Year end questions

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Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Year end questions

Post by peterwantstosave »

With apologies for any questions that are obvious to others, I have a handful of year-end questions.

1) May I make a 2020 Roth IRA contribution using income earned in December 2019? (i.e. Can I fund a 2020 contribution with 2019 earnings?)
2) Alternatively, may I take $6,000 from savings on January 1 and use it to make a full 2020 Roth contribution? (I'm 36).
3) What's the smartest way to use available debt (I have three credit cards and one line of credit)? Approx 10k available on each of them, I always pay them off in full each month.
4) I'm 36 with a paid for house and an income of 50k gross a year. No other debt. (I did dave ramsey and paid off my house. I'm back to using credit cards now obviously). I've always lived below my means. For those who are like me but are 25-35 years older, what do you wish you would have done?

Thanks, P
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Year end questions

Post by Triple digit golfer »

1. You can make a 2020 IRA contribution only in 2020 or through tax day in April 2021. Not earlier. You must satisfy the earned income requirements for the year. If you have the cash, you can do it on January 2.

2. Yes.

3. Don't use it if you don't need it unless you get credit rewards and pay off your balance in full each month.

4. N/A - I'm only 34.
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Stinky
Posts: 14158
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Year end questions

Post by Stinky »

peterwantstosave wrote: Sun Dec 22, 2019 6:39 am With apologies for any questions that are obvious to others, I have a handful of year-end questions.

1) May I make a 2020 Roth IRA contribution using income earned in December 2019? (i.e. Can I fund a 2020 contribution with 2019 earnings?)
2) Alternatively, may I take $6,000 from savings on January 1 and use it to make a full 2020 Roth contribution? (I'm 36).
3) What's the smartest way to use available debt (I have three credit cards and one line of credit)? Approx 10k available on each of them, I always pay them off in full each month.
4) I'm 36 with a paid for house and an income of 50k gross a year. No other debt. (I did dave ramsey and paid off my house. I'm back to using credit cards now obviously). I've always lived below my means. For those who are like me but are 25-35 years older, what do you wish you would have done?

Thanks, P
1 + 2. Yes, you can make your 2020 Roth contribution on 1/2/20, using whatever you funds you have available. Cash is fungible, and the Roth IRA won't care where the cash came from. You must have earned income in 2020 at least equal to the Roth contribution.
3. I agree with paying off credit cards each month. If you're going to use credit, there's no reason not to use a rewards credit card, like the Citi Double Cash card to get 2% back on all purchases.
4. I wish that I had found Bogleheads earlier, and had the benefit of all the wisdom and good will of folks on this Forum. Clearly, you've found the Forum, so keep reading and learning, and contribute as you can.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
SCb&b
Posts: 121
Joined: Thu Jan 18, 2018 4:45 pm

Re: Year end questions

Post by SCb&b »

1) As long as you have income in 2020. Money is fungible. 2020 contributions must be made in 2020 or before you file taxes in 2021
2) See answer 1
3) Exactly how you are using them. Buy only what you need to buy, don't carry a balance
4) I'm close to the same age as you so can't answer
Silk McCue
Posts: 8954
Joined: Thu Feb 25, 2016 6:11 pm

Re: Year end questions

Post by Silk McCue »

For questions 1 and 2.
Money is fungible so it doesn't matter. You can fund your 2020 Roth IRA from any source of funds without regard to when it was earned/inherited/received as a gift etc. You must have sufficient income in the year the IRA is associated with (2019, 2020 etc) in order to contribute to the Roth. That is you can't contribute more than what your earned income is. This is not an issue for you, just pointing out the requirements.

Question 3 is unclear. If you are paying them off every month then you have no debt. If you have strayed from your Dave Ramsey ways and are wasting money on stuff you don't need then stop. That smartest way to use available debt is to have none unless necessary.

Question 4. Living below your means and consistently investing Boglehead style are keys to long term financial success. You should be investing in a 401k etc if you employer has one. Are you doing so? If you posted a more full and complete picture of you financial situation you would be able to get substantive specific feedback on your situation rather than generalities. Please use this format.

https://www.bogleheads.org/wiki/Asking_ ... _questions

Cheers
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: Year end questions

Post by livesoft »

4) I did the following, but I see that many people have never done it, so to answer your last question, here's what I think others should wish they did:

Each year fill out one's own tax return or attempt to duplicate the way one's paid preparer filled out one's tax return in order to understand one's tax situation. Read the IRS Tax Publications that pertain to every thing that one put on IRS Form 1040. This is more than just running TurboTax or TaxCut or HRBlock. It is looking at one's hard copy tax return and reading the line-by-line instructions as well as the extra information in the tax publications: https://www.irs.gov/publications

One doesn't have to read all the publications or instructions each year, but start with one or maybe two of them related directly to numbers on one's Form 1040. Keep adding to your knowledge each year. This could be part of the so-called "Just in time learning" discussed about financial literacy. Don't be passive with the IRS. (Don't be a wuss!)

