@bonesly, thanks, this is helpful. And a follow-up: if I am taking cash from a Discover HYSA and putting it into a Fidelity MMF, do I need to have Fidelity open up a taxable account for that fund to reside in? At this point, I don't have plans to make any additional investments in a taxable account for another year or so, so I will only have the MMF (if that matters).Cash - you loan money to the government or a corporation for a short term (3 months to 3 years). Cash instruments include savings accounts, high-yield savings accounts, certificates of deposit (CDs), money market funds (MMFs), and maybe some others like that. MMFs typically invest in T-Bills (3 months up to a year is common) and/or commercial paper (very short-term loans between banks and short-term loans to corporations). MMFs are not covered by Federal Deposit Insurance Company (FDIC) like bank accounts, HYSA, and CDs, but they maintain a stable NAV of $1.00/share so they don't lose money. The only MMF that I know of that's failed in recent history was Lehman Brothers during the 2008 Financial Crisis and the Fed swooped in to ensure that no investors lost money. They're pretty safe and typically pay more than HYSA/CDs, but you have to compare rates after fees as that's not always the case.
@bonesly, we already have $400k in our two Roth IRAs, and we could each put in another $77k over the next 11 years through the backdoor conversion. So that would be enough for us in those first 5 years of retirement prior to age 59.5. So the question is would it be better to prioritize funding the Roths through the backdoor PLUS anything remaining in the taxable account, or skip the backdoor if the 5-year clock reset somehow complicates our ability to get those dollars prior to retirement?You can withdraw your contributions (not the earnings) from a Roth at any time, but you cited that wouldn't be enough ($77K in contributions... If you have existing Roth IRAs, what year did you first contribute to one? As long as you make your first contributions at least 5 years before you turn age 59.5, then all the clocks go away at that age but the a Roth (for each of you), must have been open at least 5 years).
I agree with "prioritize Taxable investing and put anything remaining in the Backdoor Roth." Do review that Roth Backdoor topic about pro rata rules, because Backdoor Roth is easy if you have ZERO dollars in Trad IRAs (401k, 403b, etc. are ok, but Trad IRAs trigger pro rata).
@InSearchOfZen and @lakpr, I found the following language on the California 529 plan FAQ. Based on this, does it appear to you that only California residents are subject to the taxes?
At the federal level, rollovers from a 529 plan account to a Roth IRA do not incur federal income tax or penalties.
State tax treatment of a rollover from a 529 plan into a Roth IRA is determined by the state where you file state income tax.
For California taxpayers, a rollover from a 529 plan account to a Roth IRA will be treated as a non-qualified withdrawal and the earnings portion of the withdrawal will be subject to California state income tax, including the additional 2.5% California tax.
Statistics: Posted by cubbyfruitbat — Wed Oct 16, 2024 12:08 am — Replies 33 — Views 4552