Author Topic: IRA: better to max out with lump or monthly payments?  (Read 10013 times)

kamille

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IRA: better to max out with lump or monthly payments?
« on: December 09, 2015, 12:37:48 PM »
I have a Roth IRA that I would like to max out for 2016 ($5,500) and will probably invest it in a Vanguard ETF. Is it best to put all the money in at once after the New Year or time the market better with smaller monthly payments?

matchewed

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Re: IRA: better to max out with lump or monthly payments?
« Reply #1 on: December 09, 2015, 12:38:46 PM »
Lump sum usually beats DCA.

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #2 on: December 09, 2015, 12:40:15 PM »
What about now with a volatile market?

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #3 on: December 09, 2015, 12:40:54 PM »
As matchewed says, Lump sum beats DCA.

Because the market generally goes up over time, the earlier you get the dollars in, the better your investment will do, on average.

Timing the market is a fools errand.

matchewed

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Re: IRA: better to max out with lump or monthly payments?
« Reply #4 on: December 09, 2015, 12:41:00 PM »

matchewed

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Re: IRA: better to max out with lump or monthly payments?
« Reply #5 on: December 09, 2015, 12:41:51 PM »
Also the same advice I give everyone. Craft an Investment Policy Statement http://www.bogleheads.org/wiki/Investment_policy_statement

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #6 on: December 09, 2015, 12:46:42 PM »
I thought lump was better and I will go ahead and do that. My financial adviser gave me this today though and it just made me second think about it:
https://www.blackrock.com/investing/financial-professionals/advisor-center/conversation-starters/strategies-for-volatile-markets

matchewed

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Re: IRA: better to max out with lump or monthly payments?
« Reply #7 on: December 09, 2015, 12:48:04 PM »
Oh yeah another piece of advice that I usually give. Don't use financial advisors. If you do pick one that is fee only rather than percent of assets. Investing isn't hard for most people no reason to use one IMO.

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #8 on: December 09, 2015, 12:53:02 PM »
Thanks for the advice matchewed. It was a free meeting from my bank since I was opening another account and the subject came up after he was asking what my financial goals were. That's why I was asking the opinion on this forum. Thanks for the responses.

MrMoogle

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Re: IRA: better to max out with lump or monthly payments?
« Reply #9 on: December 09, 2015, 12:53:49 PM »
Invest as soon as you get the money.  I'm on the borderline between being able to deduct a tIRA, so I'm waiting until next year to do this year's IRA, but I put my extras into a taxable account.

You need to take everything into account.  If you have a 401k match, make sure you're getting that, and don't stop contributing so you can fill up your Roth bucket.  Same with an HSA or FSA if you might use it this year. 

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #10 on: December 09, 2015, 01:02:37 PM »
I max out my 401k too. The 401k is a little at a time with my biweekly paychecks set at a percentage. The Roth IRA is with my bank.

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #11 on: December 09, 2015, 01:13:05 PM »
"Dollar Cost Averaging" is one the most misused terms out there.  An example illustrating a true dollar-cost-averaging decision:

I have $12K in cash right now.  Do I invest $12K today, or do I invest $1K per month for 12 months?  As everyone on this thread has pointed out, you're likely to do better by investing $12K today.

However, when you are sitting talking to a financial advisor, "Dollar Cost Averaging" is a marketing technique.  You don't have $12K today, or maybe you do but you are reluctant to invest.  The advisor's job is to get you to invest with him so he can earn a commission.  You probably could commit to $1K / month for 12 months, so the advisor starts telling you about how "if the market goes down, you'll buy more shares and have a lower cost basis."  Not strictly a lie, but the goal here is not to get you to invest in the best way to make money for you.  It is to get you to invest something with that advisor so that he gets his money.

So many people have been sold this way that the statement "DCA = regular periodic investing" is just taken as fact.  And even extended to DCA is better than lump sum, even when I really do have a choice.

