Should I withdraw from my taxable account to fund my Roth IRA?

[F.I.R.E User]

I have a taxable Vanguard account with VTSAX. Balance is $11,794.

Is it a good idea to sell $6k come 2022 and fully fund my Roth IRA (FZROX) then?

 

[RetireBy90]

I don’t see any reason not to. I wonder if you have sufficient emergency funds with $11K. I know that isn’t your question but it is first thing to come to my mind. Anyway, even if it is, I believe you can take contributions from a Roth without penalty so the funds would still be available for an emergency.

 

[Gumby]

Don't forget that you can open a Roth at Vanguard as well. Especially if you think VTSAX is a good investment, you can just transfer the money from one Vanguard account to the other. Easy peasy lemon squeezy.

 

[F.I.R.E User]

I don’t see any reason not to. I wonder if you have sufficient emergency funds with $11K. I know that isn’t your question but it is first thing to come to my mind. Anyway, even if it is, I believe you can take contributions from a Roth without penalty so the funds would still be available for an emergency.

I’ve always kept $3k in EF. If I sell VTSAX shares in my taxable account at Vanguard then I will trigger a tax event. Would it still be worth it?

 

[F.I.R.E User]

Don't forget that you can open a Roth at Vanguard as well. Especially if you think VTSAX is a good investment, you can just transfer the money from one Vanguard account to the other. Easy peasy lemon squeezy.

I have my t401k, ESPP and Roth IRA at Fidelity so is it a good idea to leave Vanguard, sell all my VTSAX shares and buy FZROX lumpsum at Fidelity?

 

[Gumby]

I have no opinion about the relative merits of VTSAX versus FZROX. I'm merely pointing out the possibility that you can leave that money with Vanguard if you wish.

 

[RetireBy90]

I’ve always kept $3k in EF. If I sell VTSAX shares in my taxable account at Vanguard then I will trigger a tax event. Would it still be worth it?

I have had a much larger EF, 3-6 months of expenses but that wasn't the question.

The tax due would add some complexity. You can compare your tax rate today on this sale with your expected rate later, but paying tax now on the profit will relieve the bill in future years when most likely your gain will be more. I would pay the tax now.

 

[target2019]

I have a taxable Vanguard account with VTSAX. Balance is $11,794.

Is it a good idea to sell $6k come 2022 and fully fund my Roth IRA (FZROX) then?

If you have W-2 income you can fund a Roth IRA.
Your idea is good since you'll eliminate the account and simplify record keeping.

 

[beernutzbob]

I have a taxable Vanguard account with VTSAX. Balance is $11,794.

Is it a good idea to sell $6k come 2022 and fully fund my Roth IRA (FZROX) then?

How much of the $11,794 is capital gain?

 

[Exchme]

If I recall from previous posts, I think you just started this a few months ago, so the gains are not large, but will be taxed as regular income until next summer when they age to 1 year old.

By the way, if the goal is to move to Fidelity, you know you can hold Vanguard ETFs anywhere? Not sure about the mutual fund version, but certainly you convert the Vanguard mutual fund to the equivalent ETF and then transfer it to Fidelity, all without any taxes.

 

[TheWizard]

Question: since one must have earned income to contribute to a Roth IRA, why doesn't the OP just contribute $500/month (on average) from his paycheck/checking account to the Roth IRA going forward?
What am I missing?

 

[F.I.R.E User]

I have had a much larger EF, 3-6 months of expenses but that wasn't the question.

The tax due would add some complexity. You can compare your tax rate today on this sale with your expected rate later, but paying tax now on the profit will relieve the bill in future years when most likely your gain will be more. I would pay the tax now.

So withdraw $6k at once come 2022 and fund Roth IRA at $6k lumpsum on 1/1/22?

Withdraw $6k in December 2021 or January 2022?

 

[F.I.R.E User]

If you have W-2 income you can fund a Roth IRA.
Your idea is good since you'll eliminate the account and simplify record keeping.

W-2 income.

 

[F.I.R.E User]

If I recall from previous posts, I think you just started this a few months ago, so the gains are not large, but will be taxed as regular income until next summer when they age to 1 year old.

By the way, if the goal is to move to Fidelity, you know you can hold Vanguard ETFs anywhere? Not sure about the mutual fund version, but certainly you convert the Vanguard mutual fund to the equivalent ETF and then transfer it to Fidelity, all without any taxes.

I started a Vanguard account in September 2020 with VTSAX in it.

Wait 1 year to get the long term cap gains rate?

 

[F.I.R.E User]

Question: since one must have earned income to contribute to a Roth IRA, why doesn't the OP just contribute $500/month (on average) from his paycheck/checking account to the Roth IRA going forward?
What am I missing?

I could do that. I have contributed $5.5k for 2021 Roth IRA so far.

 

[RetireBy90]

So withdraw $6k at once come 2022 and fund Roth IRA at $6k lumpsum on 1/1/22?

