IRA contributions and rollovers - common sense double-check : personalfinance

IRA contributions and rollovers – common sense double-check : personalfinance

Hello PF!

I have been lurking and reading for a few years, and 2018 was finally the year where I made enough to contribute modestly to my savings (and ask for advice). I am trying to consolidate the multiple accounts my wife and I have from previous employers, and I would really appreciate a double-check. Before 2018 I did not know what an ETF was, traditional vs Roth, or even understand tax brackets properly.

Apologies in advance if I include too much/too little/useless information on what I’ve done or read; bear with me and I’ll be a fast learner! This turned into a much longer post than I intended as I tried to catalog all my thoughts and what I’ve already done or planned.

 

Context
My salary has gone from a flat $36k to $95k +10% bonus in the last four years, so my savings have gone from <$500/year to much higher in the last 12 months. We've paid down debt massively as of this Autumn, and I want to wrap up 2018 properly and get set for 2019. We can conceivably save at 25% or more with some care since we're very accustomed to being frugal, and 25% is my goal.

 

Me
current Fidelity 401(k) – ~$24k
current Vanguard Roth IRA – $5500 contribution for 2018
previous 401(k) – has ~$2k spread between traditional and Roth (I had no idea what I was doing)
Now that high interest debt is eliminated, I can start ramping up savings carefully.

 

Partner
current Vanguard Roth IRA – $5500 contribution for 2018
previous 401(k) – has ~$5k in a poorly chosen target fund with a high expense ratio
Spouse is not working, so I’ll be funding her Roth IRA fully each year for now. The goal is to get her previous 401(k) moved to something better.

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Plan
I am 29. I expect my income to continue increasing rapidly for at least ten years or so – I’m looking to shove as much cash as I can into Roth IRAs for my wife and I now so that it can grow as long as possible. We have a solid emergency fund, no kids, empty credit cards, no more student loans, a low mortgage rate, and will be done paying off our second car in ten months. Retirement savings is our priority right now.

 

Thoughts
The current Fidelity 401(k) I’m using has a 50% employer match on my first 6% of contributions, I’m maxing that and will keep doing so. 100% goes to the Fidelity FSKAX.
Both spouse and I are putting Roth IRA funds 100% into Vanguard VTI, maxing the yearly $5500 with newly created Roth IRAs. I also have an ESPP that has a very generous 15% discount with the better of a six-month lookback. I have been putting 8% into this, and I am expecting stock to be distributed in April. I have $17k in this brokerage so far, and would be willing to contribute some of that to an IRA if it’s a good idea. Due to my company being acquired at a known price, I can confidently predict that this account will be worth about $23k by mid-2019. We have an emergency fund and no issues about liquidity which is why I’m mentioning this as an option to fund possible IRA contributions.

 

This is where I would appreciate some confirmation about what I have been reading; I’m getting really bogged down in details. I have read this guide and studied the simple and thorough charts.

  • Rolling my previous 401(k) into my current Roth IRA is a Roth conversion, triggers a taxable event, and per this subreddit and this link I would need to use an intermediary IRA first, right? I’m happy to create one, I just need to know I’m on the right track.

  • Rolling my wife’s previous 401(k) into her Roth IRA would do the same above, also adding to our taxable income for the year, right?
    ADP, my online paystub site, says I’ve been paid $100k this year, with $27k in taxes and $6k in 401(k) contributions year to date.

  • That puts me in in the 22% marginal tax bracket per this site, since my take home pay seems to have been about $63k for 2018.

  • Assuming I were to convert funds to a Roth IRA, and assuming my pay doesn’t change in 2019, am I correct that the next ~$14k or so would be at the same marginal rate, and then 24% for anything else until my salary was significantly higher?

  • Is it feasible to consider maxing my 401(k) for 2019 so that I can do a large, single conversion to the Roth IRA? If I use the expected employee stock purchase to offset the disruption to my income by an increased contribution to my 401(k), I’ll have much more to rollover by the end of 2019.

  • Is the above idea feasible considering I’ll take both a tax bite on the immediate stock cash-out and the Roth conversion? My math says I’ll lose a decent chunk to both up front, but the idea of having more funds in a Roth IRA earlier is appealing. An extra $5k or $10k at the start of what might be 30 or 40 years of investment account growth sounds fantastic, regardless of losing a few thousand now.

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What am I missing? Please let me know where I’m confused, disconcertingly misinformed, or even if you want to argue that I should be including bonds or using the lower expense FSKAX over VTI for the Roth. All feedback is welcomed, and thank you for reading!

 

Edit: linebreaks, linebreaks everywhere