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

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jriding
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Re: So, who's maxing out their IRA on Jan 1st?

Post by jriding »

hnd wrote: Wed Dec 16, 2020 1:17 pm 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.
This is a beautiful example of hindsight bias. Please look it up if you don't know what it is. :sharebeer

Back on topic... I will be pulling money from savings to fully fund two backdoor Roths on January 4. This is also my first opportunity to add a "catch up" contribution, yay 50! Will replenish savings when I receive my January 15 bonus.
Last edited by jriding on Wed Dec 16, 2020 5:45 pm, edited 2 times in total.
123
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Re: So, who's maxing out their IRA on Jan 1st?

Post by 123 »

For probably the last 30 years we've always waited until January of the following year to fund our "prior" year IRA contributions. Our delay is due to the various income limits that apply to Traditional and Roth IRA contributions, we just want to keep things simple and not have to convert/withdraw/undo transactions. We don't know what our income will be until the year is over. Of course there can be capital gains you didn't anticipate at the beginning of the year but there's always the possibility of a big lottery win!
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AerialWombat
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Re: So, who's maxing out their IRA on Jan 1st?

Post by AerialWombat »

jhfenton wrote: Wed Dec 16, 2020 2:42 pm 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.
Just wanted to say kudos to you for doing what most middle class Americans are unwilling to do. Congrats on having the fortitude to plan ahead and max these out over the year.
For entertainment purposes only.
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JoMoney
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Re: So, who's maxing out their IRA on Jan 1st?

Post by JoMoney »

I already had to withdraw my Roth contribution for 2020, I (unexpectedly) will not qualify because of income limits.
In 2021 I will wait until late in the year to make sure I won't bust the income limit.
... I will be buying some Series I Savings Bonds though...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
L82GAME
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Re: So, who's maxing out their IRA on Jan 1st?

Post by L82GAME »

The 2021 plan is as follows, which we're very fortunate to even contemplate in these times:
  • Max. out 457
  • Max. out FSA for health care
  • DCA monthly contributions to his and her Roths
  • Contribute any tax refunds and/or stimulus checks (if they occur) to Roths
  • Adjust bullet #3 above accordingly
  • Any remainder would be gravy and probably poured into our brokerage account
:beer
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joelly
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Re: So, who's maxing out their IRA on Jan 1st?

Post by joelly »

We maxed it out this Dec 2020. Why wait when you can do it now? Or are you talking about 2021 contribution?
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Re: So, who's maxing out their IRA on Jan 1st?

Post by dru808 »

joelly wrote: Wed Dec 16, 2020 6:05 pm We maxed it out this Dec 2020. Why wait when you can do it now? Or are you talking about 2021 contribution?
2021.
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Picasso
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Picasso »

I am! Backdoor it on Jan 4
mikejuss
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Re: So, who's maxing out their IRA on Jan 1st?

Post by mikejuss »

JoMoney wrote: Wed Dec 16, 2020 5:44 pm I already had to withdraw my Roth contribution for 2020, I (unexpectedly) will not qualify because of income limits.
In 2021 I will wait until late in the year to make sure I won't bust the income limit.
... I will be buying some Series I Savings Bonds though...
Do you understand how to do a backdoor contribution to a Roth IRA? Look up the rules; income limits don't matter. It would be a shame to miss out on this opportunity.

And in answer to the question that is the subject of this thread: I am.
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JoMoney
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Re: So, who's maxing out their IRA on Jan 1st?

Post by JoMoney »

mikejuss wrote: Wed Dec 16, 2020 9:31 pm
JoMoney wrote: Wed Dec 16, 2020 5:44 pm I already had to withdraw my Roth contribution for 2020, I (unexpectedly) will not qualify because of income limits.
In 2021 I will wait until late in the year to make sure I won't bust the income limit.
... I will be buying some Series I Savings Bonds though...
Do you understand how to do a backdoor contribution to a Roth IRA? Look up the rules; income limits don't matter. It would be a shame to miss out on this opportunity.

And in answer to the question that is the subject of this thread: I am.
Yes, I'm aware, already made the withdrawal and will let it pass. Pretty sure pro rata rules would be a problem with my large taxable IRA anyway.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
mikejuss
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Re: So, who's maxing out their IRA on Jan 1st?