Withdraw $6k in December 2021 or January 2022?

So reading the following posts, you have contributed $5.5K so I would continue this rather than moving to the Roth as it would keep ME in a habit of regular contributions.

If you were to make say 10% on your cash account next year, moving $6K to the Roth would save taxes on the 10% gain or $600 less income to pay taxes on. At 22% rate that is only $132 extra tax. I'm not into throwing away money but not sufficient to make me change an otherwise sound action. Even if you wait till you have held for a year for long term cap gain rates I don't think it would be significant.

If you are bothered by extra couple hundred in taxes, you could do the one time transfer of $6K at the 1 year mark but keep the funds you have been contributing to the Roth going to your cash account and plan to contribute each year on 1 Jan. That would allow the habit incentive to assist and still get tax free gains for max time.


I would suggest focus on getting the full contribution to your Roth each year as main goal. IMHO

 

[F.I.R.E User]

So reading the following posts, you have contributed $5.5K so I would continue this rather than moving to the Roth as it would keep ME in a habit of regular contributions.

If you were to make say 10% on your cash account next year, moving $6K to the Roth would save taxes on the 10% gain or $600 less income to pay taxes on. At 22% rate that is only $132 extra tax. I'm not into throwing away money but not sufficient to make me change an otherwise sound action. Even if you wait till you have held for a year for long term cap gain rates I don't think it would be significant.

If you are bothered by extra couple hundred in taxes, you could do the one time transfer of $6K at the 1 year mark but keep the funds you have been contributing to the Roth going to your cash account and plan to contribute each year on 1 Jan. That would allow the habit incentive to assist and still get tax free gains for max time.


I would suggest focus on getting the full contribution to your Roth each year as main goal. IMHO

I will get to $6k max for 2021 by next week.

Which cash account? That’s a EF.

Salary is $60k. 22% tax bracket.

 

[RetireBy90]

I will get to $6k max for 2021 by next week.

Which cash account? That’s a EF.

I was thinking of your after tax Vanguard account.


Salary is $60k. 22% tax bracket.
So you can run the numbers, if you had 50% profit in the fund, still $1,500 gain at 22% would cost $330 in taxes. If you pass the 1yr mark for long term cap gains in Jan or Feb, FOR ME I would wait but not untill next spring.

Just to be clear, any gain from investing in Jan over March, Aug or November is market timing. If you did $500/Month you would dollar cost average your $6K. This would be my suggestion and what I did when doing the accumulation. One the one hand, I want to advise you not to overthink this, just easiest way for you to get your $6K into the Roth each year. On the other hand, you are wise to consider effect of different methods. Balance is my mantra.

 

[SnowballCamper]

I concur to keep the $500/month going into the Roth IRA because it makes a good habit and gives you dollar cost averaging by default. The only thing to do before this, is to get the company match for any 401k options. But don't close the regular brokerage because you can get to that money penalty free, and in this case at least get past the year holding time to get long term capital gains tax rate.

 

[F.I.R.E User]

Just to be clear, any gain from investing in Jan over March, Aug or November is market timing. If you did $500/Month you would dollar cost average your $6K. This would be my suggestion and what I did when doing the accumulation. One the one hand, I want to advise you not to overthink this, just easiest way for you to get your $6K into the Roth each year. On the other hand, you are wise to consider effect of different methods. Balance is my mantra.

I never time the market. I get to $6k anyways and contribute when I have the funds. Now, I can get disciplined and contribute $500 a month. My salary is not fixed every bi weekly check as I also earn commissions and quarterly bonus.

 

[F.I.R.E User]

I concur to keep the $500/month going into the Roth IRA because it makes a good habit and gives you dollar cost averaging by default. The only thing to do before this, is to get the company match for any 401k options. But don't close the regular brokerage because you can get to that money penalty free, and in this case at least get past the year holding time to get long term capital gains tax rate.

I am already maxing t401k to $19.5k plus the 6% full match and that is $3,600.

 

[RetireBy90]

Sounds like you have info you need and are on the right track.
Good luck

 

[F.I.R.E User]

Should I do the $500 monthly Roth IRA 2022 and not withdraw from my Vanguard VTSAX taxable account?

 

[RetireBy90]

Should I do the $500 monthly Roth IRA 2022 and not withdraw from my Vanguard VTSAX taxable account?

This is what I would do, but I don’t see much difference between monthly or one time contribution. If you do the one time, I would recommend you do a $500 monthly deposit to VTSAX to have funds ready for 2023.

 

[F.I.R.E User]

This is what I would do, but I don’t see much difference between monthly or one time contribution. If you do the one time, I would recommend you do a $500 monthly deposit to VTSAX to have funds ready for 2023.

I can do a one time $6k but that means I will have to withdraw from my taxable account.

VTSAX is a taxable account at Vanguard.
FZROX is a Roth IRA at Fidelity.