/end rant

Eric

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Re: IRA: better to max out with lump or monthly payments?
« Reply #12 on: December 09, 2015, 01:32:46 PM »
As with most subjects, the Mad Fientist has done the math for you:

http://www.madfientist.com/front-loading/

frugaliknowit

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Re: IRA: better to max out with lump or monthly payments?
« Reply #13 on: December 09, 2015, 01:37:30 PM »
Jan 1, load her up.  Some years you might feel stupid, but over the long haul, it's a winner.

Eric

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Re: IRA: better to max out with lump or monthly payments?
« Reply #14 on: December 09, 2015, 01:52:11 PM »
Thanks for the advice matchewed. It was a free meeting from my bank since I was opening another account and the subject came up after he was asking what my financial goals were. That's why I was asking the opinion on this forum. Thanks for the responses.

Financial adviser is a very generous title for someone offering free advice at your bank.  Salesperson is probably more accurate.  Tread cautiously.


What about now with a volatile market?

Isn't the market always volatile?

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #15 on: December 09, 2015, 03:39:50 PM »
Maybe financial adviser was the wrong term, but I felt like the free meeting was more about financial advice. I wasn't pressured to buy anything and he also gave me self-directing as a choice. Sometimes the stock market is more volatile than other times. I also don't see how advising DCA over investing a lump sum would profit them?

JZinCO

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Re: IRA: better to max out with lump or monthly payments?
« Reply #16 on: December 09, 2015, 03:51:02 PM »
I'll give one more reason to front load.
You'll never have to think about your IRA for 365 days. Setting up a regular, automatic deposit can help, but I can't 'mentally' remove it from my list of priorities because it's still a recurring line item on my monthly cash flow.

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #17 on: December 09, 2015, 03:52:37 PM »
Maybe financial adviser was the wrong term, but I felt like the free meeting was more about financial advice. I wasn't pressured to buy anything and he also gave me self-directing as a choice. Sometimes the stock market is more volatile than other times. I also don't see how advising DCA over investing a lump sum would profit them?
Anything that helps to convince you to invest with them rather than through a competitor or on your own profits them.  Convincing you to put $500 in today is easier than $5500.  DCA also encourages you to put your contributions on auto-pilot.  That can lead to bigger commissions down the road, if you "set-it and forget it", you might do this for the next 10 years without really considering the costs or looking for an alternative.

Out of curiosity, which funds did the advisor recommend?

ShoulderThingThatGoesUp

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Re: IRA: better to max out with lump or monthly payments?
« Reply #18 on: December 09, 2015, 03:54:29 PM »
Do you mean 2016 or 2015?

BarkyardBQ

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Re: IRA: better to max out with lump or monthly payments?
« Reply #19 on: December 09, 2015, 04:03:28 PM »
Started this FIRE train last year... could only do Roth last year (funded late December) and fully funded Traditional's on January 2.

Lot's of words saying the same thing, here are some numbers...

Taxable   -4.07% (yea... this, cause we bought 10k VTIAX on May 1)
her 457b   -0.30%
his 457b   -0.04%
her 403b   -0.38%
his 403b   0.21%
his T-IRA   1.89%
her T-IRA   1.90%
his R-IRA   2.48%
her R-IRA   2.43%
HSA   0.52%

75%US/25%INTL

All non-IRA contributions were spread out over 12 months or as they became available. Next year we are front loading differed accounts by October and IRA's on January 4. I cannot control market returns, savings rate is pretty fixed, but I can try and get more dividends/distributions earlier in the year.
« Last Edit: December 09, 2015, 04:16:05 PM by BackyarBQ »

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #20 on: December 09, 2015, 04:08:05 PM »
The IRA is for 2016 since I already maxed it out for 2015. The "financial adviser/salesperson" didn't recommend any particular funds, just what they had available if I wanted other options, including self-directing. The advice was pretty generic and included diversifying and a chart about international stocks since I asked about it. I only need $50 for the account and already have my Roth IRA with them. I just took advantage of a free meeting and looking for where to invest my savings after maxing my retirement accounts.

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #21 on: December 09, 2015, 04:25:26 PM »
Just be careful - they're getting paid some how.  Even in the self-directed account, there has to be a way to compensate the advisor.  Nobody works for free.

