Good Idea? Living of Money Market To Maximize Roth Contributions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
MrCheapo
Posts: 1469
Joined: Tue Dec 22, 2020 2:43 pm

Good Idea? Living of Money Market To Maximize Roth Contributions

Post by MrCheapo »

Hi,

I already put in 2 x $26K for 403b and 457b. My wife puts in $26K for her 403b. I put in $61K via my MBR- Roth.

After all of this we have just enough to live on which is about $84K

But we just discovered she has a Roth option as well to put away an additional $61k. But of course we would have to live of our savings to the tune of $61K a year.

This is quite doable, we intend to work only for 3-4 more years and have $450K in a money market so we'll draw that down $250K which is enough of a safety net.

Thoughts on this idea? To me it's a no brainer as the money saved would have been put into after-tax Vanguard anyway so at least here we are getting tax advantages.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by grabiner »

This is a good idea because you are getting more tax-free growth, which you can use for the rest of your lives. You aren't losing any money since you are spending money you would be spending anyway, just changing which accounts it is held in.

However, you might not want to keep $450K in a money-market fund; that is six years' living expenses, which seems a larger cash cushion than you need. You might put some of that in CDs, or short-term or intermediate-term bonds.
Wiki David Grabiner
Topic Author
MrCheapo
Posts: 1469
Joined: Tue Dec 22, 2020 2:43 pm

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by MrCheapo »

grabiner wrote: Sun May 22, 2022 12:03 pm This is a good idea because you are getting more tax-free growth, which you can use for the rest of your lives. You aren't losing any money since you are spending money you would be spending anyway, just changing which accounts it is held in.

However, you might not want to keep $450K in a money-market fund; that is six years' living expenses, which seems a larger cash cushion than you need. You might put some of that in CDs, or short-term or intermediate-term bonds.
Thanks. The $450K is our rain day and black swan event fund.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by arcticpineapplecorp. »

MrCheapo wrote: Sun May 22, 2022 4:01 pm
grabiner wrote: Sun May 22, 2022 12:03 pm This is a good idea because you are getting more tax-free growth, which you can use for the rest of your lives. You aren't losing any money since you are spending money you would be spending anyway, just changing which accounts it is held in.

However, you might not want to keep $450K in a money-market fund; that is six years' living expenses, which seems a larger cash cushion than you need. You might put some of that in CDs, or short-term or intermediate-term bonds.
Thanks. The $450K is our rain day and black swan event fund.
As long as you're then ok with a $250k rain day and black swan event fund.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
JonnyBeRetired
Posts: 40
Joined: Tue Jan 15, 2019 10:49 am

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by JonnyBeRetired »

MrCheapo wrote: Sun May 22, 2022 11:37 am … we just discovered she has a Roth option as well to put away an additional $61k. But of course we would have to live of our savings to the tune of $61K a year.

This is quite doable, we intend to work only for 3-4 more years and have $450K in a money market so we'll draw that down $250K which is enough of a safety net.

Thoughts on this idea? To me it's a no brainer as the money saved would have been put into after-tax Vanguard anyway so at least here we are getting tax advantages.
Yes, creating Roth balances by consuming existing taxable balances is a great way to maximize tax-advantaged space using the mega backdoor Roth concept. Also you might be interested in the Tax-efficient fund placement wiki at https://www.bogleheads.org/wiki/Tax-eff ... _placement for guidance on which types of assets to hold in which type of account.
Jon
hulburt1
Posts: 510
Joined: Tue Jul 15, 2014 9:17 pm

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by hulburt1 »

About4 weeks ago, I sold all my IRA and have it in MM. 1.1m. I will take out my RMD at 72. My Roth will be in S&P 300000. Right now I can take out 50000 for 20 years. That puts me at 89. My Roth should grow to 1m by then..
I can easily live on 36000 a year.

Next year I'll get $30000 from SS at 70.

For me its simple. Stay at 12% let Roth grow. Eny room up to 12% will come home or go to Roth.

Sence I move to MM I'm sleeping 2hrs longer.
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by HMSVictory »

Yup I would. You are just moving the funds from taxable MMF to Roth IRA.