Post by mikejuss »

JoMoney wrote: Wed Dec 16, 2020 9:39 pm
mikejuss wrote: Wed Dec 16, 2020 9:31 pm
JoMoney wrote: Wed Dec 16, 2020 5:44 pm I already had to withdraw my Roth contribution for 2020, I (unexpectedly) will not qualify because of income limits.
In 2021 I will wait until late in the year to make sure I won't bust the income limit.
... I will be buying some Series I Savings Bonds though...
Do you understand how to do a backdoor contribution to a Roth IRA? Look up the rules; income limits don't matter. It would be a shame to miss out on this opportunity.

And in answer to the question that is the subject of this thread: I am.
Yes, I'm aware, already made the withdrawal and will let it pass. Pretty sure pro rata rules would be a problem with my large taxable IRA anyway.
Bummer, dude.

For whatever it's worth, I think Vanguard (which I use) has a "Rollover IRA Brokerage Account" that enables you to avoid pro rata headaches by not having the money pass through a traditional IRA. Perhaps check it out for a possible Roth IRA contribution in 2021.
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zaboomafoozarg
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Re: So, who's maxing out their IRA on Jan 1st?

Post by zaboomafoozarg »

I figured most of the Bogleheads forum would be income ineligible for IRA contributions.
Rainmaker41
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Rainmaker41 »

We did this another year. For 2020, 2021, and beyond we have our Roth IRAs set on semimonthly automatic maximized contributions. The investment choice itself is a Lifestrategy fund, so there is no decision making or manual actions required at all. We think this is worth it for the reduced behavioral risk.

Our employer retirement plans have contributions set up in a comparable way, although for those we have to manually rebalance.
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Picasso
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Picasso »

zaboomafoozarg wrote: Wed Dec 16, 2020 9:57 pm I figured most of the Bogleheads forum would be income ineligible for IRA contributions.
Backdoor Roth. Take it to the next level.
mikejuss
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Re: So, who's maxing out their IRA on Jan 1st?

Post by mikejuss »

Picasso wrote: Wed Dec 16, 2020 10:20 pm
zaboomafoozarg wrote: Wed Dec 16, 2020 9:57 pm I figured most of the Bogleheads forum would be income ineligible for IRA contributions.
Backdoor Roth. Take it to the next level.
It is well known that Picasso was a genius.
stoptothink
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Re: So, who's maxing out their IRA on Jan 1st?

Post by stoptothink »

zaboomafoozarg wrote: Wed Dec 16, 2020 9:57 pm I figured most of the Bogleheads forum would be income ineligible for IRA contributions.
This is a wealthy bunch, but I strongly doubt the median gross HHI is >$250k. Not to mention that backdoor.
ArtsyProf
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Re: So, who's maxing out their IRA on Jan 1st?

Post by ArtsyProf »

Pete12 wrote: Wed Dec 16, 2020 1:21 pm 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.
Could you please enlighten me? Are you saying that you contribute pretax funds into a traditional IRA within your Vanguard account and then a few days later transfer them or rather re-allocate them into a Roth IRA which is supposed to be a post tax account… Thus avoiding taxes? Is this legal? Is that what you mean you are doing? I've heard about Roth conversions on the site but never understood it so I would appreciate any explanation.
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Jack FFR1846 »

A couple years ago, we ended up in the Roth phase out area. Had to remove "excess contributions", and pay penalties. Now, I won't contribute a dime till my tax returns are complete.

For the 401k, my company matches per each paycheck. No more than 2% (the board votes 4 times a year...it's usually less). If I hit the max in March, I'd miss out on the 2% match for 3/4 of the year, meaning, I'd only get 1/4 of the match. No thanks. I divide it up and near the end of the year, make sure I hit the max during the last paycheck.
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terran
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Re: So, who's maxing out their IRA on Jan 1st?