If you want to set up an IRA and invest in a Vanguard ETF, just contact Vanguard.  You can buy Vanguard ETFs at Vanguard.com commission-free.

johnny847

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Re: IRA: better to max out with lump or monthly payments?
« Reply #22 on: December 09, 2015, 05:01:26 PM »
Invest as soon as you get the money.  I'm on the borderline between being able to deduct a tIRA, so I'm waiting until next year to do this year's IRA, but I put my extras into a taxable account.

You need to take everything into account.  If you have a 401k match, make sure you're getting that, and don't stop contributing so you can fill up your Roth bucket.  Same with an HSA or FSA if you might use it this year.

I too am borderline, but my border is the 15/25% tax brackets (and I think traditional is worth it for my situation for money taxed at 25% but not 15%).

But there's an easy solution. You can recharacterize a traditional contribution to a Roth contribution (and vice versa) by October 15th of the following year (but it's much easier to do the recharacterizion by April 15th before you file your taxes). By doing a recharacterizion it's as if the original contribution never occurred and your new one is the one that originally happened.
You can recharacterize a portion of your contribution if you like.

I'd link the bogleheads page on this but I'm on mobile. Google bogleheads IRA recharacterizion and you'll get all the details.

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #23 on: December 09, 2015, 05:16:55 PM »
Invest as soon as you get the money.  I'm on the borderline between being able to deduct a tIRA, so I'm waiting until next year to do this year's IRA, but I put my extras into a taxable account.

You need to take everything into account.  If you have a 401k match, make sure you're getting that, and don't stop contributing so you can fill up your Roth bucket.  Same with an HSA or FSA if you might use it this year.

I too am borderline, but my border is the 15/25% tax brackets (and I think traditional is worth it for my situation for money taxed at 25% but not 15%).

But there's an easy solution. You can recharacterize a traditional contribution to a Roth contribution (and vice versa) by October 15th of the following year (but it's much easier to do the recharacterizion by April 15th before you file your taxes). By doing a recharacterizion it's as if the original contribution never occurred and your new one is the one that originally happened.
You can recharacterize a portion of your contribution if you like.

I'd link the bogleheads page on this but I'm on mobile. Google bogleheads IRA recharacterizion and you'll get all the details.
I'll add that at least at Vanguard, this is ridiculously easy too.  Call em up, click a few boxes on the website, its done in 5 minutes.

MrMoogle

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Re: IRA: better to max out with lump or monthly payments?
« Reply #24 on: December 10, 2015, 07:16:01 AM »
Invest as soon as you get the money.  I'm on the borderline between being able to deduct a tIRA, so I'm waiting until next year to do this year's IRA, but I put my extras into a taxable account.

You need to take everything into account.  If you have a 401k match, make sure you're getting that, and don't stop contributing so you can fill up your Roth bucket.  Same with an HSA or FSA if you might use it this year.

I too am borderline, but my border is the 15/25% tax brackets (and I think traditional is worth it for my situation for money taxed at 25% but not 15%).

But there's an easy solution. You can recharacterize a traditional contribution to a Roth contribution (and vice versa) by October 15th of the following year (but it's much easier to do the recharacterizion by April 15th before you file your taxes). By doing a recharacterizion it's as if the original contribution never occurred and your new one is the one that originally happened.
You can recharacterize a portion of your contribution if you like.

I'd link the bogleheads page on this but I'm on mobile. Google bogleheads IRA recharacterizion and you'll get all the details.
I'll add that at least at Vanguard, this is ridiculously easy too.  Call em up, click a few boxes on the website, its done in 5 minutes.
Thanks for the advice :)

Davids

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Re: IRA: better to max out with lump or monthly payments?
« Reply #25 on: December 10, 2015, 08:30:47 AM »
There is a valid argument for dollar cost averaging and say just putting in 5500/12 each month. Whether you put in all $5500 on January 2nd or spread it out over the course of the year the fact you are maxing it out is what counts.