New idea: Add reading one IRS publication and discussing it to your book club or monthly local Bogleheads chapter meeting.
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Wiggums
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Re: Year end questions

Post by Wiggums »

1 your 2020 Roth contribution can be made on 1/2/20, using whatever you funds you have available. You must have earned income in 2020 at least equal to the Roth contribution.
2. Yes
3. I agree with paying off credit cards each month. Fidelity has a credit card that give back 2% on all purchases.
4. I wish that I had learned more about taxes and found Bogleheads earlier!!!
"I started with nothing and I still have most of it left."
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

thank you all

because Silk asked, here is my rundown. Apologies for those who already know my story by heart.

b]Emergency funds:[/b] Yes. 10K in Money Market account at Brick and Mortar. Pays nothing, but I like that I can go there, if I have to.

Debt: Indicate if you have any debt (credit card, school loans, car loans, mortgage) and the interest rate you are paying on each loan.

Four open credit lines: 10K Amex, 6K Chase, 12K US Bank (credit cards) and 12K US Bank PLOC. Always pay them off in full.

Tax Filing Status: (Single, Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Widow/Widower with Dependent Children) Single

Tax Rate: xx% Federal, xx% State (I don't know these numbers, but I live in South Carolina and grossed $49.8K in 2019

State of Residence: South Carolina

Age: 36

Desired Asset allocation: 70% stocks / 10% bonds
Desired International allocation: 20% of stocks

Please provide a hint as to the size of your current total portfolio (as in high four-figures, mid five-figures, low six-figures, etc.) What might be appropriate for a very large portfolio might not be appropriate for a new investor.

Net Worth is around $160,000. Bought house for $95,000, house now worth approx $115K, according to Zillow. Retirement portfolio approx. $46K

Show us your current portfolio including all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation. Also include the available funds in your employer provided retirement plans.

Show each fund or holding as a percentage of the entire portfolio, not as a percentage of the account that holding is in. If this instruction is not clear, see the example under the Key Points section below. For example:

Current retirement assets

403b: Vang Ttl Stk Idx Adm (70%) / IShares Intl Idx (20%) / CREF BOND MARKET R1 (10%) | $29K Total

GRSA: CREF STOCK R1 (90%) / CREF BOND MARKET R1 (10%) |

$7K Total

Roth: T. Rowe Price Retirement 2050 Fund (100%)

$10K Total

Taxable

Israel Bonds $425.08 (maturing in 2021, can't sell early).

Contributions

New annual Contributions
$Max his 403b (also specify any employer matching contributions) Still deciding if Pretax or Roth 403b would be better, welcome any input. Would like to max out in 2020.
$6,000 his Roth IRA maxing on January 2nd

Available funds

Funds available in 403(b)
INVESTMENT NAME
(INVESTMENT TYPE) MORNINGSTAR
RATING RISK GROSS
EXPENSE
RATIO CURRENT
VALUE
EQUITIES (12)
Baron Small Cap Fund Retail Class (Mutual Funds)

Morningstar rating equal to 3 stars
Above Average +1.3% $0.00
CREF Global Equities R1 (Variable Annuities) Average +0.53% $0.00
CREF Growth R1 (Variable Annuities)

Morningstar rating equal to 4 stars
Average +0.49% $0.00
Delaware Small Cap Value Fund Institutional Class (Mutual Funds)
Morningstar rating equal to 5 stars
Above Average +0.9% $0.00
Dodge & Cox Stock Fund (Mutual Funds)

Morningstar rating equal to 4 stars
Average +0.52% $0.00
JPMorgan U.S. Research Enhanced Equity A (Mutual Funds)

Morningstar rating equal to 3 stars
Average +0.85% $0.00
Lazard International Strategic Equity Portfolio Open Class (Mutual Funds)

Morningstar rating equal to 3 stars
Average +1.06% $0.00
Parnassus Core Equity Fund Inv Class Shares (Mutual Funds)

Morningstar rating equal to 4 stars
Above Average +0.87% $0.00
Vanguard Real Estate Index Fund Admiral (Mutual Funds)

Morningstar rating equal to 3 stars
Average +0.12% $0.00
Vanguard Total Stock Market Index Fund Admiral (Mutual Funds)

Morningstar rating equal to 4 stars
Average +0.04% $0.00
iShares MSCI EAFE International Index K (Mutual Funds)

Morningstar rating equal to 4 stars
Above Average +0.06% $0.00
iShares Russell 2000 Small-Cap Index K (Mutual Funds)

Morningstar rating equal to 4 stars
Above Average +0.1% $0.00
FIXED INCOME (2)
CREF Bond Market R1 (Variable Annuities)

