For some who have been following, you will remember that I did a Roth conversion of $100K at the end of 2018, and it screwed me up a bit. It basically pushed me into a tax bracket where I could not do our annual contribution of $7K each to our Roth IRA. So I managed to switch $100K to Roth, but lost out on the ability to put the normal $14K into it. Sad face, and a kick on me for not knowing what I was doing, here.
Fast forward to the end of 2019,, and I’m studiously looking at the income levels of Mrs. 39 Months and myself, and it looks like we’ll be about $45K under the limit for contributing to our Roth 401K for 2019. So today, I took the opportunity to shift $40K in my Vanguard IRA to my Vanguard Roth IRA. Note that this is a taxable event. Going from an IRA that I contributed in pre-tax and moving it to Roth, where it is supposedly post-tax and non-taxable in the future means having to pay the government their taxes.
Luckily I have other money set aside to pay the taxes on this item. If I didn’t, then I’d have to take out more from the IRA to pay the taxes, and potentially pay a penalty on that money being withdrawn before I hit 59-1/2. It’s a real accounting nightmare, so better to pay the taxes from another account (like a savings account) rather than going through the hassle.
So now we currently have more in our Roth IRAs than in our normal IRAs. The 401Ks we have continue to grow, but both of these are Roth 401Ks, so in essence we should continue to enhance our future tax-free investments.
Its kinda sad that retirement is such a complicated numbers game, but for those of us in the FIRE community, its part of the fun – finding new ways to squirrel away more money and better prepare for the good life.
Mr. 39 Months