My only caution is you are going to increase your overall tilt towards stocks (assuming you are all equities in Roth). If you can shift other funds in pre-tax accounts to offset this then its a no brainer.

$84k a year to live on? Not sure that qualifies as Mrcheapo! J/k. :shock:
Stay the course!
Topic Author
MrCheapo
Posts: 1469
Joined: Tue Dec 22, 2020 2:43 pm

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by MrCheapo »

HMSVictory wrote: Thu May 26, 2022 8:02 am $84k a year to live on? Not sure that qualifies as Mrcheapo! J/k. :shock:
I guess it's all relative! My next door neighbor can retire today on a $100K a year pension but wants to work five more years to get it up to $200K. Compared to him I'm a cheapo ...
User avatar
CyclingDuo
Posts: 6009
Joined: Fri Jan 06, 2017 8:07 am

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by CyclingDuo »

MrCheapo wrote: Sun May 22, 2022 11:37 am Hi,

I already put in 2 x $26K for 403b and 457b. My wife puts in $26K for her 403b. I put in $61K via my MBR- Roth.

After all of this we have just enough to live on which is about $84K

But we just discovered she has a Roth option as well to put away an additional $61k. But of course we would have to live of our savings to the tune of $61K a year.

This is quite doable, we intend to work only for 3-4 more years and have $450K in a money market so we'll draw that down $250K which is enough of a safety net.

Thoughts on this idea? To me it's a no brainer as the money saved would have been put into after-tax Vanguard anyway so at least here we are getting tax advantages.
We call the strategy “salary replacement” and have done it at various times to stack the retirement accounts. Even if you don’t do the full additional $61K, there is still plenty of room between that and $0 that you could take advantage of and replace the salary to cover your expenses from the MM/Black Swan account.

We’d vote for you to take advantage of the opportunity. Whether that means $10K, $25K, or the full $61K - have at it!
:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by HMSVictory »

MrCheapo wrote: Sat May 28, 2022 10:07 am
HMSVictory wrote: Thu May 26, 2022 8:02 am $84k a year to live on? Not sure that qualifies as Mrcheapo! J/k. :shock:
I guess it's all relative! My next door neighbor can retire today on a $100K a year pension but wants to work five more years to get it up to $200K. Compared to him I'm a cheapo ...
Absolutely. Its all relative you got that right.

I'm shooting for $8k a month in my pension - once I hit that number I'll be cleaning my office out!
Stay the course!
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by invest4 »

This is the 3rd year I have been drawing down cash reserves so I can take advantage of Mega Backdoor Roth.

What you propose is very reasonable to me.
shess
Posts: 2164
Joined: Wed May 17, 2017 12:02 am

Re: Good Idea? Living of Money Market To Maximize Roth Contributions

Post by shess »

Note that money is fungible!

For instance, if/when you use an emergency fund, you have to have access to the funds, and an emergency fund should be kept in a conservative investment, so the obvious result is a money-market fund in a taxable account. But you could just as easily have a money-market fund in a 401k and a total-market fund in your taxable account. If you never tap the emergency fund, then it doesn't matter. If you do tap the emergency fund, you sell from the total-market fund in taxable, and convert some of the money-market fund in the 401k to a total-market fund. If the total-market fund is sold for a loss, no big deal - it would also have traded for less in the 401k, and you can't book a loss in the 401k.

I recently did some tax-loss harvesting of VTI (US total market) and VEU (intl total market). Instead of swapping VTI->VOO and VEU->VXUS in taxable, I swapped VTI+VEU in taxable for an intermediate-term bond fund, and sold bonds in the 401k to buy VOO and a developed-market index. Now that I have that chunk of bond fund in taxable, I'm considering living off it (which should generate low/moderate tax consequences) while doing greater than normal Roth conversions this year. That's not quite the same situation as you, but similar reasoning.

Back when I was employed and had mega-backdoor Roth access, I routinely sold stock from a concentrated position for diversification reasons, so I'd use that to fund expenses while maxing out Roth contributions from my paycheck. Now we have the option to pull those Roth contributions back out to fund living expenses, while doing Roth conversions to keep the ladder going. Again, not quite the same, but kind of similar reasoning in that I'd prefer to have the cash in the Roth rather than investing it in our taxable account.
Post Reply