End-of-Year IRA Fixes Before Tax Time: Roth Contribution and Correction Strategies
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What are lazy money management strategies?
Hey, Sean, would you describe yourself as lazy?
I would say that I'm unlazy to a fault. Like I'm always doing something, cleaning the house or reorganizing a cabinet or going for a run. My partner calls it my scurrying. And at any given moment, you can probably find me flittering about doing one thing or another. So no, I am not lazy. What about you, Sarah?
Sometimes, yes, I am. I love rotting on the couch as much as anyone, especially parents of young kids. You know what I'm talking about? After bedtime, couch rot time. It's great. I also make use of every moment I can get things done, either for work or around the house. But believe it or not, sometimes good things can come from being lazy. And I'm not just talking about whatever you're watching on Netflix after your kids go to bed.
Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles.
And I'm Sarah Rathner. This episode, I'm joined by our co-host, Elizabeth Ayola, to answer a listener's question about contributing to a Roth IRA when you're over the income limit, including when a backdoor Roth is a good idea.
How can I automate my investments?
But first, Sarah and I are going to talk about the virtue of laziness, even if it's something that does not come naturally to me. With the holiday season ramping up, now is actually a great time to be a little lazy with your money. I'm not saying you should neglect your finances, but think about areas where you can put your money on autopilot. And Sarah and I are going to share two areas where we personally like to be a little lazy with our finances. So Sarah, what have you got for us?
Well, we're going to talk about low effort ways to hopefully, no guarantees, grow your money by saving and investing. With investing, the hands-on approach involves a lot of research and attempts at timing the market just so. Or you tell yourself that you do that, but you really just pick investments based on whatever's in the news at the moment. Honestly, the thought of doing that work is daunting for many people, myself included, and it can keep you from getting started in the first place. If you're feeling stuck, going about investing the lazy way could be a way to get past that. One thing to try is setting a monthly investing budget and then depositing that amount into a brokerage account to be invested.
And you may know that approach as dollar cost averaging. And as for what to invest in, you don't have to get in on the ground floor of the next hot stock. Index funds, exchange-traded funds, or target date funds are all perfectly fine options. Automate contributions into funds that match your goals and move on with your life. I invest in target date funds in my retirement accounts, for example.
What is dollar-cost averaging and why is it useful?
I like that they just sort of exist in the background doing their thing while I live my life.
I'm also a big fan of dollar cost averaging, which is one of those terms that make you sound very fancy when you say it, but it's just a complicated way of saying lazy investing. Passive or lazy investing like this doesn't stop at how you contribute to your accounts. What you invest in also plays a role. Sarah, you mentioned target date funds, which I'm also a big fan of. For those who may not know, a target date fund is a type of investment that evolves over time. There are different variations, but often a target date fund will start by investing more aggressively, maybe in stocks that might be riskier and thus have greater growth potential. And then as you get closer to your target date, the types of securities that the fund invests in will change.
So for my taxable brokerage account where I make my monthly deposits, that dollar cost averaging that we discussed earlier, I'm invested in a target date fund that about aligns with my retirement date. Seeing as I have nearly 30 years until I plan to retire, my target date fund currently has a more aggressive allocation. Over time, that will change all on its own without me having to do anything.
What are target date funds and how do they work?
And that's another great way to be lazy and gradually build up my retirement nest egg.
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Chapters
7 chapters
1
What are lazy money management strategies?
0:00–1:05
2
How can I automate my investments?
1:05–2:33
3
What is dollar-cost averaging and why is it useful?
2:33–3:43
4
What are target date funds and how do they work?
3:43–15:31
5
How to set up a backdoor Roth IRA?
15:31–15:51
6
What should I do if I over-contribute to my Roth IRA?
15:51–16:14
7
How do I fix previous Roth IRA contributions?
16:14–21:11
Speakers
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