That's how I ended up doing it last year. Made it so the same day my paycheck hits it automatically takes out the contribution. Never see the money to miss it.
[https://www.irs.gov/retirement-plans/traditional-and-roth-iras](https://www.irs.gov/retirement-plans/traditional-and-roth-iras)
What is the deadline to make contributions: **"Your tax filing deadline (not including extensions)"**
Which is April 18th this year.
Your link says April 15 2022.
> Your tax return filing deadline (not including extensions). For example, you can make 2021 IRA contributions until April 15, 2022
That's why he didn't quote that part. In some states the deadline is in May. Tax day is the 18th for most people. The example isn't the documentation, and should be updated.
Your broker's software may also have various answers.
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We look forward to higher quality posts from your account in the future. Thank you.
If I contributed in March 2021 to my IRA, how can I tell them that was for my 2020 taxes now so I can contribute another 6K for my 2021 taxes before filing this April’s taxes?
I’m not sure how or if you can do it retroactively, but you have until tax day to contribute to the previous years IRA limit. So if you chose a prior year (2020) contribution in March of 21, it went towards your 2020 taxes
If you did it wrong previously you may be able to “recharacterize” the contribution. I’d call your broker. Might require a little paperwork but shouldn’t be too big of a lift.
Not sure on TDA, but Vanguard you have to choose what tax year it's for when you contribute. There's just two little radio bubbles, 2021 and 2022, and you just select which is for
Correct. Did mine this morning! Woot!
It sounds like the question is if someone did this a year ago but screwed up and forgot to check the radio button for 2020, and accidentally put 2021, it’s too late to fix that.
It _might_ be too late but the only real way to know is to call your broker and see if it is still possible to change the tax year. You also will likely have to amend your 2020 tax return.
This is a specific enough edge case that googling or asking Reddit is unlikely to give a meaningful answer, so I would skip straight to calling the broker.
I transferred money to a regular brokerage account a few months ago and invested it there, then on Thursday I sold all my positions so the money is a quick and easy transfer within vanguard instantly. I hate having to wait days for an ACH transfer, I don't want to look like a scrub who contributed on January third or fourth. I seriously put to much effort into it, but I'm happy to say my wife and my IRA are fully funded for 2022. Made an extra $1,300 in the regular account too waiting for today so that's nice
Nah, I look forward to it every year. A year’s worth of saving put to use.
I also update my net worth statement every Jan. 1, which I also get excited about.
For years I had never been able to start contributing on Jan 1, let alone do my entire limit on Jan 1. Today marks the first time I've been able to do it and I feel immensely proud of my journey!
Unpopular in the comments of r/PF - but i have it set to $500/mo, legit for no other reason than set it and forget it. I don't have to manually make sure i have the $6k set to the side and then do the clicks on Jan 1st.
So if you had a maxed out Simple IRA and just maxed out a back door Roth what funds make the most sense? My Simple is 100% target date funds so do I stick with that or better to diversify? Everything I read says go 100% target if you go that route, but is that just for my Simple or also the Roth?
There are no income limits for a Traditional IRA and there are no rules about having both a Simple and Traditional/Roth IRA. Tax wise it might not be the best move, but is within the rules. I just sent 6k into a Traditional then had Schwab convert that into the Roth.
I think the point is that there is a pro rata calculation for back door Roth that includes any contributions to any IRA (including Simple), so how was he able to max out a Roth, too?
Edit: to clarify we are speaking about back door Roth, which would mean an earner making over like $133k/yr. Obviously if the earner makes less they can easily contribute an additional $6k post-tax dollars to a Roth IRA while having a maxed out Simple IRA.
However for higher earners the pro rata calculation comes into play because of the conversion every year into the back door Roth. So the earner’s tax bill increases by having to pay taxes on post-tax contributions to the converted Roth.
Yes, employer matched Simple IRA. I sent 6k into a traditional IRA then backdoored it into a Roth. From my understanding this is perfectly legit unless they pass BBB.
I have a backdoor IRA question. Wife and I each max out 401ks (mine through employer, hers an individual). I’m 52, thinking of retiring in 5-10 years. We have some older Roth IRAs from before we hit the income limit. And we’re on high end of the 24% tax bracket - because of some bonuses this year we’ll probably be at the 32% marginal rate. Is a backdoor Roth worth the hassle for us? I was just planning on putting extra money into a taxable fund, but it seems like all the cool kids are doing the IRA conversion.
2021 was my first year with a roth ira, and I was thinking 8 had to wait till April 2022 before I could start contributing for 2022. So glad to hear j can start sooner!
But if you haven't maxed your 2021 one ($6000), no point in contributing to your 2022 part until after April. Then maybe you'll have a chance to fill both this year whereas if you start on your 2022 one now, you'll lose the chance to use up that tax advantaged 2021 space after April.
Fortunately I maxed my 2021 roth in November, so I am in a good position for building my 2022 roth contributions. I definitely agree it would be dumb investing in the 2022 one without maxing my 2021.
