Roth IRA Funding Strategies for Young Professionals

Joshua's financial strategy should include both funding his Roth IRA and maintaining brokerage assets for optimal growth.

### Navigating Roth Contributions: Strategies for Young Professionals
* 💼 Joshua, a 24-year-old with a $100K income, is considering selling brokerage assets to fund his Roth IRA due to the **April 15th deadline**, highlighting the **importance of timely contributions**.
* 💡 While it is possible to withdraw from a brokerage account to fund a Roth, it's crucial to understand that this action **merely reallocates existing funds** rather than **increasing savings**.
* 📉 Selling assets from the brokerage may incur taxes, especially if there are **significant embedded gains**, which should be factored into the **decision-making process**.
* 🔒 Roth IRAs are highly valuable, yet they come with contribution limits, allowing only **$7,000 annually**, and missed contributions from previous years cannot be rolled over after the **tax filing deadline**.
* 📊 The discussion emphasizes the necessity of **systematically funding both brokerage and Roth accounts** to ensure **balanced financial growth**, rather than choosing one over the other.
* 🚀 Joshua's achievement of maxing out his HSA indicates a **solid understanding of financial management**, but the conversation stresses the need for a **proactive approach to Roth funding**.
* 💵 Maintaining emergency reserves is vital to **avoid cash flow issues**, reinforcing the importance of **liquidity in financial planning** for young professionals.
* 📚 The experience shared about the pitfalls of relying too heavily on credit for liquidity serves as a reminder to **prioritize cash reserves** alongside investment strategies.

[Music] All right, Joshua's question is up next. He says, Do I sell brokerage assets to fund my WTH if I can't make the April 15th deadline? For context, I'm 24 years old, married with a 100K income, um, and he's on step five already maxing out his HSA. What do you think? Okay, wait, so, well, look, I've done it for clients where we've gotten to where we're right by the April 15th deadline. You quickly review their situation. You say, Man, they didn't make a Roth contribution for last year. We could quickly do this. Stock market's been up, so we've made some money. Let's go pull it out of this brokerage account and then fund it in there. I'm not against that, but it does show me, Why didn't we fund this in addition to the, you know, there's a root. You need to triage to figure out why this was an afterthought versus being a proactive.

thing, yeah, so two. So, what you're saying is two things. One, we love dollars going into Roth, but if all we do is pull money out of our brokerage and put it into a Roth, we didn't actually save more money; we just moved where the air is in the balloon. We moved it from one bucket into—we didn't add more water; we just moved water from one bucket to the other bucket. I love the idea, though, because you could take away some of the water from the bucket, though, with taxes. With taxes, that's what if you have a lot of embedded gains or something like that inside your brokerage account. You may have to pay taxes in order to sell those assets to then transfer them over to Roth. That's something you want to take into account. However, even with all that said, Roth IRAs are so good and so valuable that not only does the government limit who can put money into them—if you make over a certain income, you can't even contribute directly to Roth—they also cap how much you can put in there every

year. You can only put in $7,000. And by the way, if you didn't fill up your $7,000 bucket last year, it's not like you get to roll over and make up for it after the tax filing deadline this year. So there's a little bit of scarcity associated with getting those dollars in. And so, Brian, I know we've both counseled young professionals in the past, Hey, every time that you can get money in that Roth, you really ought to focus on doing it. It's why we make it step F. Will you hold up the thing, Brian? It's why we make it step five with the financial order of operations. That's how powerful and how important it is. So I love the idea of you making sure you max out that WTH. Don't miss out on doing that. But I agree with Brian going forward. I would love to see a world in which not only are you saving to The Brokerage and adding assets there, but you're also systematically funding the Roth so that it's not either/or; you're doing both/and.

building up both those buckets. Use this as a, you know, fork in the road moment that says, Hey, why didn't I fund the Roth through like a dollar cost averaging? Now, if it's an income element or some other complexity, I get it. But the way the question was structured, Joshua, it sounds like you have more assets into the brokerage than you do in the Roth. We just got to make sure we're triaging that to figure out what's the path forward so that we're, because it's back to the key point Bose said, Are you taking water from the bucket or are you actually putting water in? Because it's those initial behavior steps of living on less than you make and actually having the discipline, the discipline of living and saving and investing 25% of your gross income, that is going to let your money work harder than you can with your back, your brain, and even your hands. So, don't skip that part of the mindset. You know what I love that Joshua said? What, already maxing my HSA? See, so I mean

I think he gets it. I mean, it's just a matter, so um, it's just, and sometimes we get pinched. I get it from a cash flow, sure, you know, um. That's the other thing that always, why the emergency reserves is so important. That's why we cash is so important. It gets steps one and four is because you don't want to get pinched on having liquidity in your life. It's because I know as Financial mutants, we're always like, I want everything working, but that sometimes can be a trap as well. And I laid that out in millionaire mission where I share how I thought a home equity line was the bridge that was going to keep me from having um cash reserves. And if you've read the book, you know a complete disaster, a disaster that led to prayers answered prayers, and then I've never stepped off the path of having cash reserves. Yep.

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Funding a Roth IRA: Selling Brokerage Assets

Joshua, 24, with a $100K income and maxing out his HSA, is considering selling brokerage assets to fund his Roth IRA before the April 15th deadline.

While moving money from the brokerage to the Roth can be beneficial, it doesn't increase overall savings and may incur taxes from selling assets.

Roth IRAs are valuable but have income and contribution limits set by the government.

The Importance of Maximizing Roth Contributions

Maxing out the $7,000 Roth contribution is crucial, as unused funds from the previous year cannot be rolled over.

There is a sense of urgency in getting money into the Roth, making it a priority in financial planning.

A balanced approach of saving to both the Brokerage and systematically funding the Roth is recommended for optimal asset growth.

The speaker emphasizes the importance of funding a Roth account through dollar cost averaging, especially when there are more assets in the brokerage.

They stress the need to triage financial resources and focus on living below one's means.

The speaker highlights the significance of saving and investing 25% of gross income to make money work harder and achieve financial goals.

Cash flow challenges can create financial stress, making emergency reserves crucial for liquidity.

The desire to have all money working can be a trap, as experienced by the speaker with a home equity line.

The speaker emphasizes the importance of maintaining cash reserves to avoid financial disasters.