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Should I withdraw from my taxable account to fund my Roth IRA?
08-02-2021, 06:12 PM
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#1
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
Posts: 905
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Should I withdraw from my taxable account to fund my Roth IRA?
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?
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08-02-2021, 06:49 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,443
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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.
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FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
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08-02-2021, 07:07 PM
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#3
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Administrator
Join Date: Apr 2006
Posts: 20,067
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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.
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Living an analog life in the Digital Age.
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08-02-2021, 07:26 PM
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#4
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
Posts: 905
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Quote:
Originally Posted by 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.
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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?
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08-02-2021, 07:28 PM
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#5
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by 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.
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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?
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08-02-2021, 07:37 PM
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#6
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Administrator
Join Date: Apr 2006
Posts: 20,067
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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.
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Living an analog life in the Digital Age.
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08-03-2021, 03:28 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,443
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Quote:
Originally Posted by F.I.R.E User
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?
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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.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
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08-03-2021, 04:07 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 8,560
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Quote:
Originally Posted by 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?
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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.
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08-03-2021, 04:51 AM
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#9
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gone traveling
Join Date: Apr 2021
Posts: 74
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Quote:
Originally Posted by 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?
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How much of the $11,794 is capital gain?
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08-03-2021, 06:02 AM
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#10
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Full time employment: Posting here.
Join Date: Oct 2020
Posts: 623
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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.
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08-03-2021, 10:50 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Reading, MA
Posts: 1,049
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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?
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08-04-2021, 11:12 AM
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#12
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
Posts: 905
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Quote:
Originally Posted by RetireBy90
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.
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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?
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08-04-2021, 11:14 AM
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#13
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by target2019
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.
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W-2 income.
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08-04-2021, 11:15 AM
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#14
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by 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.
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I started a Vanguard account in September 2020 with VTSAX in it.
Wait 1 year to get the long term cap gains rate?
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08-04-2021, 11:17 AM
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#15
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by 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?
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I could do that. I have contributed $5.5k for 2021 Roth IRA so far.
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08-04-2021, 11:51 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,443
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Quote:
Originally Posted by F.I.R.E User
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?
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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
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
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08-04-2021, 12:22 PM
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#17
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by RetireBy90
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
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I will get to $6k max for 2021 by next week.
Which cash account? That’s a EF.
Salary is $60k. 22% tax bracket.
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08-04-2021, 01:04 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,443
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Quote:
Originally Posted by F.I.R.E User
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.
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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.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
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08-04-2021, 01:40 PM
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#19
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Full time employment: Posting here.
Join Date: Aug 2019
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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.
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08-04-2021, 03:31 PM
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#20
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Full time employment: Posting here.
Join Date: Oct 2020
Location: Sugar Land, Texas
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Quote:
Originally Posted by RetireBy90
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.
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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.
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