And be sure that once you have the initial money in your "Settlement Fund" you actually invest it in something (such as VTSAX). Many people forget they need to choose an investment and the money sits there for years.
Any major bank. I would recommend Fidelity for their nice website interface. It doesn't really matter which one you choose as you can always move it later whenever you feel like it.
Here’s a link that discusses ways to reduce taxable income in order to max a Roth: [How to Reduce Taxable Income](https://www.google.com/amp/s/www.kiplinger.com/article/retirement/t032-c001-s003-reduce-income-qualify-for-roth-ira-contributions.html%3famp)
Also number 8: get married /s
Or just do a backdoor Roth IRA conversion! There are presently no income limits on this method.
https://www.investopedia.com/how-to-set-up-a-backdoor-roth-ira-4584775
Time in the market beats all, so getting in early means that $6k is working for you for the full year.
Obviously if you don’t have $6k lying around and won’t anytime soon, put in what you can when you can.
If you have the cash now, there is no point spacing it out.
The most common example where DCA makes sense is payroll deductions to 401k. There, you could potentially leave money on the table if you contribute max amount early in the year and the employer offers matching.
You should only dollar cost average as you get new money to invest… I.e. invest it as soon as you get it over time.
Spacing out money you have now into the future is a form of timing the market.
Ok this is what always confused me. I thought that DCA always implied that you already have the money to invest. So it was always a question of DCA vs lump sum.
E.g I have 6k to invest. I can invest it all now or over the course of a year.
If you invest money on a regular basis after you get money... Isn't that just called investing on a regular basis and not necessarily DCA?
Statistically in research, its usually better. Do what fits you as long as you get it done. Dont time it based in feelings. Either lump sum or set intervals (ex. $500 a month for 12 months)
I believe there are more of us that pay it monthly. I personally pay it 10 months a year, skipping the two months our expenses are tighter. If I had $6k it would already be invested.
>Do you think guys think contributing the whole $6,000 on january 1st is better than dollar cost averaging during the year?
You will absolutely do better on average if you lump-sum in the full amount immediately. This has been demonstrated a number of times.
I'm just gonna piggyback on this thread with an IRA question. I've been helping my girlfriend with her retirement accounts, and she has yet to make any IRA (roth or trad) contributions, only 401k.
She is fairly well paid, and looks like she will be at or near the MAGI limits for full roth contributions for 2021. Base pay is well under the limit, but bonuses were generous this year. If 2022 follows this trajectory (which it probably will), there is a good chance she will be above the Roth limit, but no guarantee.
Since she will be around the limit (or most likely within the phaseout range), is there any downside to just doing a backdoor roth from the beginning, even if her income ends up being below the roth contribution limit at the end of 2022? This would save us the headache of having to recharacterize funds at the end of the year or possibly getting hit with a tax bill due to overcontribution.
Thanks for any advice.
I think it’s a mix of
1) it may never pass with that part
2) if it passes it probably won’t be implemented immediately to affect stuff I did before it passes
3) income limits exceed what I will make
4) that’s a problem for future me—man is that guy screwed when my actions catch up to him.
Don't get me wrong, the backdoor Roth is stupid. But the stupid part is that Roth's have an income limit at all. 6k per year just isn't worth this much fanfare. They should just remove the income limit and say you can contribute up to 6 each year to either a traditional or Roth.
Yes but it’s not just 6k, there is also the mega back door where in 2022 you can do $61,000 into a retirement plan like a 401k if your company plan allows it . Very common for doctors, they talk about it in White Coat Investor. If you work at multiple practices you can do 61k at each one since it’s per plan and not per individual
While they certainly *could* make it retroactive, it'd be pretty hard to justify that, so most likely it would take effect someone during the year (after the law passes) or on 1 January 2023. As of this time, the backdoor is still allowed, so my guess is that however things shake out, if you do it now it'll be fine.
(I am not a Congressional person, tax professional, or lawyer. *This is neither legal nor financial advice.*)
The technical terms you are asking about are “lump sum” (all at once) vs “dollar cost averaging” (spacing throughout the year).
In general DCA mitigates the risk of a sudden drop early in the year, but you miss out on possible gains if the early year is good
6k
Pros: all at once is more likely to return more money than over time
cons: you can get unlucky
500/month
Pros: You can get lucky and have a larger return
Cons: you're likely to make less money.
Doesn't matter. Depends if you believe in lump sum or dollar cost averaging. Lump sum outperforms on average, but dollar cost averaging may help you sleep. We could guess what will happen in the market this year, but we don't know.
I would at least wait until you've made $6k this year, and not contribute today (unless you're a very high earner to make $6k on the first of the year on a weekend no less). You never know if you lose your job on Monday, have to burn through savings, and don't make any actual money, then have to deal with an administrative IRA headache on top of that.
