Author Topic: Roth IRA timing with baby on the way  (Read 2500 times)

engineerjourney

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Roth IRA timing with baby on the way
« on: January 06, 2015, 05:22:35 PM »
Haven't posted in a long while, went back into lurker mode after boring myself with how automatic my savings were but have still been hanging around to learn even more. Now I am back to get some help with different points of opinion. 

Last year we maxed both of our Roth IRAs at the beginning of the year but this year we have a baby on the way (due in June!).  I am wondering if it would be smarter to wait until after the baby comes to contribute, contribute some now and max out after, or go ahead and max out both right now ($11K).  Our emergency fund ended up being pretty conservative so I am contemplating lowering it but thinking maybe this isn't the best time?  Both my DH and I received promotions a couple months ago at a really secure company so I am really not worried about job loss so I am not sure why I thought we needed a $20K emergency fund (especially since I know if we have a really bad emergency we can get $$ from the Roths and our taxable acct). 

With our HSA balance I am not worried about covering medical costs associated with the birth/baby.  The only new things we will get will be from family wanting to buy the baby things, everything else will be second hand if at all possible.   I am SUPER lucky to get 26 weeks of maternity leave through my company's short term disability policy, 13 weeks at 100% pay and 13 weeks at 70% pay (almost unheard of in the USA).  So my plan is to save enough buffer for unexpected baby expenses and to account for the 30% missing pay for 13 weeks.

Financial Snapshot: ages 27 & 28
Gross combined income: 156K, firmly in 25% tax bracket even with addition of child and itemized deductions
In 2015 we will max out both our 401Ks, a HSA, and two Roth IRAs (at some point)
Current:
Emergency Fund: $20.1K
HSA: $15K ($6K out of pocket max for family plan)
Other Savings (baby/house project fund): $8.6K
My Roth: ~$12.4K
His Roth: ~$12.4K
Taxable: ~$20K
Both 401Ks: ~98K

So, what do you smart MMM peeps think?  Wait until after the baby comes to contribute, contribute some now and max out after, or go ahead and max out both right now taking some money from our over-funded emergency/savings funds?

Thanks!
« Last Edit: January 06, 2015, 06:26:33 PM by engineerjourney »

Gone Fishing

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Re: Roth IRA timing with baby on the way
« Reply #1 on: January 06, 2015, 06:19:45 PM »
Total income and expected tax bracket including babe?

engineerjourney

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Re: Roth IRA timing with baby on the way
« Reply #2 on: January 06, 2015, 06:27:11 PM »
Added that info to the original post So Close, I knew I was forgetting something! Thanks.

Gone Fishing

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Re: Roth IRA timing with baby on the way
« Reply #3 on: January 06, 2015, 06:32:36 PM »
Fire away!

MDM

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Re: Roth IRA timing with baby on the way
« Reply #4 on: January 06, 2015, 06:38:31 PM »
Your OP has great reasons to "max out both right now."  Didn't see any good reasons to do otherwise.  Seems the answer is in your question. ;)

engineerjourney

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Re: Roth IRA timing with baby on the way
« Reply #5 on: January 06, 2015, 07:02:47 PM »
haha, you two are awesome, and right.  I had the same thought but have never had a baby before so I didn't know if I was missing some glaring reason why I shouldn't go ahead and max them!  Should have known no one on this forum would tell me "babies need so many costly things" or "you need way more in a checking/savings account because you can't get a hold of your other money".  Silly me!

Cwadda

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Re: Roth IRA timing with baby on the way
« Reply #6 on: January 06, 2015, 07:12:28 PM »
Would you and your spouse benefit by maxing out Traditional IRAs to get the tax benefit and then using a Roth conversion ladder in a few years?

engineerjourney

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Re: Roth IRA timing with baby on the way
« Reply #7 on: January 06, 2015, 07:20:44 PM »
Good thought Cwadda, but since we are both covered by a work retirement plan our modified AGI is too high to take a deduction for a traditional IRA.  We are under the Roth IRA income limits so we don't have to mess with backdoor Roth though!

Cwadda

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Re: Roth IRA timing with baby on the way
« Reply #8 on: January 06, 2015, 07:53:33 PM »
Sounds like you're doing really well then! I agree with the other posters. Congratulations on your new baby!