I did last year then regretted it a couple months later. I will probably do the same for 2021 though.

[6bquick]

I did last year then regretted it a couple months later. I will probably do the same for 2021 though.

HA! Same and same.

[H-Town]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

Planning to also frontload 401k and HSA again in 2021, just left enough room to capture match

If you can proactively do back door Roth IRA, you don't have to wait a year to find out your 2021 MAGI. Do you have any balance in traditional IRA?

[Xrayman69]

Jan 1 is a holiday and I can only transfer on Jan 4 (Monday).

+1. Spouse and myself. then will subsequently do the backdoor dance.

[bloom2708]

I will put $7k in both our Roth IRA on Jan 4th. I turn 50 in 2021. Bonus $1k.

I will also put $4,700 in our HSA on Jan 4th. $7,200 - $2,500 company contribution. Net $4,700.

Good to have those done early. A good New Year's gift to your future retired self.

[rkhusky]

Will probably do some Roth conversion and put some taxable against the mortgage with 0% LTCG.

[pasadena]

I just finished saving up for it in my Vanguard brokerage. Ready to do the backdoor dance on Jan 4th.

[Marseille07]

Planning to max out 401K contrib on Jan 1. It's one of those things you just do early and be done with.

[beernutz]

Three lump sums going into three Roth IRAs asap in 2021. One for me and one each for adult kids. I don't need no stinkin' DCA.

[jello_nailer]

Planning to max out 401K contrib on Jan 1. It's one of those things you just do early and be done with.

Not sure how you do that. You must have a pretty strong paycheck. For me to max out at $26,000 first check in January I would bump into the max % allowed by plan of 40%, which means my gross pay would have to be $65K for that paycheck to hit my limit in one shot.

I have already changed my deduction to 40% for January 15th payroll (no Jan 1 payroll, paid Dec 31.) but it will still take me 2 months to hit $26K.

[Marseille07]

Planning to max out 401K contrib on Jan 1. It's one of those things you just do early and be done with.

Not sure how you do that. You must have a pretty strong paycheck. For me to max out at $26,000 first check in January I would bump into the max % allowed by plan of 40%, which means my gross pay would have to be $65K for that paycheck to hit my limit in one shot.

I have already changed my deduction to 40% for January 15th payroll (no Jan 1 payroll, paid Dec 31.) but it will still take me 2 months to hit $26K.

? I didn't say I would finish contributing on Jan 1 or with my first 2021 paycheck. I merely stated I'll max out contribution to the extent I can.

[Chrono Triggered]

This plan didn't exactly work out the greatest this year but money that can be invested is certainly better than money that is sitting.

[jhfenton]

Nope. Like most people not on Bogleheads, we don't have the money to max out anything on the first of the year. I'll contribute ~$583.33 monthly to each of our Roth IRAs, most likely starting on January 1 (or 4th). Most years, I get ahead of things and max out both accounts by September.

I don't have a true-up on my 401(k), so I will finish maxing out my 2020 401(k) at $26K in my next paycheck. If I maxed it out earlier, I would lose out on our 4% safe harbor match.

And for our HSA, the only option my employer offers is even payroll deductions. There's no option to front-load the contributions. So that will also be maxed out for 2020 in my final paycheck.

[HawkeyePierce]

I have a tranche of RSUs vesting on 1/1, which will immediately give me the $6k in earned income I need to max out my IRA. :smile

[changingtimes]

I did last year then regretted it a couple months later. I will probably do the same for 2021 though.

I sweated it for most of the year, but it looks like I'll be okay. Will definitely wait to do 2021. Lesson learned!

I will probably DCA conversions throughout the year. Mainly to keep me from playing around with/doing potential damage to other balances.

[stoptothink]

We build up cash reserves towards the end of year so we can max Roth's, pair of 529s to state deduction max, and feel comfortable front-loading our 401ks so we only have to get matches for the back half of the year to max. Rinse and repeat for the last 4yrs.

[terran]

In the past I have maxed out our IRAs as soon as possible in January. While it's not totally optimal, this year I'm leaning towards waiting until 2022 when I do our 2021 taxes so there's less chance of having to recharacterize (and attach a statement to our taxes) while I play the tax optimization game. I'll likely be losing out on some tax deferred (traditional) or tax-free (Roth) growth since the market goes up on average, but we're getting to a point with our finances that I think "spending" a little money in the form of being slightly sub-optimal might be worth it to avoid a bit of hassle. The money will still be invested in taxable until it gets contributed to IRAs next year. Of course, this only applies since we're eligible for deductible traditional IRA contributions. If not I would contribute to Roth or backdoor Roth as soon as I had the money.

[260chrisb]

Nope; 6-7 times throughout the year.

[Tamarind]

Nope, we cash flow it monthly. Every dollar is assigned its job as it comes in.

[Nate7out]

I am.

I generally buildup extra cash throughout the year and dump it into Roth and taxable in January. I stopped doing that for taxable last April and instead invested free cash monthly in taxable since. However, I still buildup the cash to max Roth rather than invest.