Post by terran »

ArtsyProf wrote: Wed Dec 16, 2020 10:44 pm
Pete12 wrote: Wed Dec 16, 2020 1:21 pm 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.
Could you please enlighten me? Are you saying that you contribute pretax funds into a traditional IRA within your Vanguard account and then a few days later transfer them or rather re-allocate them into a Roth IRA which is supposed to be a post tax account… Thus avoiding taxes? Is this legal? Is that what you mean you are doing? I've heard about Roth conversions on the site but never understood it so I would appreciate any explanation.
I suspect they're doing a backdoor Roth contribution because they make too much to be eligible for a direct Roth contribution. It is legal, but it's not a way to avoid taxes because they aren't taking a deduction for the traditional IRA contribution. It's effectively the same as contributing directly to a Roth IRA.
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Pete12
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Pete12 »

ArtsyProf wrote: Wed Dec 16, 2020 10:44 pm
Pete12 wrote: Wed Dec 16, 2020 1:21 pm 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.
Could you please enlighten me? Are you saying that you contribute pretax funds into a traditional IRA within your Vanguard account and then a few days later transfer them or rather re-allocate them into a Roth IRA which is supposed to be a post tax account… Thus avoiding taxes? Is this legal? Is that what you mean you are doing? I've heard about Roth conversions on the site but never understood it so I would appreciate any explanation.
Hello. Yes this is the “backdoor” Roth IRA method. Our annual income is too high to contribute to a Roth IRA directly.
More info here: https://www.bogleheads.org/wiki/Backdoor_Roth
TropikThunder
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Re: So, who's maxing out their IRA on Jan 1st?

Post by TropikThunder »

ArtsyProf wrote: Wed Dec 16, 2020 10:44 pm
Pete12 wrote: Wed Dec 16, 2020 1:21 pm 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.
Could you please enlighten me? Are you saying that you contribute pretax funds into a traditional IRA within your Vanguard account and then a few days later transfer them or rather re-allocate them into a Roth IRA which is supposed to be a post tax account… Thus avoiding taxes? Is this legal? Is that what you mean you are doing? I've heard about Roth conversions on the site but never understood it so I would appreciate any explanation.
There is no income cap on making a traditional IRA contribution, but there is one on deducting it. In contrast, there is an income cap on even making a Roth IRA contribution in the first place (which isn't deductible regardless). The backdoor Roth means that if you are above the income cap to make a direct Roth contribution, you can make a traditional IRA contribution instead but do not take the deduction, then convert it to a Roth. The end result is the same: after-tax money contributed to a Roth. On the surface it looks like shenanigans, but Congress and the IRS allow it.
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BroIceCream
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Re: So, who's maxing out their IRA on Jan 1st?

Post by BroIceCream »

I know that this is splitting hairs on the 'law", but I am curious on others' perspective.
To donate to an IRA *trad or roth), you need earned income. How can we donate to IRA on Jan 1, unless we've earned that amount on Jan. 1.

If we got hit by a bus on Jan 2 (or was fired), and had no further earned income for the rest of the year... would we be in violation since we hadn't earned the full $6k before we made the contribution? (except for those high wage earners).

Technically, should we wait to fund the IRA until we've had at least $6k in earned income (7k for age 50+)...perhaps after our 2nd/3rd paycheck?

I understand this scenario is unlikely, but this scenario has been on my mind.
Grogs
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Grogs »

BroIceCream wrote: Thu Dec 17, 2020 2:51 am I know that this is splitting hairs on the 'law", but I am curious on others' perspective.
To donate to an IRA *trad or roth), you need earned income. How can we donate to IRA on Jan 1, unless we've earned that amount on Jan. 1.

If we got hit by a bus on Jan 2 (or was fired), and had no further earned income for the rest of the year... would we be in violation since we hadn't earned the full $6k before we made the contribution? (except for those high wage earners).

Technically, should we wait to fund the IRA until we've had at least $6k in earned income (7k for age 50+)...perhaps after our 2nd/3rd paycheck?

I understand this scenario is unlikely, but this scenario has been on my mind.
I'd be surprised if your heirs didn't get some kind of paycheck in 2021 if you were hit by a bus on 1/1/21. Lots of companies pay in arrears, so the Jan. paycheck may actually include some time for December. And there are things like vacation, sick time, etc. So if I drop dead on New Year's Day from a hangover, I would still expect to get several weeks' pay - enough to cover $6k in IRA contributions.

