Simple Roth Question

[DJRR]

Last year I opened a Roth at Fidelity to get a free $150. I have another Roth at another institution that is more than 5 years old and I just turned 59.

I also have my emergency fund at Fidelity in a brokerage account. I was thinking that it is a no brainer to move money from my emergency fund to my Roth - $7,500 now and $7,500 in January. The money sits in SPAXX, so that gives me tax free interest, but I can immediately transfer money between accounts if I have a true emergency and need the money. Can't afford to fund the Roth from other sources, so think this is a reasonable solution. Tax free interest now, plus the ability to invest later if I come into more funds.

Am I missing anything? Does anyone have experience with Fidelity moving money from Roth to brokerage? I am assuming it is seamless, but if there is an issue I would like to hear it.

 

[mpeirce]

Am I missing anything?

The only downside I see is that if an emergency comes up and the money comes out of the ROTH it can't go back in. So you lose the long term tax-free growth. Not terrible if it's a real emergency.

I usually keep plenty of cash in taxable for short term needs, but I also keep a bit of "cash" in the ROTH knowing it's accessible if need be.

 

[Sunset]

Do you have earned income of $7,500 (in this case) from a job to qualify to contribute to a Roth ?

If you do, then you can contribute any money you have lying around to the Roth.

 

[Texas Proud]

Not in Fidelity, but I move money from ROTH to my checking account all the time... no problems at all... just like any other transfer...

 

[qwerty3656]

I'm at Fidelity. I make immediate transfers from Roth to regular brokerage account w/o issue

 

[COcheesehead]

SPAXX is not tax free. You owe Federal. As stated above, you must earn $7500 in ordinary income to contribute to a Roth.

 

[teej1985]

SPAXX is not tax free. You owe Federal. As stated above, you must earn $7500 in ordinary income to contribute to a Roth.

SPAXX is tax free inside the Roth account, like everything else.

 

[COcheesehead]

SPAXX is tax free inside the Roth account, like everything else.

Read again…
The way the post is written, SPAXX is the source of the emergency funds inside a taxable account so it is taxable at a Federal level.

 

[DJRR]

Read again…
The way the post is written, SPAXX is the source of the emergency funds inside a taxable account so it is taxable at a Federal level.

Yes, that is the advantage I am looking for. Instead of paying tax on emergency fund interest I will probably not need I can earn tax free interest in the Roth. Just wanted to make sure I still have access to the money if something really bad happened. I do have earned income.

Thanks to all for confirming.

 

[CRLLS]

From what I understand, SPAXX is taxable both federally and by states. We use SPAXX in our taxable accounts and FDRXX in both our tIRA and Roth accounts.

 

[Texas Proud]

SPAXX is not tax free. You owe Federal. As stated above, you must earn $7500 in ordinary income to contribute to a Roth.

Not really... you can earn less but have to contribute less... IOW, you can contribute up to $7500 of earned income...

 

[COcheesehead]

Not really... you can earn less but have to contribute less... IOW, you can contribute up to $7500 of earned income...

Yes, you said it better than I did.

 

[dknighd]

Am I missing anything?

One thing you might be missing is your spouse's (if you have one) access to money. It is tempting to keep all emergency funds in Roth earning tax free interest. But all those funds are in my name only. With Spouse as beneficiary.

But what if you die first. Keeping money in a joint savings account gives them time to arrange access to your retirement accounts. I'm not sure how long that takes - I figure 1 (or more) month to grieve, 1 month to start thinking about it, 1 month to actually do it. So I keep 6 months of expenses in a joint savings account. That should give them enough time. As we both get older I might increase that to 12 months


Edit: Unless I'm mistaken, there is no such thing as a joint Roth account.

 

[dknighd]

If we had been smart, we would both have Roth accounts. But it is too late for that.


Edit: it might not be too late for you.

 

[Sunset]

A married couple can have 2 Roth's, even if only 1 works. But there is no such thing as a joint Roth.

A single earner earning $15,000 a year can fund both Roth's with $7,500 (over age 50) to each.
The actual cash going into each Roth can come from anywhere.

https://www.investopedia.com/what-is-a-spousal-roth-ira-4770888

 

[dknighd]

A married couple can have 2 Roth's, even if only 1 works. But there is no such thing as a joint Roth.

A single earner earning $15,000 a year can fund both Roth's with $7,500 (over age 50) to each.
The actual cash going into each Roth can come from anywhere.

https://www.investopedia.com/what-is-a-spousal-roth-ira-4770888

That might have been our biggest mistake. We should have our own Roth accounts.

 

[Sunset]

That might have been our biggest mistake. We should have our own Roth accounts.

If you are past the age of earnings, you can still each have (open) a Roth account, and do conversions into them.