I wonder if it is worse, and how much worse it is to build up cash and lump sum vs. periodic investing in Roth until full and then periodic investing into taxable, rinse and repeat. Sounds like I need another spreadsheet!

[Vtsax100]

I did last year then regretted it a couple months later. I will probably do the same for 2021 though.

I sweated it for most of the year, but it looks like I'll be okay. Will definitely wait to do 2021. Lesson learned!

I will probably DCA conversions throughout the year. Mainly to keep me from playing around with/doing potential damage to other balances.

Out of curiosity I went just now to check. I bought $6000 of vtsax on Jan 7 for 80.06. Today it is 93.57... not bad.

[Stoic9]

Retired but will dump 6K into child's Roth first trading day.

[jello_nailer]

Planning to max out 401K contrib on Jan 1. It's one of those things you just do early and be done with.

Not sure how you do that. You must have a pretty strong paycheck. For me to max out at $26,000 first check in January I would bump into the max % allowed by plan of 40%, which means my gross pay would have to be $65K for that paycheck to hit my limit in one shot.

I have already changed my deduction to 40% for January 15th payroll (no Jan 1 payroll, paid Dec 31.) but it will still take me 2 months to hit $26K.

? I didn't say I would finish contributing on Jan 1 or with my first 2021 paycheck. I merely stated I'll max out contribution to the extent I can.

Got it, max out contribution not the plan year.

[jello_nailer]

T-IRA $7K January 4th, and back door it about a week later.

[helloeveryone]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

Planning to also frontload 401k and HSA again in 2021, just left enough room to capture match

Can you describe the logistics for front loading 401k?
Do you just in the first few checks try to get $19,500 into the 401k then just stop? or do you need to make sure that the paychecks for the entire year take out just enough for your 401k to ensure whatever percent match the company matches?

[hbdad]

Stupid question. Assume I'm DCAing for 2020. I still have 4 months in 2021 (Jan-Apr) to contribute to tax year 2020. But what if during the course of 2021 I end up earning more than the allowable amount (208k). What happens with those contributions I made in 2021 but for tax year 2020?

[02nz]

Jan 1 is a holiday and I can only transfer on Jan 4 (Monday).

Of course. By Jan 1st I meant the first trading day of the year

We have this discussion every year - actually you absolutely can "max out" on January 1, after all contribution and investment are two separate things. At least at some brokerages where the bank transfer is instant (e.g., Merrill Edge with linked BoA account, or Schwab with linked Schwab Bank account), the new year's contribution can be in your IRA on January 1 even though it's a holiday.

[02nz]

Stupid question. Assume I'm DCAing for 2020. I still have 4 months in 2021 (Jan-Apr) to contribute to tax year 2020. But what if during the course of 2021 I end up earning more than the allowable amount (208k). What happens with those contributions I made in 2021 but for tax year 2020?

What you can or cannot contribute for 2020 is determined by your 2020 income. The 2021 income does not have anything to do with the 2020 contribution, even though those calendars "overlap" a bit because of the ability to contribute for 2020 until April 15 of 2021.

[02nz]

My income is close to the limit for Roth, if I make a 2021 contribution and my income ends up exceeding 2021 roth magi linits, how easy is it to unwind?

Planning to also frontload 401k and HSA again in 2021, just left enough room to capture match

Can you describe the logistics for front loading 401k?
Do you just in the first few checks try to get $19,500 into the 401k then just stop? or do you need to make sure that the paychecks for the entire year take out just enough for your 401k to ensure whatever percent match the company matches?

This depends on the employer. Some do a "true-up" at the end of the year; for those that don't (such as the Federal government's 401k-equivalent, the TSP), you would want to leave enough contribution space that you can capture the full match every pay period the rest of the year.

(It gets even more complicated if planning to switch employers mid-year.)

[hbdad]

Stupid question. Assume I'm DCAing for 2020. I still have 4 months in 2021 (Jan-Apr) to contribute to tax year 2020. But what if during the course of 2021 I end up earning more than the allowable amount (208k). What happens with those contributions I made in 2021 but for tax year 2020?

What you can or cannot contribute for 2020 is determined by your 2020 income. The 2021 income does not have anything to do with the 2020 contribution, even though those calendars "overlap" a bit because of the ability to contribute for 2020 until April 15 of 2021.

Thank you

[freyj6]

I'm planning on lump-summing the first half (of all retirement accounts) and value averaging the rest over the next 6 months or so.

I know lump sum will do best statistically (on average) but I'd like to have some money left to contribute if we get another market correction.

Honestly it felt really good to be able to throw a bunch of money into the market this March, even if investing it all in January would have been better "on average".

[JVT]

2x Traditional Non Deductible on Jan 4, Convert to Roth as soon as it clears.

[Makaveli]

I’ll learn from my mistake last year which was dumping 6k into Oxy for the “tax free” 8% div yield that went to 1 penny 5 months later. Plus a 60% share price drop.

VXUS 2021

[jriding]

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[matti]

I definitely will do so.

[jriding]

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[angelescrest]

By about that time I will have maxed out 2020 Roth IRA. 2021 contributions will just be starting. I make monthly contributions.