Of course, that's (hopefully) academic. This year I don't have enough on hand to max out the IRA at the beginning of January. Since I'm going to be doing a backdoor for the first time, I don't want to split it up. I'll wait until after my first 2021 paycheck near the end of January so I can contribute the full amount and then do the conversion a day or two later.
Engora
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Engora »

mikejuss wrote: Wed Dec 16, 2020 9:48 pm
JoMoney wrote: Wed Dec 16, 2020 9:39 pm
mikejuss wrote: Wed Dec 16, 2020 9:31 pm
JoMoney wrote: Wed Dec 16, 2020 5:44 pm I already had to withdraw my Roth contribution for 2020, I (unexpectedly) will not qualify because of income limits.
In 2021 I will wait until late in the year to make sure I won't bust the income limit.
... I will be buying some Series I Savings Bonds though...
Do you understand how to do a backdoor contribution to a Roth IRA? Look up the rules; income limits don't matter. It would be a shame to miss out on this opportunity.

And in answer to the question that is the subject of this thread: I am.
Yes, I'm aware, already made the withdrawal and will let it pass. Pretty sure pro rata rules would be a problem with my large taxable IRA anyway.
Bummer, dude.

For whatever it's worth, I think Vanguard (which I use) has a "Rollover IRA Brokerage Account" that enables you to avoid pro rata headaches by not having the money pass through a traditional IRA. Perhaps check it out for a possible Roth IRA contribution in 2021.
I thought Rollover IRA is included in pro rata rule. Are you sure about it?
case_of_ennui
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Re: So, who's maxing out their IRA on Jan 1st?

Post by case_of_ennui »

Should I be selling from taxable and realizing LTCG to immediately fully fund my IRA for the year? It would otherwise take me a few months to do so.
tibbitts
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Re: So, who's maxing out their IRA on Jan 1st?

Post by tibbitts »

I don't understand the obsession with funding an IRA as soon as possible. I can't contribute any longer due to not having qualifying income, but never contributed before I had earned enough income in a year to qualify. Most years I waited until filing taxes the following year, to have all the information available for choosing the type of IRA. Every year we get how many posts from people asking how to correct problems that were entirely due to them contributing to an IRA and then having circumstances change? For a forum where the "complexity"(?) of having more than three (and lately two - sorry, international) funds is often frowned upon, nobody here thinks twice about recharacterizing contributions, withdrawing or even paying penalties on excessive earnings, etc. etc.
Old_Dollar
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Old_Dollar »

As soon as possible I max out the IRA!
I am here solely to learn about investing.
terran
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Re: So, who's maxing out their IRA on Jan 1st?

Post by terran »

case_of_ennui wrote: Thu Dec 17, 2020 9:12 am Should I be selling from taxable and realizing LTCG to immediately fully fund my IRA for the year? It would otherwise take me a few months to do so.
I'd take the few months. I'd also probably turn off dividend reinvestment and use that since you're already paying tax on that whether you reinvest or send it to an IRA
atdharris
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Re: So, who's maxing out their IRA on Jan 1st?

Post by atdharris »

I generally fund it the first day I can in January. I'll let my 401k be the account where I'm dollar cost averaging.
sailaway
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Re: So, who's maxing out their IRA on Jan 1st?

Post by sailaway »

Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
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Pete12
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Pete12 »

tibbitts wrote: Thu Dec 17, 2020 9:26 am I don't understand the obsession with funding an IRA as soon as possible.
In my particular case if I have the funds available, and the choice is between putting into the IRA rather than the taxable account then I will go with the IRA. This way I get the maximum time for tax-free growth. This argument may not hold for folks in other situations.
Grogs
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Grogs »

tibbitts wrote: Thu Dec 17, 2020 9:26 am I don't understand the obsession with funding an IRA as soon as possible. I can't contribute any longer due to not having qualifying income, but never contributed before I had earned enough income in a year to qualify. Most years I waited until filing taxes the following year, to have all the information available for choosing the type of IRA. Every year we get how many posts from people asking how to correct problems that were entirely due to them contributing to an IRA and then having circumstances change? For a forum where the "complexity"(?) of having more than three (and lately two - sorry, international) funds is often frowned upon, nobody here thinks twice about recharacterizing contributions, withdrawing or even paying penalties on excessive earnings, etc. etc.
With the Roth in particular, the gains are tax free. The difference between investing it all in Jan. 2021 and Apr. 2022 could be 10%+ growth. Multiply that by 20-30 years, and it can really add up. If I didn't fund my Roth in January, I would either keep the money in savings earning ~0% or invest it in my taxable where those gains would probably be taxed eventually.