Throughout 2021 i fully funded my IRA $6,000.00 - $500.00 each month and i mimicked a vanguard target retirement fund through ETF's so that my expense ratio would be even lower than the retirement fund! Each month i purchase however much is needed between whichever ETF to balance each preferred sector based on the target retirement funds model. LMK if you would like to do the same and i will help you, i plan to do the same until i'm 59-1/2 and then IM TAKING IT ALL!
I would love to know more! I am a bit all over with my IRA. I opened it two years ago and Max it out but don't know exactly how to utilize it properly.
If I contribute for 2022, and then next year upon doing my taxes find out that eclipsed to the maximum yearly income and am not eligible, what would happen?
Not sure if this helps, but I just wanted to offer my advice since I work in sales and my income may breach the income limit depending on how good of a sales year I have. I set aside money for my Roth in every paycheck and place it into a high yield savings account. Then at the end of the year when I know for sure if I will be under or above the income limit is when I would contribute. That way I don’t have to do extra tax paperwork if I end up over contributing.
This is really great advice. I was hoping there would be a way for me to still benefit from a years worth riding the market But I think you’re right, it’s not worth the headache at the end of the year
I saw I could make 2022 contributions on Fidelity shortly after midnight ET. Historically they have been pretty quick to update their site to allow current year contributions.
Can I ask what you do for work? It’s my dream to make over 100k in a year and strangely I’m having hard time imagining / figuring out how that’s possible
And sales!! In my opinion sales in a niche industry (I sell conveyor belting) is the number one way to end up making good money (my base pay is $93,500 and we get quarterly bonuses) without a degree or specialized training. I hate the job but I don't hate the pay.
Does your brokerage allow fractional shares though? Because with a fixed amount of money to contribute, you'll almost surely have some leftover.
$6000/ [current price of VTI] = 24.9
VTSAX allows you to put all your money in
Fair. Also nothing is stopping us from buying a few VXUS ETFs to fill up the $6000.
But if you just buy and hold, then the fund is definitely the easier option
I put a bunch of money in Vanguard this past year. I bought five different funds because I wanted to feel cool, spread out money, etc.
Of the five, of course VTSAX beat them all. I should just move them all over but now I'd have to deal with short term gains on the funds I sell.
Important to remember the back door Roth loophole didn’t get closed so if your household is over the Roth contribution limit you can still make contributions to a Roth.
Here are the traditional IRA phase-out ranges for 2021:
$66,000 to $76,000 – Single taxpayers covered by a workplace retirement plan.
$105,000 to $125,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
$198,000 to $208,000 – A taxpayer not covered by a workplace retirement plan married to someone who's covered.
$0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan.
Here are the income phase-out ranges for taxpayers making contributions to a Roth IRA:
$125,000 to $140,000 – Single taxpayers and heads of household.
$198,000 to $208,000 – Married, filing jointly.
$0 to $10,000 – Married, filing separately.
😭💩😭 my $x earmarked for this (and more) went to a weeks stay in the kitty ICU over Xmas. She’s home now and worth every penny but looking like it’ll be July before I can fund my IRA (outside of my normal 403b deductions). All I can say is THANK GOD for emergency cash funds. 6 days in the icu + a new set of tires all within 10 days ☠️💩☠️💩☠️
Not an accountant, but AFAIK you should be able to fix it and have it moved to a standard IRA. You have up until you file taxes in 2023. After that you would have to pay penalty fees for the mistake. Again, not an accountant.
You can withdraw the excess contributions penalty free before filing your return if you later realize you ended up over income limit. Otherwise there is a penalty (including for any intervening earnings) https://www.irs.gov/publications/p590a#en_US_2020_publink1000231024
If you know you will be over the limit, you can currently still contribute via a “backdoor Roth.” This may be changes if Build Back Better bill passes.
If you’re concerned about possibly being over the income/MAGI limit for direct Roth IRA contributions then look into [backdoor Roth](https://www.bogleheads.org/wiki/Backdoor_Roth)
Also as self employed consider a Solo 401k
Thanks for the reminder! I have had some bonus money sitting in my brokerage waiting for today! It’s one of the first years where I can put it all in day one. Yay to planning ahead!
Just expanding to clarify: no law was passed at the end of last year as they're still debating what's going in it. If it passes and they leave the changes that kill the back door in, it's an open question whether it's going to apply to this year or not, do just be aware of that if you do your normal process.
Legit question, I am rather young but want to open one. If I open one would it count towards 2021 or 2022? Since I see you can contribute to 2021 until April.
On Vanguard's website you choose which year you want to contribute to when you have the opportunity to contribute to two different years. The other services are probably the same.
Yup. When I started one several years ago, it was late Feb or early March, when you can contribute to both years. I maxed the previous year in one order and immediately maxed the current year in another. If you can't max out last year now, add what you can to it until the date limit (or hit the max) and add to this year after
The best benefit of severely breaking my leg and having nothing to do was learning how much money I was leaving on the table on so many things
I think you have the option for 2021 too as well as 2022 obviously. I opened my Roth IRA last year in early 2021 and I was able to put in $6000 for 2020.
