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First back door Roth conversion, now what?

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  • First back door Roth conversion, now what?

    Good morning all!
    I’m sorry if this has been answered, but I’m still a little hesitant as this is all new to me.

    Per the advice here I rolled my husband and my old IRAs into our 401ks (each 401k now is at about $250k). I put $6k (each) into an E*Trade IRA and the funds cleared today to convert them to Roth IRAs. I did the conversion and now I think the money is just sitting as cash. Is my best bet as a newbie investor just to put the money into a Vanguard targeted date fund (for example VFORX) or am I misunderstanding? Thank you for any and all help!

  • #2
    Sounds like you are making all the right moves in terms of executing the Backdoor Roth. Yes, the next step is to actually invest the funds inside the Roth. As to which fund to pick, it is dependent on a number of things that go into your personal investment plan, but I break the question into two components. What is your desired overall asset allocation, and how have you invested your money in other asset locations (your 401k and your taxable funds)? The Roth represents an opportunity to be aggressive. You should think of it as long term money since most people plan to allow it to grow tax deferred as long as possible.

    Bear in mind that target date funds have bonds. In general I think folks would say your bond allocation should go to your tax deferred funds in your 401k. That being the case, the Roth monies should go to a US total stock market index, or to a international total stock market index, or both in accordance with your desired AA.

    In full disclosure, I don't do that. Instead, I do what you are suggesting. That is, my Roth is invested in a Target Date Fund. But all of my retirement monies are in target date funds. What I do is adjust the maturity date of the fund so that I am more aggressive in Roth, but still conform to my desired overall AA (70:30).

    Either approach is fine, as long as you have an overall financial plan that you are investing towards. Here is an example plan:
    You Need an Investor Policy Statement | White Coat Investor

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    • #3
      Do you have a plan or a goal asset allocation?

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