celticmyst08

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Re: IRA: better to max out with lump or monthly payments?
« Reply #26 on: December 10, 2015, 12:20:36 PM »
I say if you are able to max out your tax-advantaged accounts at the beginning of the year, go for it (although remember that some employers may not match your 401k contribution if you aren't contributing anything). We definitely won't have $11k in time to max out our IRAs early next year, so we just do ~$917/month. And we most definitely do not have $18k to max out my 401k early on either. ;)

teen persuasion

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Re: IRA: better to max out with lump or monthly payments?
« Reply #27 on: December 10, 2015, 08:29:40 PM »
Just be careful - they're getting paid some how.  Even in the self-directed account, there has to be a way to compensate the advisor.  Nobody works for free.

If you want to set up an IRA and invest in a Vanguard ETF, just contact Vanguard.  You can buy Vanguard ETFs at Vanguard.com commission-free.

+1

Don't use a bank for investing.  No need to add  that extra layer - just open your IRA at Vanguard and buy directly.

JLee

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Re: IRA: better to max out with lump or monthly payments?
« Reply #28 on: December 10, 2015, 08:59:11 PM »
There is a valid argument for dollar cost averaging and say just putting in 5500/12 each month. Whether you put in all $5500 on January 2nd or spread it out over the course of the year the fact you are maxing it out is what counts.

True, but given an overall average investment return I'd just as soon dump it all in on Jan 1. Personally, anyway. :)

tj

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Re: IRA: better to max out with lump or monthly payments?
« Reply #29 on: December 10, 2015, 09:02:55 PM »
I always lump the IRA in January. I partially use year-end dividends from my taxable account to fund this.

Axecleaver

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Re: IRA: better to max out with lump or monthly payments?
« Reply #30 on: December 11, 2015, 08:49:32 AM »
Lump sum almost always beats DCA. The link you posted is a fictional graph to demonstrate a (rare) scenario where DCA beats lump sum. That only happens when markets are high during the lump sum purchase, experience a dip of 40% or more in the middle of the span where more shares are bought, AND it comes back to near the original levels or higher. That almost never happens.

There was a really compelling back-test thread on DCA over in the investment forums. Someone asked whether it made sense to hold cash until the market dropped 5, 10, or 20%, or if it was better to just dump it in as soon as the cash was available. The backtest showed that (surprisingly) lump sum won in every case going back the last 5 years. That's as far back as they tested, but even in the really big crashes, I think DCA wins in all but the very highest points in the market.

kamille

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Re: IRA: better to max out with lump or monthly payments?
« Reply #31 on: December 11, 2015, 09:07:33 AM »
Thanks Axe. I wasn't sold on the lack of information from the graph either, I just didn't know if there was a valid argument there. I also like the convenience of investing in my IRA just once a year.

robartsd

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Re: IRA: better to max out with lump or monthly payments?
« Reply #32 on: December 11, 2015, 09:21:15 AM »
If there is no per transaction costs to you, you might DCA with daily purchases over a week or two. You'd have a good chance of getting the current average price without risking a lot of time out of the market.

pk_aeryn

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Re: IRA: better to max out with lump or monthly payments?
« Reply #33 on: December 12, 2015, 01:01:36 PM »
Quote
That only happens when markets are high during the lump sum purchase, experience a dip of 40% or more in the middle of the span where more shares are bought, AND it comes back to near the original levels or higher. That almost never happens.


So I realize this is anecdotal, but guess who discovered MMM and Vanguard total stock index right before the crash this year and dumped in 20k in cash that had been in my Roth IRA that I had been too scared to invest before?

*heavy sigh*

tj

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Re: IRA: better to max out with lump or monthly payments?
« Reply #34 on: December 12, 2015, 01:14:25 PM »
Quote
That only happens when markets are high during the lump sum purchase, experience a dip of 40% or more in the middle of the span where more shares are bought, AND it comes back to near the original levels or higher. That almost never happens.


So I realize this is anecdotal, but guess who discovered MMM and Vanguard total stock index right before the crash this year and dumped in 20k in cash that had been in my Roth IRA that I had been too scared to invest before?

