Katelyn wants to fire her financial advisor and move her investments from mutual funds into Vanguard index funds. Should she do this during the pandemic? Or should she wait?
Marisa asks: can you invest in a Roth IRA if your income is inconsistent and might exceed the cap?
Anonymous “Flo” had a Simple IRA at her old job that she can no longer contribute to. She also can’t contribute to a 401k until she’s been at her new job for a year. Where should she put her money in the meantime?
Mary received an $80,000 grant of RSUs from her employer when she started. These RSUs began to vest after one year, and the price per share has increased 44 percent. What should she do with the shares?
Anonymous “Olivia” is interested in a Roth conversion ladder, but wants to know: does the pro-rata rule apply here as it does with a backdoor Roth conversion?
My friend and former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode. Enjoy!
Marisa asks (at 3:13 min):
Can you open and invest in a Roth account if your income is inconsistent and might go over the cap? How do you handle this if you’re self-employed?
Katelyn asks (at 14:09 min):
I’m 25 years old. I have a financial advisor who has invested my money in mutual funds. I’ve been thinking about opening my own Vanguard account and using my money to invest in index funds instead. Should I fire my financial advisor during this pandemic, or should I wait? I know I should buy low and sell high, and right now, I’d buy low but also sell low. However, if I wait, then I might buy high and sell high. When is the best time to make this move?
Anonymous “Flo” asks (at 23:15 min):
I’m moving from California to Florida to start a new job. I’m earning almost twice as much and Florida has no state income tax.
I have a Simple IRA from my last job that has under $2,000, and I was told that I can no longer contribute to this since it’s only for small businesses. I can’t contribute to the 401k at my new job until I’ve been there for a year.
What should I do to grow my wealth during this year? I also have $30,000 sitting in a savings account; it’s my emergency fund. I don’t plan to retire early, but I want to be financially independent. I’m 39 and don’t plan to retire until 70.
Mary asks (at 36:16 min):
My question is related to restricted stock units as grant options through an employer. In April 2019, I started working for a fast-growing high-tech company. Part of my job offer was an $80,000 grant of RSUs, equivalent to 315 units of the restricted stocks. (The share price of the company was about $254 per share.) The RSUs started vesting on my one-year anniversary in April, and will continue to vest on a quarterly basis over a two-year period.
The first batch of RSUs vested and were distributed to my Fidelity account this month. As of May, the stock price is about $365 per share, compared to $254 earlier. That’s amazing – about a 44 percent increase.
Given the volatility of the market, should I sell the shares, cash out, and either hold the asset in cash, pay off some student loan debt, or reinvest the proceeds to an index mutual fund? Or should I continue to hold the stocks in my individual brokerage account since the company is doing so well and is expected to continue to grow?
Anonymous “Olivia” asks (at 48:38 min):
I looked into the Roth conversion ladder and came across the pro-rata rule, but I’m unclear on if that’s applicable to the Roth conversion strategy. It seems like this has mostly been discussed in terms of a backdoor Roth conversion. Is this something to keep in mind when doing a Roth conversion ladder as well?
Should someone considering this Roth conversion ladder strategy also do some basic preparations such as consolidating all the funds into a 401k or 403b from a rollover traditional IRA account before starting this process?
Or is that irrelevant?
Should I keep a certain sequence of conversions in mind, such as converting assets from a rollover traditional IRA to a Roth IRA first, before rolling over all the funds from a 401k into a traditional IRA before the conversion process?
Or is this overcomplicating a simple strategy?
Resources Mentioned:
Articles on the Pro Rata Rule:
- Roth IRAs and The Pro-Rata Rule | Rodgers & Associates
- Don’t let the pro rata rule trip up your Roth | MarketWatch
- 4 Things to Know About Roth IRA Conversions and Pro-Rata Rule | Ed Slott and Company
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