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Where to keep money for future backdoor Roth contributions?

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  • jhenry jhenry 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 14
    Joined: 03/26/2019
    Earnest refinancing bonus

    100% disagree with @jhenry. Impo, investing money you will need within the next 5 years is a huge no-no. You might as well take it to Vegas – at least, you’ll get free drinks.

    Over the long term, you can expect to earn 8% to 12% on equities invested in an appropriately diversified and rebalanced portfolio (annually is my preference) on average, but no way can you predict returns in the short term.

    You cannot make an “in-kind” contribution to a Roth IRA (transferring the investments to the Roth). You would have to liquidate and invest the cash. For one year of potential earnings on $5,500, it would be ill-advised to take the risk. Again, impo.

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    Hi jfoxcpacfp, I understand that investment horizon is everything due to large 1 year standard deviation (20% +/-). I was only trying to say 1 year wasn’t the way to look at the investment horizon if liquidated and reinvest cash.   For the reason you said (“For one year of potential earnings on $5,500, it would be ill-advised to take the risk. Again, impo.”), I too would not advise the strategy. In other words, I agree with your advice @jfoxcpacfp.

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    With all due respect, I think it might be helpful to work on your communications skills:

    I was saying whatever intentions (ie allocations) he has for the Roth (yes, it should be growth assets preferably), it would be ok to put money he plans to invest in that Roth in 1 year or less into a taxable account in similar growth securities which would be sold in the taxable acct, then repurchased in the Roth being careful to avoid wash sales.

    This strategy entails extra work and would have tax implications but an extra year of market exposure would have benefits.

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    WTH?

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    I will try to be clearer going forward. Apologies.

    Joshua Henry, Meridian Financial Advisory ~ [email protected]
    https://www.meridianfinancialadvisory.com/

    #206197 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3341
    Joined: 09/18/2018

    @johanna,
    Safeguarding asset has many pitfalls. From a purely philosophical standpoint, if on retires and will have a withdrawal strategy, does your comment imply that 5 years of planned withdrawals needs to be in extremely low risk assets? Or are you referring to assets outside of a retirement portfolio? If you need them before 5 years, the market isn’t the place to keep them. I know your approach is not the “traditional” equity/bond approach.

    #206210 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3341
    Joined: 09/18/2018

    Apologies for all the misspelled words.
    Done and submit is habitual.

    #206211 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8366
    Joined: 01/09/2016

    Clients keep a 2-yr buffer in cash that isn’t touched unless the market heads south and we need to turn off the liquidation faucet.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #206213 Reply

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