Simple roth question

[Kings over Queens]

I fund a Roth 401k through work to capture the corporate 3% match and I'm thinking of opening separate accounts for me and my wife. I currently contribute $6,500.

I could increase contributions from pay, but figure, I've got $25,000 sitting in my stock market account sitting SWVXX. Since I've already paid tax on that money, it's the same as net pay, right?

If I move $15,000 new his and her roth IRA's, the earnings are tax free, as opposed to taxable if I leave it in the stock market account. As far as liquidity, we don't need the money right away, but if I did, I can get the contribution back, just not the earnings. We're 56 so I'd have to wait 5 years to avoid penalty if I wanted the earnings. It's almost like locking in a cd.

Seems like an easy decision, yes?

 

[SecondCor521]

I could increase contributions from pay, but figure, I've got $25,000 sitting in my stock market account sitting SWVXX. Since I've already paid tax on that money, it's the same as net pay, right?

Yes and no.

Yes in the sense that it's after tax money, so it buys the same amount of groceries whether you use your net pay or if you use some SWVXX.

No in the sense that you must have sufficient W-2 income in the current year order to be eligible to make contributions to your and/or your spouse's Roth IRA.

Also, your income must be below certain limits to contribute directly to the Roth IRA. If it is above that limit, then you could consider a backdoor Roth IRA contribution.

If I move $15,000 new his and her roth IRA's, the earnings are tax free, as opposed to taxable if I leave it in the stock market account. As far as liquidity, we don't need the money right away, but if I did, I can get the contribution back, just not the earnings. We're 56 so I'd have to wait 5 years to avoid penalty if I wanted the earnings. It's almost like locking in a cd.

If this is the first Roth IRA for both of you, that sounds right.

If either of you have had a Roth IRA in the past, you might be able to access the entire account (contributions or earnings) the day you each turn 59.5.

But yes, the overall idea of moving that money from taxable to Roth does avoid taxation for the next several years on the dividend/interest income from your money market fund. Downsides are you have to be eligible to make the contribution in the first place, and a bit of loss of flexibility.

 

[Kings over Queens]

Yes and no.
No in the sense that you must have sufficient W-2 income in the current year order to be eligible to make contributions to your and/or your spouse's Roth IRA.

Also, your income must be below certain limits to contribute directly to the Roth IRA. If it is above that limit, then you could consider a backdoor Roth IRA contribution.

W2 income will be $125,000 plus some capital gains, and the possibility of a bonus. I don't expect to exceed 200k, leaving us below the threshold. Next year could be a different story.

Appreciate the response.

 

[Kings over Queens]

Deed is done.

$7,500 of SWPPX for her, and 20 more shares of QQQ for me, with the hundred left over in SWVXX.