Every year since 2009, I’ve contributed to my and my wife’s Roth IRA. In fact, I’ve maxed our contributions out every year since 2010, which the exception of 2014. The tax-free growth of a Roth IRA provides significant value.

However, the streak may end this year. I’ve got an idea for a startup that I’ve been dreaming about for several months (if not years). In 2020, I formed a corporation and engaged a developer to determine costs for the potential venture. What I intended to be able to do for about $20k will likely require about $50-$80k, and that’s only for a prototype or initial build. The startup design will likely require significant capital investment.

I would love to partner with the right person on this project but that door has not opened so far. I could borrow money to fund the project, but, at this point, I’m not too keen on leveraging my house or borrowing against my paid-for rental property to fund a startup. So the only other options are to fund the startup with cash on hand, build it myself, or simplify the project dramatically. These are all good goals and part of the value in rejecting debt and limiting yourself – it forces you to adapt. Nonetheless, some cash is going to be necessary and the $12k that I’d use to contribute to our Roth IRA’s would be a nice boost for the project. Further, I keep coming back to the fact that a contribution to my Roth IRA will grow tax-free forever.

When working through a tough decision, I like to list the pros/cons to each path forward.

Factors favoring not contributing to Roth IRA

• I maxed out my 2020 401k ($19,500) contribution.
• My spouse earned another year toward our state’s defined benefit retirement plan vesting requirement.
• I need cash for the startup
  • Cash on hand makes me more decisive; Funding the startup is going to take more time without using this available cash. Practically, the startup probably does not get very far in the short term without cash to pay third parties.
• .We make too much money to directly max out our Roth IRA contributions
  • We could contribute a partial amount and back door the rest, but I assume a better approach is to back door the entire contribution per person.
  • The back door Roth process adds complexity.
    • Perhaps this ineligibility is a sign not to do it or not to max it out?
• Most of my existing Roth accounts are uninvested and held in cash pending a market pullback (obviously a huge mistake).
  • I don’t know if or how I would immediately invest the contribution given the market’s recent run-up.
• Would love the potential career shift offered by the startup

Factors favoring contributing to Roth IRA

• Contributing continues long streak of Roth retirement savings;
• Saving for retirement is the foundation of future stability and retirement savings
  • Its save to assume money spent on the startup will be lost since most startups fail
• 401k contribution alone does not meet the general goal of saving 15% for retirement
• Contribution cash is available (but tight); Can save and contribute to startup later this year
• Contributing my available cash forces adaptation for startup and potentially minimizes the risk of investment
• The Roth IRA contribution window expires; there is no deadline on funding the startup
  • In other words, I can fund the Roth and move on to the startup after the Roth
• We spend thousands on private school and other “wants”, which I would generally prioritize after saving for retirement. By not contributing, my priorities are not in line.
• I need to get back into the market and contributing will force me to evaluate investment options and actually invest.

Career considerations?

While I’ve been blessed with a decade-long career, perhaps I’ve hit a plateau. I dream of founding and running a successful startup – where I get to hire people like myself.

So, perhaps this is my time to take a risk?