*heavy sigh*

What crash this year? The Vanguard Total Stock Index is flat this year. That is not a crash. A Crash would be if your $20k is now worth $10k.

BTW, if you can't handle the short term volatility of your $20k becoming worth $10k, you may prefer a balanced fund such as Vanguard Balanced Index or Vanguard LifeStrategy Moderate Growth...
« Last Edit: December 12, 2015, 01:49:19 PM by tj »

pk_aeryn

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Re: IRA: better to max out with lump or monthly payments?
« Reply #35 on: December 13, 2015, 11:46:25 PM »
I mean that I bought at the highest price and it still hasn't recovered. I realize long term I'll be fine, it's just a (perhaps irrational) voice saying that if I had only put in 1k to start, then I would have bought the rest at a much better price.  I know this is rare, just looking for a "yeah that was bad luck that sucks" commiseration.

madamwitty

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Re: IRA: better to max out with lump or monthly payments?
« Reply #36 on: December 14, 2015, 11:47:21 AM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

johnny847

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Re: IRA: better to max out with lump or monthly payments?
« Reply #37 on: December 14, 2015, 04:12:45 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!

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trailperson

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Re: IRA: better to max out with lump or monthly payments?
« Reply #39 on: December 14, 2015, 06:41:25 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!
I was planning on emptying my taxable Vanguard account which has ~$5300 in it and putting it into my Roth in January. Both hold VTSMX and are down. I had seen the phrase tax loss harvesting but didn't know what it meant and never heard of a wash sale so after reading your post I just looked both of those things up. So is this a thing that is only ok to do if I sell off the shares in the taxable account and then wait 30 days before putting it into the Roth?

tj

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Re: IRA: better to max out with lump or monthly payments?
« Reply #40 on: December 14, 2015, 07:09:34 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!
I was planning on emptying my taxable Vanguard account which has ~$5300 in it and putting it into my Roth in January. Both hold VTSMX and are down. I had seen the phrase tax loss harvesting but didn't know what it meant and never heard of a wash sale so after reading your post I just looked both of those things up. So is this a thing that is only ok to do if I sell off the shares in the taxable account and then wait 30 days before putting it into the Roth?

Do you want to be out of the market that long? You could buy the 500 index fund instead in your IRA. It's not a wash sale if you buy a similar-but-different fund.

madamwitty

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Re: IRA: better to max out with lump or monthly payments?
« Reply #41 on: December 14, 2015, 08:11:56 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!

Thanks, I am aware of the wash sale rules; I've already turned off auto dividend reinvestment and plan to get into a different fund.

As to why not TLH this year; I guess for simplicity. I am already at the edge of my comfort zone planning to claim a loss, I don't want to be out of the market for even a day and I also don't want it to be more than one sell/buy transaction. Call it laziness, but I don't think it saves me enough in taxes to be worth worrying about it any more than I already am.

johnny847

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Re: IRA: better to max out with lump or monthly payments?
« Reply #42 on: December 14, 2015, 08:13:21 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!
I was planning on emptying my taxable Vanguard account which has ~$5300 in it and putting it into my Roth in January. Both hold VTSMX and are down. I had seen the phrase tax loss harvesting but didn't know what it meant and never heard of a wash sale so after reading your post I just looked both of those things up. So is this a thing that is only ok to do if I sell off the shares in the taxable account and then wait 30 days before putting it into the Roth?

Do you want to be out of the market that long? You could buy the 500 index fund instead in your IRA. It's not a wash sale if you buy a similar-but-different fund.

What tj said.

To add on to that, the S&P 500 index is a good but not complete (pun intentional) approximation of the total US market. To this end, you can buy Vanguard's Extended Market fund or ETF (VXF). This uses a completion index that when held in 1:4 ratio with the S&P 500 fund, essentially reflect the same holdings as VTSMX.

You'll probably want the ETF since we're talking about $5300 here.