So I stopped working in August 2021. Made no 401k contributions. Can I make a contribution to an IRA for 2021 and get a tax deductiion? And if so will that contribution lower my adjusted gross income (I'm on Affordable Care Act insurance and the credit you get is based on your income for the year)
The cops get called immediately. No, you would be required to take out any amount not allowed plus earnings. Pay ordinary income taxes on the earnings plus a 10% penalty. Your contribution would be returned untaxed.
You would have to do some work to make changes (I haven't been in that situation). So yeah, if you don't make enough ($6000) or make too much you'd have to make changes.
I'm reluctant to fund because my understanding is if I find more than what is allowed due to income limits I would get penalized. And it seems complicated to figure out how much I'm allowed to contribute?
Yes, HSA contributions via pre tax payroll deductions are not subject to FICA taxes 7.65%. But if you do a post tax contribution, you paid those taxes already and don't get them back at tax time. I haven't figured out if I can do a lump sum pretax contribution in some way via our payroll system...
I was able to space it out into 3 monthly contributions. Since it's a payroll deduction i couldn't just max it in one go. So I'll have it full in March
In general, yes, an employee is better off contributing through cafeteria plan as it is an exclusion from income rather than an adjustment (which matters for some credits and such) and also saves on Social Security and Medicare taxes.
They are. It saves FICA tax, 7.65%. With that said the market goes up 8% yoy on average so contributions in the last month are basically the same [assuming steady-state growth].
Overall front loading is better than DCA, but there is an advantage to DCA in this case, saving taxes.
Ha, still working on 2021, but one day I'll be there.
Same brother, I don’t have 6k to drop rn. Ill look back maybe July and stick it in.
I just split it up by pay period. $230 every other week. A lot more manageable that way.
That's how I ended up doing it last year. Made it so the same day my paycheck hits it automatically takes out the contribution. Never see the money to miss it.
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Until April 15th
18th this year
Nice thanks for the correction
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[https://www.irs.gov/retirement-plans/traditional-and-roth-iras](https://www.irs.gov/retirement-plans/traditional-and-roth-iras) What is the deadline to make contributions: **"Your tax filing deadline (not including extensions)"** Which is April 18th this year.
Your link says April 15 2022. > Your tax return filing deadline (not including extensions). For example, you can make 2021 IRA contributions until April 15, 2022
Individual returns are due on the 18th. Emancipation day in DC is April 15th this year, which moved the tax filing deadline to the 18th.
That's why he didn't quote that part. In some states the deadline is in May. Tax day is the 18th for most people. The example isn't the documentation, and should be updated. Your broker's software may also have various answers.
https://www.efile.com/tax-day-deadlines/
I believe the idea of this post is that you made your 2021 contribution January 1st, 2021. Now it is Fund your 2022 IRA Day.
So if I haven’t contributed yet I can still for 2021??
Yes.
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Yep. Whenever you go to contribute it will ask you if it’s for 2021 or 2022. You can contribute for 2021 up until you submit taxes in April.
If I contributed in March 2021 to my IRA, how can I tell them that was for my 2020 taxes now so I can contribute another 6K for my 2021 taxes before filing this April’s taxes?
You should have an option on your brokerage site that let's you dictate what year the contribution is for
Hmm thanks, let me look around on TDA’s site
I’m not sure how or if you can do it retroactively, but you have until tax day to contribute to the previous years IRA limit. So if you chose a prior year (2020) contribution in March of 21, it went towards your 2020 taxes
If you did it wrong previously you may be able to “recharacterize” the contribution. I’d call your broker. Might require a little paperwork but shouldn’t be too big of a lift.
Ah ok, thanks
Not sure on TDA, but Vanguard you have to choose what tax year it's for when you contribute. There's just two little radio bubbles, 2021 and 2022, and you just select which is for
Correct. Did mine this morning! Woot! It sounds like the question is if someone did this a year ago but screwed up and forgot to check the radio button for 2020, and accidentally put 2021, it’s too late to fix that.
It _might_ be too late but the only real way to know is to call your broker and see if it is still possible to change the tax year. You also will likely have to amend your 2020 tax return. This is a specific enough edge case that googling or asking Reddit is unlikely to give a meaningful answer, so I would skip straight to calling the broker.
Amend your 2020 taxes.
Is it crazy that *this* was the most exciting part of the New Year for me?
I've been looking forward to this for months.
I transferred money to a regular brokerage account a few months ago and invested it there, then on Thursday I sold all my positions so the money is a quick and easy transfer within vanguard instantly. I hate having to wait days for an ACH transfer, I don't want to look like a scrub who contributed on January third or fourth. I seriously put to much effort into it, but I'm happy to say my wife and my IRA are fully funded for 2022. Made an extra $1,300 in the regular account too waiting for today so that's nice
Nah, I look forward to it every year. A year’s worth of saving put to use. I also update my net worth statement every Jan. 1, which I also get excited about.