Morningstar rating equal to 4 stars
Average +0.53% $0.00
CREF Inflation-Linked Bond R1 (Variable Annuities)

Morningstar rating equal to 3 stars
Below Average +0.48% $0.00
GUARANTEED (2)
TIAA Stable Value (Fixed Annuities) $0.00
TIAA Traditional (Fixed Annuities) $0.00
MONEY MARKET (1)
TIAA-CREF Money Market Fund - Retirement Class (Mutual Funds) +0.39% $0.00
MULTI-ASSET (11)
CREF Social Choice R1 (Variable Annuities)

Morningstar rating equal to 4 stars
Average +0.5% $0.00
JP Morgan Smart Retirement 2055 Fund A Class (Mutual Funds)

Morningstar rating equal to 2 stars
Below Average +1.01% $0.00
JPMorgan Smart Retirement 2020 Fund Class A (Mutual Funds)

Morningstar rating equal to 3 stars
Average +0.96% $0.00
JPMorgan Smart Retirement 2025 Fund Class A (Mutual Funds)

Morningstar rating equal to 4 stars
Average +0.97% $0.00
JPMorgan Smart Retirement 2030 Fund Class A (Mutual Funds)

Morningstar rating equal to 4 stars
Average +0.98% $0.00
JPMorgan Smart Retirement 2035 Fund Class A (Mutual Funds)

Morningstar rating equal to 3 stars
Below Average +0.98% $0.00
JPMorgan Smart Retirement 2040 Fund Class A (Mutual Funds)

Morningstar rating equal to 3 stars
Average +0.99% $0.00
JPMorgan Smart Retirement 2045 Fund Class A (Mutual Funds)

Morningstar rating equal to 3 stars
Below Average +0.99% $0.00
JPMorgan Smart Retirement 2050 Fund Class A (Mutual Funds)

Morningstar rating equal to 3 stars
Below Average +1% $0.00
JPMorgan Smart Retirement Income Fund Class A (Mutual Funds)

Morningstar rating equal to 4 stars
Average +0.96% $0.00
JPMorgan SmartRetirement 2060 Fund Class A (Mutual Funds)

Morningstar rating equal to 2 stars
Below Average +1.13% $0.00
REAL ESTATE (1)
TIAA Real Estate (Variable Annuities) Low +0.83% $0.00
Questions:
1. What else should I do that I haven't done yet?

2. I welcome any advice/input. Thank you!!
User avatar
Cosmo
Posts: 1385
Joined: Mon Mar 05, 2007 8:46 pm

Re: Year end questions

Post by Cosmo »

livesoft wrote: Sun Dec 22, 2019 7:12 am 4) I did the following, but I see that many people have never done it, so to answer your last question, here's what I think others should wish they did:

Each year fill out one's own tax return or attempt to duplicate the way one's paid preparer filled out one's tax return in order to understand one's tax situation. Read the IRS Tax Publications that pertain to every thing that one put on IRS Form 1040. This is more than just running TurboTax or TaxCut or HRBlock. It is looking at one's hard copy tax return and reading the line-by-line instructions as well as the extra information in the tax publications: https://www.irs.gov/publications

One doesn't have to read all the publications or instructions each year, but start with one or maybe two of them related directly to numbers on one's Form 1040. Keep adding to your knowledge each year. This could be part of the so-called "Just in time learning" discussed about financial literacy. Don't be passive with the IRS. (Don't be a wuss!)

New idea: Add reading one IRS publication and discussing it to your book club or monthly local Bogleheads chapter meeting.
Great advice. I need to spend more time doing this. And the IRS website is actually well done too.
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

Hi, Cosmo,

This is useful to know, thank you. Could you recommend where to start? The IRS overwhelms me, as a novice

P
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: Year end questions

Post by an_asker »

peterwantstosave wrote: Sun Dec 22, 2019 6:39 am With apologies for any questions that are obvious to others, I have a handful of year-end questions.

1) May I make a 2020 Roth IRA contribution using income earned in December 2019? (i.e. Can I fund a 2020 contribution with 2019 earnings?)
2) Alternatively, may I take $6,000 from savings on January 1 and use it to make a full 2020 Roth contribution? (I'm 36).
3) What's the smartest way to use available debt (I have three credit cards and one line of credit)? Approx 10k available on each of them, I always pay them off in full each month.
4) I'm 36 with a paid for house and an income of 50k gross a year. No other debt. (I did dave ramsey and paid off my house. I'm back to using credit cards now obviously). I've always lived below my means. For those who are like me but are 25-35 years older, what do you wish you would have done?

Thanks, P
Let me add this, just in case you or someone else reads the answers a bit different and extrapolates something differently.

For each year, you can contribute to your Roth IRA up to the lower of the following:

- the Roth IRA limit based on your income
- your income for the year

So, though it most likely doesn't apply in your case as you're actively working, if you don't earn at least that $6,000 in 2020, you cannot contribute $6,000 just because you have $6,000 saved in your taxable account.

