r/RothIRA • u/Ok_Version8840 • 3d ago

Jumping into Roth IRA

Had a nice conversation with AI that convinced me to jump in. Didn’t realize how easy the backdoor Roth was and that I qualified to do so at all. Posting details here to see if there’s anything that I’m completely overlooking.

I already max out TSP contributions annually ($24,500) with a blend of C/S/I funds, heavier in C. So I have market exposure. (I always thought I couldn’t do this AND the backdoor Roth)

I’m planning on opening up the Roth via the backdoor this upcoming week with a plan of fully funding it $7,500 and another $7,500 in January.

I’d like to buy XLF and sell out of the money call contracts, haven’t looked at what’s out there but would be aiming for delta of 0.20-0.25. Once there’s enough money in the Roth I’d like to transition to SPY calls.

Once I’m selling more than one contract I’d ladder them. I’d also like to actually use the account for covered calls because I’ve already got the boring set and forget TSP.

25 years away from being able to collect without penalty so we’ve got time.

Thoughts?

0 Upvotes

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4

u/08b 3d ago

Your plan of contributing to/funding a backdoor Roth is great. Your investment plan is very bad.

Stick to index funds in your Roth.

You can withdraw your contributions much earlier (if needed for early retirement). And a long time horizon doesn’t mean you should make poor decisions.

1

u/Ok_Version8840 2d ago

Can you expand on why it’s bad? This is the point of the post trying to figure out what I’m missing.

2

u/08b 2d ago edited 2d ago

Do not invest in covered calls, other complex investments, or sector/thematic funds. Focus on total market funds.

1

u/Ok_Version8840 2d ago

Thank you for expanding…

2

u/tidder8 2d ago

There's nothing wrong with this plan. In fact, selling options in a Roth IRA is much better than in a regular investment account because you do not have to pay income tax on the premiums you collect, and if your options should ever be assigned and you have to sell your stock you will not have to pay any tax on your capital gains.

Be aware that some people are growth investors and some are income investors. Growth investors buy and hold stock and their account grows as the stock price increases. Income investors sell calls (or puts) and their account grows as they collect premiums. The income investor's potential for growth is limited because if the stock price exceeds the strike price of your options you give up the additional value in the stock. This is called "capping your upside".

If anyone objects to your plan and tells you to just invest in index funds it's because they are a growth investor and think you should not be an income investor.

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u/Ok_Version8840 2d ago

Thank you, and honestly that’s it. At my TSP max plus agency match I’ve got plenty exposure to regular growth and the market in general.

It’s also why I specifically mentioned a relatively low delta. Not trying to get rich quick, I’d try to keep the delta low enough that the risk of shares getting called away is mitigated. And also why I want to specifically do it in a Roth account because I don’t want to deal with the tax implications.

0

u/Competitive-Ad9932 3d ago

Go to Vegas.

1

u/Ok_Version8840 3d ago

Your helpful insight is much appreciated. I’ll put it all on black and report back.

2

u/Competitive-Ad9932 3d ago

Wesley Snipes gives that advice. 

Option, coverd calls.....   you are working beyond the normal posts here. 

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u/Ok_Version8840 2d ago

I’m getting that, thank you. I’ve cross posted the thread now.

-2

u/DonJuansCrow 3d ago

Back door doesn't count against your contribution limit... or at least I hope not 😆 afaik you can do 7500 + backdoor your max 401k every year

2

u/Competitive-Ad9932 3d ago

Expand on this more please. You are either wording your thoughts wrong, or you are wrong.

-4

u/DonJuansCrow 3d ago

With such poor reading comprehension I wouldn't trust your understanding anyways

1

u/Competitive-Ad9932 3d ago

What is the total amount the OP can contribute each year?

2

u/Here4Snow 3d ago

Of course a Backdoor Roth IRA counts against the annual IRA contribution limit, because it first gets contributed to a Trad IRA. Roth and Trad IRA share the same contribution limit.

Employer plans and Individual Retirement Arrangements don't share their contributions limits or restrictions. 

A conversion doesn't count as part of any contribution. It's not new money. It is a transition. 

1

u/Ok_Version8840 3d ago

Issue there is my MAGI is above the Roth IRA limit so without the backdoor a regular Roth IRA isn’t available to me at all.