Author Topic: Contributing to IRA in lump sum January vs paying monthly  (Read 894 times)

zoochadookdook

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Contributing to IRA in lump sum January vs paying monthly
« on: October 23, 2018, 05:11:41 PM »
Hey all. I'm 26. Have always contributed to my Roth monthly 458 or so. From a time basis of growth I got to thinking the other day wouldn't it make more sense to contribute a lump the beginning of the year for optimal time of growth or would that be offset by the variation in month to month market value (potentially a bigger gamble if market is high jan vs rest of year).

I'm considering marking the rest of my 2018 1100 contrib right now as the market has obviously taken a hit and that's what's piqued my interest.

Thanks

zach

seattlecyclone

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #1 on: October 23, 2018, 05:14:29 PM »
Since the market usually goes up, you're usually better off investing as much as possible as soon as possible. Certainly in a few individual years that won't be the case, but if you make a habit of doing this throughout your investing lifetime you'll come out ahead, pretty much guaranteed.

ScreamingHeadGuy

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #2 on: October 23, 2018, 05:42:37 PM »
If you always plan to contribute in January you are, essentially, dollar cost averaging.  Itís just that you are doing so once per year instead of 12 times per year.

As many people say, the best time to invest is now.  Since you canít time the market just dump cash at the earliest opportunity.

Telecaster

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #3 on: October 23, 2018, 06:15:07 PM »
Hey all. I'm 26. Have always contributed to my Roth monthly 458 or so. From a time basis of growth I got to thinking the other day wouldn't it make more sense to contribute a lump the beginning of the year for optimal time of growth or would that be offset by the variation in month to month market value (potentially a bigger gamble if market is high jan vs rest of year).

I'm considering marking the rest of my 2018 1100 contrib right now as the market has obviously taken a hit and that's what's piqued my interest.

Thanks

zach

The best time to invest is every time you have available funds. 

kenmoremmm

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #4 on: October 23, 2018, 07:42:45 PM »
i am curious if there is correlation of people doing lump sum purchases in january (for their IRA/roth) and stock market performance. like, is jan 1 a better performance day than other january days b/c so many people drop in their $5500 for the year?

Steeze

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #5 on: October 23, 2018, 09:04:00 PM »
i am curious if there is correlation of people doing lump sum purchases in january (for their IRA/roth) and stock market performance. like, is jan 1 a better performance day than other january days b/c so many people drop in their $5500 for the year?

If this is the case then people will make that trade the last day in December to take advantage.
And if that is the case, people will make a trade the day before that to take advantage.
and so on and so on until there is no advantage -

The theory being that if Jan 1st is a day with extra volume (buying / selling) then its already priced in.

It goes both ways though... if you think 2019 is the year the market tanks, then Jan 1st is the best day to sell shares. So some people may use that day for profit taking.

Radagast

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #6 on: October 23, 2018, 09:08:20 PM »
Hey all. I'm 26. Have always contributed to my Roth monthly 458 or so. From a time basis of growth I got to thinking the other day wouldn't it make more sense to contribute a lump the beginning of the year for optimal time of growth or would that be offset by the variation in month to month market value (potentially a bigger gamble if market is high jan vs rest of year).

I'm considering marking the rest of my 2018 1100 contrib right now as the market has obviously taken a hit and that's what's piqued my interest.

Thanks

zach
Only if you could do the entire thing from cash flow. If you spend 12 months building a pile of cash to invest in January, then that is 12 months of lost compounding.

kenmoremmm

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #7 on: October 23, 2018, 09:46:21 PM »
i just toggled the dow volume map (https://www.marketwatch.com/investing/index/djia/charts) to a chart range of ALL. why is there dramatically lower volume during obama's terms in office?

Indexer

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #8 on: October 24, 2018, 09:50:14 AM »
I prefer 12 automatic investments. The reason is simplicity. I have my 401k and HSA set to max over the course of the year, so it's easier to just have the Roth IRA work the same way. Then each month I take any extra and throw it into VTI & VXUS in my taxable account. Since everything else is set to auto max over the course of the year I know any extra each month should go to taxable. It keeps it simple.

In addition, if I did it all in January that would mean letting my taxable money market build up(instead of investing right away) in preparation for the contribution in January.

ericbonabike

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #9 on: October 31, 2018, 12:28:30 PM »
If you're anywhere near the phase out limit for income for either Roth or Traditional (depending on which one you want to invest in and what your income is), I would recommend waiting until you've gotten your taxes for that year already squared away.  last year, I was investing in roth automatically via payroll deduction, but in January-February, realized my MAGI was too high for 100% roth, so had to do a recharacterization.  Wasn't difficult, but was just a pain in the butt.

this year, not putting anything into roth until I know MAGI will be low enough. 

FIPharm

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #10 on: November 02, 2018, 05:41:32 PM »
I prefer 12 automatic investments. The reason is simplicity. I have my 401k and HSA set to max over the course of the year, so it's easier to just have the Roth IRA work the same way. Then each month I take any extra and throw it into VTI & VXUS in my taxable account. Since everything else is set to auto max over the course of the year I know any extra each month should go to taxable. It keeps it simple.

In addition, if I did it all in January that would mean letting my taxable money market build up(instead of investing right away) in preparation for the contribution in January.

I did the same but I found out you can still perform the Backdoor Roth in January if you are expecting your MAGI to be higher then the contribution/phase out limit. There's no penalty in performing the Backdoor Roth if you are below the phase-out limit/contribution limit. Just an extra step and paperwork.

« Last Edit: November 02, 2018, 05:44:23 PM by FIPharm »

Classical_Liberal

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Re: Contributing to IRA in lump sum January vs paying monthly
« Reply #11 on: November 03, 2018, 02:32:16 AM »
For your reading pleasure....Legit research on the subject of DCA vs lump sum based on CAPE.  You decide.