As for problems, the only one I could think would possibly be applicable in my circumstance would be getting an unexpectedly large pay raise or bonus that put me over the Roth limit. I'm insuring against that by doing a backdoor so that it's not an issue.
fatespawn
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Re: So, who's maxing out their IRA on Jan 1st?

Post by fatespawn »

sailaway wrote: Thu Dec 17, 2020 10:01 am Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
https://investor.vanguard.com/investing ... t-lump-sum

"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
sailaway
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Re: So, who's maxing out their IRA on Jan 1st?

Post by sailaway »

fatespawn wrote: Thu Dec 17, 2020 10:49 am
sailaway wrote: Thu Dec 17, 2020 10:01 am Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
https://investor.vanguard.com/investing ... t-lump-sum

"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
Which why I asked why you wouldn't invest the money as it comes in, rather than waiting until Jan 4 to invest. People talk about accumulating that money over the last months of the previous year to do this as if it has some magic compounding power, even though they are actually leaving it in savings, or even checking, for months, aka not investing. Why aren't they investing that money as they receive it, then using new monies for the IRA?
Last edited by sailaway on Thu Dec 17, 2020 12:45 pm, edited 1 time in total.
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JD2775
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Re: So, who's maxing out their IRA on Jan 1st?

Post by JD2775 »

sailaway wrote: Thu Dec 17, 2020 12:22 pm
fatespawn wrote: Thu Dec 17, 2020 10:49 am
sailaway wrote: Thu Dec 17, 2020 10:01 am Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
https://investor.vanguard.com/investing ... t-lump-sum

"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
Which why I asked why you wouldn't invest the money as it comes in, rather than waiting until Jan 4 to invest. People talk about accumulating that money over the last months of the previous year to do this as if it has some magic compounding power, even though they are actually leaving it in savings for months, aka not investing. Why aren't they investing that money as they receive it, then using new monies for the IRA?
I am guilty of this, to an extent. My 401k maxed out mid November, I have been banking the additional paycheck dollars since then in anticipation of using it for my Roth IRA contribution on Jan 4th. Every year I have DCA my Roth, but this year I want to do lump sum for the first time. Part of the reason is my companies new ESPP program starts Jan 1st and I want to free up some after tax dollars for that in 2021.
Independent George
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Independent George »

JD2775 wrote: Wed Dec 16, 2020 12:51 pm 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 plans to change - I've lump-summed on Jan 2 every year since 2014, and will do so again in a couple weeks. I'm fortunate to be at the point where a $6,000 contribution is a tiny percentage compared to my entire portfolio, so the prospect of losing $3,000 on a lump sum is insignificant to me. It worked slightly against me in 2020; it worked out very well in my favor in 2018.
fatespawn wrote: Thu Dec 17, 2020 10:49 am https://investor.vanguard.com/investing ... t-lump-sum

"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
If it's a significant sum relative to your portfolio, I generally recommend DCA over a year regardless of the math. Something like an IRA contribution will occur multiple times over an investing lifetime; so you can expect the numbers will work out in the long-term. In many ways, it amounts to DCA on a larger scale. Investing an unusually large windfall is something different - if you have a single data point upon which a significant portion of your net worth will depend, DCA is perfectly rational.
Nate7out
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Nate7out »

fatespawn wrote: Thu Dec 17, 2020 10:49 am
sailaway wrote: Thu Dec 17, 2020 10:01 am Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
https://investor.vanguard.com/investing ... t-lump-sum

"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
This is not true lump sum investing if you are saving up the $6k throughout the previous year. If you got a $6k bonus on January 1st, then put it in Roth that would be lump sum. I believe I have been guilty of this thinking in the past as well.

If you had three options to invest starting in Jan 2021, with $1k excess per month, either:
a) $500 per month to both Roth and Taxable,
b) $1000 per month to Roth until full then $1000 to taxable
c) $500 per month to taxable, save $500 per month and earmark it for Roth in January when you have $6k,

[b > a > c] Option C loses because of missed opportunity for gains. Option B beats A because Roth tax treatment equals higher expected returns. (Same AA across accounts).

If you already have the $6k to lump sum (as I do - MFJ so $12k), then you did option c *last* year (as I did). Going forward the best path (for the above example) would be:

Lump sum Roth Jan 2021. Don't save $500 per month for Roth. Instead put $1000 in taxable monthly all year. Next Jan, start putting $1000 per month into Roth until full, then switch to $1000 per month in taxable. I think Triple Digit Golfer earlier in the thread has it correct. All excess cash invested in a timely fashion is probably best.
kelvan80
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Re: So, who's maxing out their IRA on Jan 1st?