Now what triggers a wash sale is buying a "substantially identical" 30 days before or after the date of the sale. The IRS nor Congress has never clarified what substantially identical actually means, but most people believe that two funds, or two sets of funds, that individually track different indices are not substantially identical.

Tjat

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Re: IRA: better to max out with lump or monthly payments?
« Reply #43 on: December 15, 2015, 06:50:03 AM »
You're not touching this money for quite some time right? If so, I don't see the benefit of DCA. The salesperson probably wants you to buy monthly so they get to recoup trading commissions every month. If you make 1 trade up front, they don't get  that.


trailperson

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Re: IRA: better to max out with lump or monthly payments?
« Reply #44 on: December 15, 2015, 05:01:53 PM »
Yeah, that was bad luck.

My taxable account is currently down too. Come January, I am going to push $11k of that into my/DH's IRAs (while stocks are on sale, so I get more shares into the IRA) and do some tax loss harvesting while I'm at it. I hope the market stays down!

Any reason you're TLHing next year instead of this year?

And just make sure you're not incurring wash sales by buying in the IRAs while TLHing in the taxable. A purchase in an IRA that is substantially identical to securities sold in a taxable incurs a wash sale.
Furthermore, because the securities that caused the wash is in an IRA, the disallowed loss is disallowed forever!
I was planning on emptying my taxable Vanguard account which has ~$5300 in it and putting it into my Roth in January. Both hold VTSMX and are down. I had seen the phrase tax loss harvesting but didn't know what it meant and never heard of a wash sale so after reading your post I just looked both of those things up. So is this a thing that is only ok to do if I sell off the shares in the taxable account and then wait 30 days before putting it into the Roth?

Do you want to be out of the market that long? You could buy the 500 index fund instead in your IRA. It's not a wash sale if you buy a similar-but-different fund.

What tj said.

To add on to that, the S&P 500 index is a good but not complete (pun intentional) approximation of the total US market. To this end, you can buy Vanguard's Extended Market fund or ETF (VXF). This uses a completion index that when held in 1:4 ratio with the S&P 500 fund, essentially reflect the same holdings as VTSMX.

You'll probably want the ETF since we're talking about $5300 here.


Now what triggers a wash sale is buying a "substantially identical" 30 days before or after the date of the sale. The IRS nor Congress has never clarified what substantially identical actually means, but most people believe that two funds, or two sets of funds, that individually track different indices are not substantially identical.

Ok thanks tj and johnny. I have a better understanding now.

slugline

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Re: IRA: better to max out with lump or monthly payments?
« Reply #45 on: December 16, 2015, 03:00:55 PM »
Since I'm subscribed to the idea of "time in the market" and not "timing the market" I've been maxing out the IRA in January. However . . . if someone is consistently investing lump sums each January, doesn't this start resembling DCA when repeated over the course of decades?

johnny847

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Re: IRA: better to max out with lump or monthly payments?
« Reply #46 on: December 16, 2015, 03:04:15 PM »
Since I'm subscribed to the idea of "time in the market" and not "timing the market" I've been maxing out the IRA in January. However . . . if someone is consistently investing lump sums each January, doesn't this start resembling DCA when repeated over the course of decades?

No because the DCA vs lump sum argument is only relevant when you have a lump sum that you could invest in its entirety right away.

There is a limit to how much you can put into an IRA each year.

dandarc

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Re: IRA: better to max out with lump or monthly payments?
« Reply #47 on: December 16, 2015, 03:08:29 PM »
Having a choice is critical - if you don't have a real choice, you're just investing when money becomes available, and therefore maximizing time in the market.  A true DCAer is in fact not maximizing the time in the market - could have had a higher balance earlier, but chose not to.

chasesfish

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Re: IRA: better to max out with lump or monthly payments?
« Reply #48 on: December 17, 2015, 05:20:36 AM »
When I was eligible for an IRA, I always did it on the first business day of the new year.

I figured over a number of years, the tax savings by not paying on the gains for that year outweighed the risk of not using DCA.    I was very happy I did this in 09, 10, 11, 12, and 13 given how the markets did.  Your experience may vary