We are a 2-income household; married couple; late-30s; 1 toddler with a new baby on the way. For the past few years, we've been rolling along with an AGI in the $150K range, give or take, dutifully maxing out two 401(k)s, a family HSA, a DCFSA, and two Roth IRAs annually. But we're starting to get closer and closer to the Roth income limit, which means it's time for me to evolve our strategy.
For 2021, I'm estimating we'll have an AGI of about $187K (that's after accounting for filling up our 401ks, HSA, and DCFSA). Phase-out for Roth IRA eligibility will start at $198K for 2021. So we've got about $11K of safe space for unplanned income expansion if my current expectations hold.
I can't think of anything likely that will bump us up by $11K, but I can think of a few very unlikely but not impossible scenarios: (1) my estimate for 2021 includes 2 months of unpaid paternity leave for DH; his company could have a change of heart and decide to pay him, which could have an impact of up to $16K; (2) my assumed 2% raise for DH in early 2021 could be off -- he could get a mega-raise and bork the numbers; (3) I could get a promotion or change employers in mid/late 2021, either of which would likely be a $10K+ impact. Again, these are all quite unlikely -- but they are plausible.
Starting in 2022, we're likely to be comfortably over the limit (DH won't have unpaid paternity leave in 2022; I plan to aggressively pursue a job change in early 2022; etc.) -- so we're headed to new territory no matter what, with this interstitial year coming our way first.
So my question is: if you were me, would you go ahead and fill the Roths in 2021 and cross our fingers that we don't have meaningful unplanned income (Mustachian People Problem for sure), or would you proactively start a backdoor strategy? Or something else?
Other notes:
1) An obvious option would be to wait until Jan/Feb 2022 to fill our 2021 IRA space, when we know for sure what our income was. The problem here is that we're having kid #2 this spring, which means that in the fall we become a 2-daycare-bill family. And we're in a big city, meaning that when this starts, we'll be paying over $4K/month for full-time care for an infant and a toddler. In other words, we're going to take a big hit to our ability to invest aggressively for ~2 years until the older kid ages into public school. Current cashflow available to invest out of our take-home pay is ~3K/month, so it takes us about 4 months to fill two IRAs (which we typically do early in the year); once double-daycare hits, we'll only have ~1K/month for such investing, meaning it'll take us all dang year to fill up those IRAs. We won't have the cashflow to fill two IRAs in the first few months of 2022 (but meanwhile, we'll have plenty of cashflow in the first half of 2021).
2) Both DH and I have existing Traditional IRAs from previous rollovers. I've confirmed that I can roll mine into my 401k and will get that process started in any case; we will check on DH's next week, as I don't know what his plan does or does not allow.
3) We are ~10 years from FI based on my current estimates -- making steady progress but nowhere near the finish line.