If the IRA is in 1 name only, then if the custodian of the IRA won't send it to a different named owner on the Roth account, it can still be done.
Get a check/cash from IRA and do the deposit yourself to the Roth limited to once every 365+ days.

 

[dknighd]

I do not think it is possible. Can you actually give your IRA to some body else ?

 

[Morgan22]

I do not think it is possible. Can you actually give your IRA to some body else ?

I think you are right. It's not possible to convert/roll-over or move funds from and Individual Retirement Account to another person's Roth. Even if they are your spouse.

Does your spouse have an IRA? If so open up a Roth for them and start doing conversions from their IRA to their new Roth. Of course watch out for ACA subsidies or additional taxes as needed.

 

[braumeister]

I think many people tend to forget that it's not technically a "Roth account" but rather a "Roth IRA account". And the I in IRA is for Individual.

 

[pb4uski]

If you are past the age of earnings, you can still each have (open) a Roth account, and do conversions into them.

If the IRA is in 1 name only, then if the custodian of the IRA won't send it to a different named owner on the Roth account, it can still be done.
Get a check/cash from IRA and do the deposit yourself to the Roth limited to once every 365+ days.

I do not think it is possible. Can you actually give your IRA to some body else ?

I think you are right. It's not possible to convert/roll-over or move funds from and Individual Retirement Account to another person's Roth. Even if they are your spouse.

Does your spouse have an IRA? If so open up a Roth for them and start doing conversions from their IRA to their new Roth. Of course watch out for ACA subsidies or additional taxes as needed.

+1 with dknighd and Morgan22. It is an Individual Retirement Account. You can't move money from his tIRA to her Roth IRA and treat it as a rollover contribution. It would be a withdrawal from his tIRA and a mistaken contribution to her Roth IRA.

Sorry for the bad news Sunset... I hope you were hypothesizing and not describing what you have been doing for a while.

 

[CP Soon]

Roth IRA space is precious and very valuable for the tax-free growth and withdrawals @ 59.5 years. While perfectly legal, access to Roth contributions is a big NO-NO. Roth is not a piggy bank and should not used as such. Once a contribution is removed it cannot be returned. Assuming 8% return, $7000 removed from Roth today results in $48K lost opportunity 25 years later. $14,000 removed is $96K lost opportunity. Don't do it!!

 

[jollystomper]

If you are past the age of earnings, you can still each have (open) a Roth account, and do conversions into them.

This is what we did. We were not eligible to make Roth IRA contributions while we both worked. The first calendar year after retired I opened Roth IRAs for both of us. While DW still had some part time earnings for a couple of years that allowed us to fund some of the monies directly, the bulk of their contents are conversions from our tIRAs.

 

[pb4uski]

Roth IRA space is precious and very valuable for the tax-free growth and withdrawals @ 59.5 years. While perfectly legal, access to Roth contributions is a big NO-NO. Roth is not a piggy bank and should not used as such. Once a contribution is removed it cannot be returned. Assuming 8% return, $7000 removed from Roth today results in $48K lost opportunity 25 years later. $14,000 removed is $96K lost opportunity. Don't do it!!

I generally agree, but there may be one exception. We did it for a while and may do it again once out current taxable account funds are exhausted.

We do annual Roth conversions to the top of the 12% tax bracket (usually a big bunch early in the year and another one in November or December once we have a better view of our tax situation for the year).

Once we don't have any taxable left for supporting spending, we would still optimize the Roth conversion but pull from the Roth for spending. So let's say that I convert $60k and withdraw $20k for spending. The $20k is no different than a somewht circuitous tIRA withdrawal and the $40k is pure Roth conversion.

 

[Sunset]

I do not think it is possible. Can you actually give your IRA to some body else ?

I think you are right. It's not possible to convert/roll-over or move funds from and Individual Retirement Account to another person's Roth. Even if they are your spouse.

Does your spouse have an IRA? If so open up a Roth for them and start doing conversions from their IRA to their new Roth. Of course watch out for ACA subsidies or additional taxes as needed.

I think many people tend to forget that it's not technically a "Roth account" but rather a "Roth IRA account". And the I in IRA is for Individual.

+1 with dknighd and Morgan22. It is an Individual Retirement Account. You can't move money from his tIRA to her Roth IRA and treat it as a rollover contribution. It would be a withdrawal from his tIRA and a mistaken contribution to her Roth IRA.

Sorry for the bad news Sunset... I hope you were hypothesizing and not describing what you have been doing for a while.

Awk... I was thinking out loud, and obviously WRONG.

I had not done this, as then I would know it cannot end well.

I would be happy if I could strike through my earlier comment but I cannot edit it. Hopefully anyone reading this in the future doesn't stop reading at my comment and miss all the smart folks that commented after me