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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: CollegeStache on January 03, 2015, 07:34:35 AM

Title: What to do with Current Roth IRA
Post by: CollegeStache on January 03, 2015, 07:34:35 AM
After doing some reading on these forums and Financial Samurai, I realized that opening a Roth IRA back about 7 years ago was a good decision in that I was saving retirement money, but examining pros and cons now that I have done more research suggests that a Traditional IRA may be a better move since I want to move towards FI in the next 10 years or so.

My Roth IRA balance now is about $22k.  I am considering opening a Traditional IRA and only contributing to that (as opposed to the Roth) from here on out.

Any advice from the MMM community on where I should move that $22k?  For discussion purposes, assume that about $5k is gains that I couldn't touch and $17k is principal that I've put into the account.

Other notes (to head off any questions suggesting that I should be doing stuff other than Roth IRA):
-I am sitting on a lot of cash (>$200k) so I don't need to create an emergency fund (cash pile is a topic for another post).
-I maxed out my 401k contributions for 2014 and have maxed out 2015 already and will continue doing so in future years...previously (Pre-MMM days) I only put in enough to get 100% match.
-I have a SEP-IRA with another business of mine (just opened last year, hope to increase contribution to $10-15k depending on business revenue since tops out at 25% of income)
Title: Re: What to do with Current Roth IRA
Post by: thedayisbrave on January 03, 2015, 07:43:51 AM
Honestly, if it were me personally I'd just leave it and let it grow.  I'm all about minimizing tax burden but going forward, we don't know what tax rules will be like in the future.  That is why having different buckets could be advantageous, as in taxable, tax-deferred and tax-free.  Just my $0.02.

Sounds like to me you're on the right track!
Title: Re: What to do with Current Roth IRA
Post by: Zamboni on January 03, 2015, 07:45:09 AM
Do you understand how a Roth pipeline works in early retirement? 

I would definitely leave the money in the Roth and let it continue to earn that tax free interest for you.  Educate yourself about the Roth pipeline so that you understand the key role it plays for many people in ER.
Title: Re: What to do with Current Roth IRA
Post by: Hey It's Me on January 03, 2015, 07:47:42 AM
You've already paid taxes for the money in your Roth. Enjoy the tax-free earnings on that now, and from now on invest in a traditional IRA.
Title: Re: What to do with Current Roth IRA
Post by: CollegeStache on January 03, 2015, 08:07:29 AM
So if I'm understanding the replies, the thought is to do nothing with the Roth money now, going forward invest in a new Traditional IRA, and use the backdoor/pipeline approach when it comes to ER?
Title: Re: What to do with Current Roth IRA
Post by: Zamboni on January 03, 2015, 08:09:59 AM
^If your earnings right now mean that you are in a relatively high tax bracket, then yes it seems like you understand where we are coming from on this.  Good luck!
Title: Re: What to do with Current Roth IRA
Post by: Calvawt on January 03, 2015, 09:29:01 AM
Yes, leave it alone and just allocate future contributions differently.  However, I am compelled to mention that you could max out all available accounts if you have $200k in cash sitting around.
Title: Re: What to do with Current Roth IRA
Post by: Hey It's Me on January 03, 2015, 11:46:09 AM
However, I am compelled to mention that you could max out all available accounts if you have $200k in cash sitting around.

This. Even taxable accounts are preferable to losing money on inflation by carrying cash (assuming you have it in a low-interest savings/checking account.)