Post by kelvan80 »

Some years we DCA all year long and some years we lump sum if we find ourselves with a surplus in savings with no intended purpose. I can tell you after 15 years I can't remember what year I did what. I don't think it matters much.
Nate7out
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Nate7out »

kelvan80 wrote: Thu Dec 17, 2020 6:31 pm Some years we DCA all year long and some years we lump sum if we find ourselves with a surplus in savings with no intended purpose. I can tell you after 15 years I can't remember what year I did what. I don't think it matters much.
This. I did a spreadsheet and the difference was less than 1% over 5 years.
IRouteIP
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Re: So, who's maxing out their IRA on Jan 1st?

Post by IRouteIP »

Nate7out wrote: Thu Dec 17, 2020 7:52 pm [ I did a spreadsheet and the difference was less than 1% over 5 years.
In whose favor?
02nz
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Re: So, who's maxing out their IRA on Jan 1st?

Post by 02nz »

kelvan80 wrote: Thu Dec 17, 2020 6:31 pm Some years we DCA all year long and some years we lump sum if we find ourselves with a surplus in savings with no intended purpose. I can tell you after 15 years I can't remember what year I did what. I don't think it matters much.
I chuckle every year at this discussion, which comes up without fail. For IRA contributions both are DCA, just a matter of DCA'ing annually vs monthly or whatever. I think of the "lump sum vs DCA" argument as applying more to one-time windfalls of say tens of thousands of dollars or more, not to recurring IRA contributions of $6K. If you have the money available in January, then any amount of time thinking about "all in in January or spread it out" is too much time.
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Re: So, who's maxing out their IRA on Jan 1st?

Post by tibbitts »

If enough people are so determined to invest on the first trading day of the year, maybe that will create an exploitable opportunity for those of us who don't. So I should probably encourage everyone to invest on that day.
Nate7out
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Re: So, who's maxing out their IRA on Jan 1st?

Post by Nate7out »

IRouteIP wrote: Thu Dec 17, 2020 7:58 pm
Nate7out wrote: Thu Dec 17, 2020 7:52 pm [ I did a spreadsheet and the difference was less than 1% over 5 years.
In whose favor?
In my post it said b >a> c. That's whose favor.
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wander
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Re: So, who's maxing out their IRA on Jan 1st?

Post by wander »

Not me.
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grabiner
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Re: So, who's maxing out their IRA on Jan 1st?

Post by grabiner »

I always fund my IRA on the first trading day in January (usually using the dividends my taxable funds pay out in December), then convert to a Roth (backdoor) as soon as the contribution posts.
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ChowYunPhat
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Re: So, who's maxing out their IRA on Jan 1st?

Post by ChowYunPhat »

bloom2708 wrote: Wed Dec 16, 2020 1:36 pm I will put $7k in both our Roth IRA on Jan 4th. I turn 50 in 2021. Bonus $1k. :o
Lucky duck Bloom. Approaching the catch up contribution age...consolation prize for aging :)

I will Roth contribute in early Jan as well. No time like the present.
A wise man and his money are friends forever...
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avenger
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Re: So, who's maxing out their IRA on Jan 1st?

Post by avenger »

Always. Taxable portfolio has grown enough that the December distributions are mostly able to fund the IRA. The money sits in my settlement account for a few days before going to traditional IRA the first trading day of the year and then Roth the next day.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
novemberrain
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Re: So, who's maxing out their IRA on Jan 1st?

Post by novemberrain »

JD2775 wrote: Wed Dec 16, 2020 12:51 pm 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?
Nice idea. But Isn't it $38,000 though (as opposed to $6000); I mean mega backdoor ira
PStrider
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Re: So, who's maxing out their IRA on Jan 1st?

Post by PStrider »

I’m gonna wait a whole year and contribute to 2021 Roth/Trad in 2022.

The extra headache and paper filing for recharacterization to drop down a tax bracket is not worth the hassle.
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samsoes
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Re: So, who's maxing out their IRA on Jan 1st?

Post by samsoes »

Not me. I haven't had any earned income since I FIRE'd in August 2019.
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