In other words, if you retire on 12/31/2019 and don't earn money in 2020, you cannot contribute to Roth IRA in 2020 using your 2019 earnings/savings.
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yangtui
Posts: 545
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Contact:

Re: Year end questions

Post by yangtui »

1. no

2. yes, if you have *enough* earned income in 2020. money is fungible.

3. we need to know the terms of the debt before we can give you an answer. apr? fees? etc.
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

an_asker wrote: Sun Dec 22, 2019 10:24 am
peterwantstosave wrote: Sun Dec 22, 2019 6:39 am With apologies for any questions that are obvious to others, I have a handful of year-end questions.

1) May I make a 2020 Roth IRA contribution using income earned in December 2019? (i.e. Can I fund a 2020 contribution with 2019 earnings?)
2) Alternatively, may I take $6,000 from savings on January 1 and use it to make a full 2020 Roth contribution? (I'm 36).
3) What's the smartest way to use available debt (I have three credit cards and one line of credit)? Approx 10k available on each of them, I always pay them off in full each month.
4) I'm 36 with a paid for house and an income of 50k gross a year. No other debt. (I did dave ramsey and paid off my house. I'm back to using credit cards now obviously). I've always lived below my means. For those who are like me but are 25-35 years older, what do you wish you would have done?

Thanks, P
Let me add this, just in case you or someone else reads the answers a bit different and extrapolates something differently.

For each year, you can contribute to your Roth IRA up to the lower of the following:

- the Roth IRA limit based on your income
- your income for the year

So, though it most likely doesn't apply in your case as you're actively working, if you don't earn at least that $6,000 in 2020, you cannot contribute $6,000 just because you have $6,000 saved in your taxable account.

In other words, if you retire on 12/31/2019 and don't earn money in 2020, you cannot contribute to Roth IRA in 2020 using your 2019 earnings/savings.
This is helpful to know. God willing, I will work for another 35 years. I like what I do.

Thank you!
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

yangtui wrote: Sun Dec 22, 2019 10:33 am 1. no

2. yes, if you have *enough* earned income in 2020. money is fungible.

3. we need to know the terms of the debt before we can give you an answer. apr? fees? etc.
thanks for your input. There is no "debt" I pay cards off every month in full when I have used them. Once, in 2011, I think I paid $11.38 in interest, that's when I went on Dave Ramsey and paid off my house.

Back to earth now, and responsibly using credit. :)
Katietsu
Posts: 7677
Joined: Sun Sep 22, 2013 1:48 am

Re: Year end questions

Post by Katietsu »

peterwantstosave wrote: Sun Dec 22, 2019 12:36 pm Once, in 2011, I think I paid $11.38 in interest, that's when I went on Dave Ramsey and paid off my house.

Back to earth now, and responsibly using credit. :)
Be careful about turning your back too much on Dave Ramsey rants about avoiding debt. I do think most people do best by avoiding debt or at least being very very uncomfortable with it. I cringe when people ask how much a month.

Why do you have a PLOC? I would shut that down tomorrow.

I use credit cards for convenience, cash back and fraud protection. But I pay off the bill the day the statement posts. And I always have enough in my checking account to cover any credit bills on any given day. This is easy now for me but was true even back in the day when I was earning $8.25 an hour.
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

You're right to urge caution. I'm grateful to have found Dave. His teachings continue to help me a lot. I can't figure out how to live without a credit score, and I don't feel the need to avoid credit.

P
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: Year end questions

Post by an_asker »

Katietsu wrote: Sun Dec 22, 2019 1:23 pm
peterwantstosave wrote: Sun Dec 22, 2019 12:36 pm Once, in 2011, I think I paid $11.38 in interest, that's when I went on Dave Ramsey and paid off my house.

Back to earth now, and responsibly using credit. :)
Be careful about turning your back too much on Dave Ramsey rants about avoiding debt. I do think most people do best by avoiding debt or at least being very very uncomfortable with it. I cringe when people ask how much a month.

Why do you have a PLOC? I would shut that down tomorrow.

I use credit cards for convenience, cash back and fraud protection. But I pay off the bill the day the statement posts. And I always have enough in my checking account to cover any credit bills on any given day. This is easy now for me but was true even back in the day when I was earning $8.25 an hour.
Agreed. And not only that, having credit does make one spend more than one otherwise would - unless one has a very strict action plan for purchasing stuff at the grocery store or supermarket - which is OK if one stays within one's ability of paying it all off.
Topic Author
peterwantstosave
Posts: 505
Joined: Fri Nov 24, 2017 7:28 pm

Re: Year end questions

Post by peterwantstosave »

I appreciate the feedback and the interest in my question. Glad to know that there are others here who are as mindful as I try to be.

P
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