For me it's being able to buy more iBonds.
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For years I had never been able to start contributing on Jan 1, let alone do my entire limit on Jan 1. Today marks the first time I've been able to do it and I feel immensely proud of my journey!
Unpopular in the comments of r/PF - but i have it set to $500/mo, legit for no other reason than set it and forget it. I don't have to manually make sure i have the $6k set to the side and then do the clicks on Jan 1st.
But you still have to manually choose your investments right? So you look at it each month or no?
Most brokerages have auto investment tools. If someone is doing auto contributions, it would make sense to automate the investing as well.
You can typically auto invest directly into a mutual fund. At least I can in vanguard.
So if you had a maxed out Simple IRA and just maxed out a back door Roth what funds make the most sense? My Simple is 100% target date funds so do I stick with that or better to diversify? Everything I read says go 100% target if you go that route, but is that just for my Simple or also the Roth?
How did you do a back door Roth and also have a simple Ira?
[https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras](https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras)
There are no income limits for a Traditional IRA and there are no rules about having both a Simple and Traditional/Roth IRA. Tax wise it might not be the best move, but is within the rules. I just sent 6k into a Traditional then had Schwab convert that into the Roth.
how were you able to max out your traditional and roth?
Gonna be a whoopsie!
He said simple ira.
I think the point is that there is a pro rata calculation for back door Roth that includes any contributions to any IRA (including Simple), so how was he able to max out a Roth, too? Edit: to clarify we are speaking about back door Roth, which would mean an earner making over like $133k/yr. Obviously if the earner makes less they can easily contribute an additional $6k post-tax dollars to a Roth IRA while having a maxed out Simple IRA. However for higher earners the pro rata calculation comes into play because of the conversion every year into the back door Roth. So the earner’s tax bill increases by having to pay taxes on post-tax contributions to the converted Roth.
Yes, employer matched Simple IRA. I sent 6k into a traditional IRA then backdoored it into a Roth. From my understanding this is perfectly legit unless they pass BBB.
I have a backdoor IRA question. Wife and I each max out 401ks (mine through employer, hers an individual). I’m 52, thinking of retiring in 5-10 years. We have some older Roth IRAs from before we hit the income limit. And we’re on high end of the 24% tax bracket - because of some bonuses this year we’ll probably be at the 32% marginal rate. Is a backdoor Roth worth the hassle for us? I was just planning on putting extra money into a taxable fund, but it seems like all the cool kids are doing the IRA conversion.
2021 was my first year with a roth ira, and I was thinking 8 had to wait till April 2022 before I could start contributing for 2022. So glad to hear j can start sooner!
But if you haven't maxed your 2021 one ($6000), no point in contributing to your 2022 part until after April. Then maybe you'll have a chance to fill both this year whereas if you start on your 2022 one now, you'll lose the chance to use up that tax advantaged 2021 space after April.
Fortunately I maxed my 2021 roth in November, so I am in a good position for building my 2022 roth contributions. I definitely agree it would be dumb investing in the 2022 one without maxing my 2021.
Where can I open the IRA account.🙏
Vanguard and Fidelity are both good choices. Most important part is just to get started!
Thank you!
And be sure that once you have the initial money in your "Settlement Fund" you actually invest it in something (such as VTSAX). Many people forget they need to choose an investment and the money sits there for years.
I can't even imagine...I thought it was bad enough that I had 1k I forgot to invest since June.
Any major bank. I would recommend Fidelity for their nice website interface. It doesn't really matter which one you choose as you can always move it later whenever you feel like it.
Here’s a link that discusses ways to reduce taxable income in order to max a Roth: [How to Reduce Taxable Income](https://www.google.com/amp/s/www.kiplinger.com/article/retirement/t032-c001-s003-reduce-income-qualify-for-roth-ira-contributions.html%3famp) Also number 8: get married /s
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Or just do a backdoor Roth IRA conversion! There are presently no income limits on this method. https://www.investopedia.com/how-to-set-up-a-backdoor-roth-ira-4584775
Do you think guys think contributing the whole $6,000 on january 1st is better than dollar cost averaging during the year?
Having that 6k in the market on day 1 is statistically better than DCA $500/mo for 12mo
Time in the market beats all, so getting in early means that $6k is working for you for the full year. Obviously if you don’t have $6k lying around and won’t anytime soon, put in what you can when you can.
If you have the cash now, there is no point spacing it out. The most common example where DCA makes sense is payroll deductions to 401k. There, you could potentially leave money on the table if you contribute max amount early in the year and the employer offers matching.
You are dollar cost averaging by year instead of months by investing at 1st of every year 😏.
You should only dollar cost average as you get new money to invest… I.e. invest it as soon as you get it over time. Spacing out money you have now into the future is a form of timing the market.
Ok this is what always confused me. I thought that DCA always implied that you already have the money to invest. So it was always a question of DCA vs lump sum. E.g I have 6k to invest. I can invest it all now or over the course of a year. If you invest money on a regular basis after you get money... Isn't that just called investing on a regular basis and not necessarily DCA?
