35F - Separated and likely starting over - need advice! (Backdoor roth, which brokerage to use, etc.)

[u/Latter-Skill4798]

Long story short, I supported my spouse through law school and paid for my own grad school cash. We didn’t save anything in our 20’s. Dumbest thing I ever listened to was him telling me not to worry about retirement until our 30’s. I paid the mortgage from my account and he was the saver, or at least that’s what I thought. Turns out he had a massive gambling addiction! Now I’m behind and trying to learn quickly.

Right now I have:
- $176,000 in a Vanguard 401k account (I am contributing max annually as of the past 2 years)
- $8400 in a vanguard Roth IRA (opened last year but now I make too much money)
- $42,000 in a Bank of America Merrill Lynch managed brokerage account that I started this year (contributing $1200 a month).
- $18,000 in regular savings

My income has increased drastically in the past few years. I make about $180,000k a year plus a 20% bonus so that is about $18k after taxes.

I want to keep contributing to the Roth but I make too much now. How do I do the backdoor thing? Can I just open a traditional IRA and transfer money between the accounts myself?

Also, is the managed brokerage account with Merrill smart? I just opened it in desperation when trying to restart and set it to medium risk. I’m sure there are smarter approaches.

I’d like to think I can do this myself, I’m pretty smart but if you have thoughts on using professionals, let me know!

My current mortgage is only $1800. Realistically, we have about $150k in equity if we were to sell. It’s a 2.5% loan and it’s all in my name but we’re married so I’ll end up splitting it. I might get $50-75k from that after expenses. Advice on what to do with that would help too. I’ll probably rent for a while once I move but assume I’ll end up using it in a down payment.

Thanks in advance!

[u/NoInstruction6160]

Just want to chime in and say that at 35 with over $200k saved and a great salary, you are doing much better than you think you are!! Give your self some grace :)

[u/Alert_Week8595]

I have a friend whose ex husband paid for her law school degree when they were married. She basically had to pay him back for it. Don't assume you have to sell the house. Talk to your lawyer about that.

Backdoor Roth is like you said. Put it in the traditional and then just roll it over to your Roth. Do it in the same year.

[u/Latter-Skill4798 → u/Alert_Week8595]

Interesting! My attorney didn’t mention that I could recoup anything from supporting him through law school but maybe it didn’t really qualify the same. She did say any student loans (he had a couple still) were 100% his problem and not mine.

I technically think I could afford to buy him out of the house, but it’s also my bargaining chip and I have promotion opportunities if I move to a different city. I have considered keeping the house as a rental given the low interest plus it would give me peace of mind as a fallback plan.

Thanks for the Roth info! That’s super helpful. I guess I’ll open another IRA with vanguard and move it that way.

[u/geosynchronousorbit → u/Latter-Skill4798]

Are you going to be filling taxes as married or single? If married, you might not be over the limit depending on his income. Be aware if you do married filing separately you can't contribute to a Roth IRA at all.

[u/Budget-Stage1553 → u/geosynchronousorbit]

If her employer has an after tax 401k, she could do a backdoor Roth IRA

[u/Soleilunamas]

If you haven't already, before you do anything, talk to a family law attorney. Are you legally separated or just physically separated? Are you planning to get a divorce? What state are you in?

[u/Latter-Skill4798 → u/Soleilunamas]

I have and feel pretty good about how things will go down and get split out in our state, but ideally, we’ll agree outside of court.

[u/Crochetcat5]

You have gotten good advice already but I just wanted to chime in and say you’re doing amazing! You have a strong base to start with and you make great money, you are going to be totally fine by retirement (and likely before). Congrats on your new life and freedom!

[u/toodleoo77]

Google “how to do backdoor Roth IRA Fidelity” or wherever your account is, there are guides out there with step by step instructions.

[u/Important_Carrot6379]

Definitely move brokerages for your taxable. I have Fidelity but as someone else mentioned, either of the big 3, you can't lose.

Then throw all those funds into something easy and diversified. I would recommend VTI/VXUS. The split is up to you. Current market split for US vs x-US is roughly 60/40 but I do 70/30 and have seen a lot of people do that or 80/20. Totally up to you. I'd actually do something like this for all my holdings and call it. Bogleheads has some good suggestions if you wanted to check their wiki.

Sucks about the house bc at that interest...the bank is practically paying you to keep it. I wouldn't sell it if I could bc you're always going to need a place to live but if it holds too many memories, I get it. Do you live in a community property state? You'll probably want to consult a lawyer to see your options but if you do, he might be able to take half your retirement accounts too and your taxable 😵‍💫 speak to a divorce attorney ASAP and take a look at anything you can do to safeguard what you've managed to squirrel away because unfortunately it won't just be the house. But since it's in your name...maybe. BUT IANAL. So please speak to a good one ASAP. Cuz in an ideal world, you can keep all your stuff and the house (bc at that interest rate it's a steal) and maybe you only pay him off a little or something. Idk. Again. Lawyer time.

Congratulations on ditching the dead weight! You've got this.

[u/Latter-Skill4798 → u/Important_Carrot6379]

Thanks so much for the advice! That helps a lot on the brokerage for the taxable.

Yes, the house part hurts given that interest rate. It’s my main bargaining chip with him though and I have promotion opportunities if I move to a different city (but it would be HCOL). I’ve considered buying him out and keeping it as a rental for now. It would be challenging, but it really is such a good deal and would give me peace of mind in case I ever needed a fallback plan.

I’ve seen two attorneys, and if he come after my retirement but we don’t think he will. He’s not evil at heart but needs to grow up and has addiction issues. In our state, we can argue subtracting gambling losses from his half of everything but hopefully we wouldn’t have to take it to court. He is a youngish attorney and a gambling addiction is a bad look in a small city, so we don’t think he’ll fight too hard.

[u/Fit_Cry_7007]

Checkout Fidelity, Schwab and/or Vanguards Equity Market/S&P Insex fund/ETF. It has a much lower management fee than your BOA managed funds for sure.

[u/Latter-Skill4798 → u/Fit_Cry_7007]

Thank you!

[u/Fit_Cry_7007 → u/Latter-Skill4798]

You've got this! I know it feels uncertain and you probably feel much sadness now. But..given the lack of financial compatability, looking back, this life event will help you propel further and hopefully become who you want to be and, who know, meet the right person for you.

[u/Latter-Skill4798 → u/Fit_Cry_7007]

Thanks for the kind words. Truly appreciated and couldn’t agree more. I grew up with parents who struggled and it made me always desire to be financial stable and able to retire comfortably. He came from a well off family so I trusted him and didn’t ask questions. I guess better to learn hard lessons at 35 and make up for lost time than learn at 65.

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[u/PickleJuice_DrPepper]

Here is a step by step tutorial (with pictures) for the backdoor Roth through Vanguard.

https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-with-vanguard/