No backdoor Roth for me

[Antares]

Please tell me where my thinking is misguided on this. I'm 58, planning to work to 65. I've contributed the max yearly to my profit sharing account, and that of my wife who is also a psychiatrist, so around 2x50K per year (2x54K this year). Accumulated 2M+ in retirement accounts at the moment. There hasn't been much left after that to save in an aftertax account, but that's changed in recent years. Two years ago I was able to add 30K, last year 50K, and I anticipate adding 50-60K this year. Total aftertax now is around 100K.

When I think about using some of the taxable money to contribute to a backdoor Roth, it makes me uncomfortable. There's a relief in having readily available funds for whatever need may arise, or just to know it's there. I sleep better at night. As I look at the rules, I couldn't access Roth money for five years after establishing the account without penalty. So I'm thinking that I don't have enough taxable savings for a Roth to make sense for me. I have to admit, the ability to add 30-50K per year to taxable savings in recent years has made me feel good after years of working hard for many years just to come up with the max retirement contributions.

Am I missing something?

[DMFA]

If you have that much already in a taxable, why would you need to worry about pulling money out of a Roth?

[Antares]

Frankly, the total in taxable doesn't seem like all that much to me. Some combination of a car, a major home repair, an unreimbursed medical expense, some unanticipated legal issue: it seems to me that a big chunk of it could be required with some bad luck.

[VagabondMD]

You can withdraw your Roth contributions without penalty. Problem solved!

[Antares]

Maybe I misunderstood the rule. Apparently the penalty for withdrawal prior to five years applies only to earnings in the account but not to contributions?

[VagabondMD]

Antares wrote:

Maybe I misunderstood the rule. Apparently the penalty for withdrawal prior to five years applies only to earnings in the account but not to contributions?

Click to expand...

That is my understanding.

[The White Coat Investor]

I'm not hearing a reason to avoid a backdoor Roth unless you'd rather spend the money. I certainly wouldn't invest in taxable instead, especially at age 58.

[TheAbacus]

In my opinion, not only should you contribute to both your Roth accounts, you should also contribute to enjoy the maximal catch up contribution limit. Good luck!

[jfoxcpacfp]

Antares wrote:

Frankly, the total in taxable doesn’t seem like all that much to me. Some combination of a car, a major home repair, an unreimbursed medical expense, some unanticipated legal issue: it seems to me that a big chunk of it could be required with some bad luck.

Click to expand...

A taxable account should be allocated to the long-term growth category, not for emergency funds. If you don't have liquidity for emergencies, you are sorely lacking unless you are ok with tapping a HELOC to pay for an unanticipated medical issue.

Vagabond MD is correct that you can always remove original contributions to a personal Roth tax- and penalty-free at any time. The 5-year rule comes into play for earnings and other actions. I cannot imagine why you would forego the back-door Roth in favor of a taxable account. You are choosing to pay taxes on growth rather than to avoid taxes on growth. Again, however, even original Roth contributions should not be considered for first use in the event of an emergency.

[Antares]

Ok, thanks all. I get it now. The Backdoor Roth makes sense. I am just up against an irrational preference to see that money sitting in an account, ready for use should it be needed. It makes me feel comfortable. But it's not better, it's actually worse, despite the way it makes me feel. So I will go with what is rational here, not what is emotionally more comfortable.

[jfoxcpacfp]

Money and emotions are like gasoline and a lit match.