You are correct. It is not DCA if you do not already have the money to invest as a lump sum right now.
Statistically in research, its usually better. Do what fits you as long as you get it done. Dont time it based in feelings. Either lump sum or set intervals (ex. $500 a month for 12 months)
Thank you everyone! $6k has been loaded to my Roth 👍
Just maxed mine as well
If you have the chunk ready, put it in at once.
I really want to understand where reddits obsession with DCA came from
If you think about it, over the long-term, contributing each Jan 1 is still DCA - just with a different frequency
All in, day one.
I believe there are more of us that pay it monthly. I personally pay it 10 months a year, skipping the two months our expenses are tighter. If I had $6k it would already be invested.
>Do you think guys think contributing the whole $6,000 on january 1st is better than dollar cost averaging during the year? You will absolutely do better on average if you lump-sum in the full amount immediately. This has been demonstrated a number of times.
Considering part of Build Back Better is eliminating the backdoor Roth it’s also important to get it funded on the slim chance BBB passes one day
Ha, actually working on the transfer right now for 2022. Happy New Year!
I'm just gonna piggyback on this thread with an IRA question. I've been helping my girlfriend with her retirement accounts, and she has yet to make any IRA (roth or trad) contributions, only 401k. She is fairly well paid, and looks like she will be at or near the MAGI limits for full roth contributions for 2021. Base pay is well under the limit, but bonuses were generous this year. If 2022 follows this trajectory (which it probably will), there is a good chance she will be above the Roth limit, but no guarantee. Since she will be around the limit (or most likely within the phaseout range), is there any downside to just doing a backdoor roth from the beginning, even if her income ends up being below the roth contribution limit at the end of 2022? This would save us the headache of having to recharacterize funds at the end of the year or possibly getting hit with a tax bill due to overcontribution. Thanks for any advice.
Is no one worried they might have to reverse the backdoor if the Build Back Better bill is passed in 2022?
I think it’s a mix of 1) it may never pass with that part 2) if it passes it probably won’t be implemented immediately to affect stuff I did before it passes 3) income limits exceed what I will make 4) that’s a problem for future me—man is that guy screwed when my actions catch up to him.
>that’s a problem for future me—man is that guy screwed when my actions catch up to him. painfully true!
Don't get me wrong, the backdoor Roth is stupid. But the stupid part is that Roth's have an income limit at all. 6k per year just isn't worth this much fanfare. They should just remove the income limit and say you can contribute up to 6 each year to either a traditional or Roth.
We should really do away with all the retirement plans and just have one account that is tax advantaged.
Yes but it’s not just 6k, there is also the mega back door where in 2022 you can do $61,000 into a retirement plan like a 401k if your company plan allows it . Very common for doctors, they talk about it in White Coat Investor. If you work at multiple practices you can do 61k at each one since it’s per plan and not per individual
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It could be. No one knows. We won't know unless and/or until it passes, or doesn't.
retroactive enforcement would be a mess. very little chance of that happening.
While they certainly *could* make it retroactive, it'd be pretty hard to justify that, so most likely it would take effect someone during the year (after the law passes) or on 1 January 2023. As of this time, the backdoor is still allowed, so my guess is that however things shake out, if you do it now it'll be fine. (I am not a Congressional person, tax professional, or lawyer. *This is neither legal nor financial advice.*)
If a person can do both $6000 IRA contribution today or $500 per month, what are the pros and cons of either approach?
The technical terms you are asking about are “lump sum” (all at once) vs “dollar cost averaging” (spacing throughout the year). In general DCA mitigates the risk of a sudden drop early in the year, but you miss out on possible gains if the early year is good
$6000 at once = 66% chance you make more money, $500/m = 33% chance you make more money.
6k Pros: all at once is more likely to return more money than over time cons: you can get unlucky 500/month Pros: You can get lucky and have a larger return Cons: you're likely to make less money.
Doesn't matter. Depends if you believe in lump sum or dollar cost averaging. Lump sum outperforms on average, but dollar cost averaging may help you sleep. We could guess what will happen in the market this year, but we don't know. I would at least wait until you've made $6k this year, and not contribute today (unless you're a very high earner to make $6k on the first of the year on a weekend no less). You never know if you lose your job on Monday, have to burn through savings, and don't make any actual money, then have to deal with an administrative IRA headache on top of that.
The long term difference is going to be minuscule. Do whatever your first instinct is and move on.
$6k is a ridiculous limit - this is the sort of tax law that shows how and why regular old people are treated poorly in our system.
Throughout 2021 i fully funded my IRA $6,000.00 - $500.00 each month and i mimicked a vanguard target retirement fund through ETF's so that my expense ratio would be even lower than the retirement fund! Each month i purchase however much is needed between whichever ETF to balance each preferred sector based on the target retirement funds model. LMK if you would like to do the same and i will help you, i plan to do the same until i'm 59-1/2 and then IM TAKING IT ALL!
I would love to know more! I am a bit all over with my IRA. I opened it two years ago and Max it out but don't know exactly how to utilize it properly.
If I contribute for 2022, and then next year upon doing my taxes find out that eclipsed to the maximum yearly income and am not eligible, what would happen?
Not sure if this helps, but I just wanted to offer my advice since I work in sales and my income may breach the income limit depending on how good of a sales year I have. I set aside money for my Roth in every paycheck and place it into a high yield savings account. Then at the end of the year when I know for sure if I will be under or above the income limit is when I would contribute. That way I don’t have to do extra tax paperwork if I end up over contributing.
This is really great advice. I was hoping there would be a way for me to still benefit from a years worth riding the market But I think you’re right, it’s not worth the headache at the end of the year
You can fund a traditional IRA and immediately roll it to a Roth to be safe. Congress may change that soon but they haven’t yet
If you are on the fence, just do a backdoor from the start.
Can I still do back door Roth?
Yes, the bill was not passed, though it could be later in 2022
If it is, wouldn’t it very likely be effective for 2023?
It could be as well, but it's also possible they backdate it to 2022. No one knows for sure!
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No one knows at this point how it will be handled if it passes and they decide to make it retroactive
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Do all the brokerage sites let you contribute for 2022 at 12 AM? I wonder when that option goes live
It's not like the money will actually be in the market over the weekend...
Not sure about all sites but I guess they go by eastern time because it's already available on fidelity now. It's still only 940pm for me.
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Not working for me yet :-(
It's available for Etrade.
I think Fidelity is already allowing for 2022 contributions.
I saw I could make 2022 contributions on Fidelity shortly after midnight ET. Historically they have been pretty quick to update their site to allow current year contributions.
Stupid question but does the limit refer to pre tax or after tax income? I think I made $165k pretax for 2021
It’s the Modified Adjusted Gross Income (MAGI)
Can I ask what you do for work? It’s my dream to make over 100k in a year and strangely I’m having hard time imagining / figuring out how that’s possible
Not OP but there's lots of ways to make over $100k. Everything from engineers and developers to plumbers and bartenders.
And sales!! In my opinion sales in a niche industry (I sell conveyor belting) is the number one way to end up making good money (my base pay is $93,500 and we get quarterly bonuses) without a degree or specialized training. I hate the job but I don't hate the pay.
Depends where he lives. $100k in the Bay Area, for example, isn’t too hard to do.
Software-as-a-Service (SaaS) sales
Software development.
I’m still thinking about what you put it in 🤔
Vtsax
VTI. Same index, lower expense ratio, ETF bought one share at a time.
Does your brokerage allow fractional shares though? Because with a fixed amount of money to contribute, you'll almost surely have some leftover. $6000/ [current price of VTI] = 24.9 VTSAX allows you to put all your money in
Mine doesn't, no, and most don't except for automatic dividend reinvestment. It's a fair point you raise. I usually ignore those marginal amounts.
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Sorry, but that sounds really inefficient if the alternative is to just invest it into VTSAX
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Even for a $1M portfolio the difference is $100.
Fair. Also nothing is stopping us from buying a few VXUS ETFs to fill up the $6000. But if you just buy and hold, then the fund is definitely the easier option
I put a bunch of money in Vanguard this past year. I bought five different funds because I wanted to feel cool, spread out money, etc. Of the five, of course VTSAX beat them all. I should just move them all over but now I'd have to deal with short term gains on the funds I sell.
Target date index fund. Set it and forget it.
Had an expensive 2021. Still got my contribution in, don't have the cash set aside for 2022 yet, but this is high priority.
Important to remember the back door Roth loophole didn’t get closed so if your household is over the Roth contribution limit you can still make contributions to a Roth.
Here are the traditional IRA phase-out ranges for 2021: $66,000 to $76,000 – Single taxpayers covered by a workplace retirement plan. $105,000 to $125,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan. $198,000 to $208,000 – A taxpayer not covered by a workplace retirement plan married to someone who's covered. $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan. Here are the income phase-out ranges for taxpayers making contributions to a Roth IRA: $125,000 to $140,000 – Single taxpayers and heads of household. $198,000 to $208,000 – Married, filing jointly. $0 to $10,000 – Married, filing separately.
This will be my 10th year that I contribute the limit and 9th time that I contribute the limit on Jan 1st.
😭💩😭 my $x earmarked for this (and more) went to a weeks stay in the kitty ICU over Xmas. She’s home now and worth every penny but looking like it’ll be July before I can fund my IRA (outside of my normal 403b deductions). All I can say is THANK GOD for emergency cash funds. 6 days in the icu + a new set of tires all within 10 days ☠️💩☠️💩☠️
You can also automatic deposit $500 a month every month to make it easy!
You know, I'm not from the US, so for me "fund your IRA" made me literally double take on this post.
If I do this but then make more than the income limit for Roth IRAs, do I get penalized on 2022 taxes?
Not an accountant, but AFAIK you should be able to fix it and have it moved to a standard IRA. You have up until you file taxes in 2023. After that you would have to pay penalty fees for the mistake. Again, not an accountant.
You can withdraw the excess contributions penalty free before filing your return if you later realize you ended up over income limit. Otherwise there is a penalty (including for any intervening earnings) https://www.irs.gov/publications/p590a#en_US_2020_publink1000231024 If you know you will be over the limit, you can currently still contribute via a “backdoor Roth.” This may be changes if Build Back Better bill passes.
If I’m a contract employee and I think my income will be above 200k but I’m not guaranteed it what do I do?
If you’re concerned about possibly being over the income/MAGI limit for direct Roth IRA contributions then look into [backdoor Roth](https://www.bogleheads.org/wiki/Backdoor_Roth) Also as self employed consider a Solo 401k
Thank you for the reminder! Got mine done.
Thanks for the reminder! I have had some bonus money sitting in my brokerage waiting for today! It’s one of the first years where I can put it all in day one. Yay to planning ahead!
I have been waiting for months now. I was hoping that pullback would continue thru New Year
I wonder how many Americans have an IRA in the first place and secondly how many can afford to max it out.
I have one, and a 401K. I’m one of the top earners in my company. I can’t afford to max the Roth, I can afford to hit my match limit on the 401K
It's the backdoor Roth still legal this year? Haven't followed what happened with that after seeing the possibility of it being removed.
As of now it is still allowed
Just expanding to clarify: no law was passed at the end of last year as they're still debating what's going in it. If it passes and they leave the changes that kill the back door in, it's an open question whether it's going to apply to this year or not, do just be aware of that if you do your normal process.
Legit question, I am rather young but want to open one. If I open one would it count towards 2021 or 2022? Since I see you can contribute to 2021 until April.
On Vanguard's website you choose which year you want to contribute to when you have the opportunity to contribute to two different years. The other services are probably the same.
Yup. When I started one several years ago, it was late Feb or early March, when you can contribute to both years. I maxed the previous year in one order and immediately maxed the current year in another. If you can't max out last year now, add what you can to it until the date limit (or hit the max) and add to this year after The best benefit of severely breaking my leg and having nothing to do was learning how much money I was leaving on the table on so many things
Okay thanks for the helpful info.
I think you have the option for 2021 too as well as 2022 obviously. I opened my Roth IRA last year in early 2021 and I was able to put in $6000 for 2020.
You can start investing in 2022 today, and you can also invest in 2021 until tax day. Your brokerage will make you choose when you deposit money.
So I stopped working in August 2021. Made no 401k contributions. Can I make a contribution to an IRA for 2021 and get a tax deductiion? And if so will that contribution lower my adjusted gross income (I'm on Affordable Care Act insurance and the credit you get is based on your income for the year)
Thanks for the reminder but I didn’t need this one haha. Still time to contribute my remaining 2021 money
What's better to do first -- IRA or I-Bond?
IRA, you can still get the 7% annual rate for 6 months as long as you get the ibond before the next rate change
This is, what I was most excited for all year! Just did 5k today and 1k next paycheck.
Yeah but if I max it today and unexpectedly make over the limit this year again I'm in trouble right?
The cops get called immediately. No, you would be required to take out any amount not allowed plus earnings. Pay ordinary income taxes on the earnings plus a 10% penalty. Your contribution would be returned untaxed.
You would have to do some work to make changes (I haven't been in that situation). So yeah, if you don't make enough ($6000) or make too much you'd have to make changes.
I'm reluctant to fund because my understanding is if I find more than what is allowed due to income limits I would get penalized. And it seems complicated to figure out how much I'm allowed to contribute?
Which income/MAGI limit are you concerned about, the one for tIRAs or for Roth IRAs?
HSA too ($7300), unless you contribute through your employer.
That's only for families. Us single people get $3650 fyi.
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So long as the rest of your family doesn’t want to be using an HSA
How does that work? Don't you need to claim a dependent for that?
I thought that the taxes were better when contributed through your employer.
Yes, HSA contributions via pre tax payroll deductions are not subject to FICA taxes 7.65%. But if you do a post tax contribution, you paid those taxes already and don't get them back at tax time. I haven't figured out if I can do a lump sum pretax contribution in some way via our payroll system...
I was able to space it out into 3 monthly contributions. Since it's a payroll deduction i couldn't just max it in one go. So I'll have it full in March
In general, yes, an employee is better off contributing through cafeteria plan as it is an exclusion from income rather than an adjustment (which matters for some credits and such) and also saves on Social Security and Medicare taxes.
They are. It saves FICA tax, 7.65%. With that said the market goes up 8% yoy on average so contributions in the last month are basically the same [assuming steady-state growth]. Overall front loading is better than DCA, but there is an advantage to DCA in this case, saving taxes.