Rollover question

[nolamd84]

My wife and I are both leaving university jobs for private jobs and therefore have a mix of 403(b) and 457 money that I would like to rollover. Don't love the fund choices in my new job, so I thought I would roll them both into Vanguard at VFINX or something like that. I've never done this before. Do I just contact the two fund providers and ask for rollover documents and contact Vanguard?

 

Thanks!

[Peds]

you contact the company where you want the funds to end up and let them do the work, but first realize:

- there is better asset protection in employer plans than IRAs

- you will lose the ability to do backdoor rIRA (easily)

- you have the option of doing nothing and leave the accounts at your employer. its just 1 extra thing to keep track of.

- if in the future you have a job where the plans choices are excellent, then consolidate everything there.

[canadianoutlaw]

Peds wrote:

– there is better asset protection in employer plans than IRAs – you will lose the ability to do backdoor rIRA (easily)

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are you able to elaborate a little more on your points 1) and 2)?

[nolamd84]

Wouldn't I have less asset protection in the employer plan since I'm dependent upon the employer's solvency?

[DMFA]

nolamd84 wrote:

Wouldn’t I have less asset protection in the employer plan since I’m dependent upon the employer’s solvency?

Click to expand...

Your money is not with the employer - it's invested in the funds through the financial institution.

[nolamd84]

https://www.whitecoatinvestor.com/should-you-use-your-457b/

 

I think the 457(b) is subject to creditors (at least mine is, since its non-governmental). My wife's is governmental, so we'll leave hers. I'll also leave my 403(b). I'll just keep it as the line item in my retirement tracking.

Thanks!

 

[spiritrider]

To elaborate on Peds 2nd point "– you will lose the ability to do backdoor rIRA (easily)"

Roth conversions are always taxed proportionally on all deductible (pre-tax) and non-deductible (after-tax) assets from all pre-tax IRAs (traditional, SEP and SIMPLE). This is referred to as the pro-rata rule.

The backdoor Roth relies on having no/low pre-tax traditional IRA assets. This allows the non-deductible assets to rollover to the Roth IRA with no/low taxable income.

However, if you were to rollover say $22K total 403b/457b pre-tax assets to a traditional IRA. Then if you made a $5,500 non-deductible traditional IRA contribution. When you tried to convert $5,500 to a Roth IRA, only $1,100 would be from the non-deductible contribution and not taxed and the remaining $4,400 would be from the pre-tax assets and taxable income. This would be because $22,000 / $27,500 = 80% of the total assets would be pre-tax and $5,500 / $27,500 would be after-tax basis. Therefore, the same 80:20 ration would be required in the Roth conversion due to the pro-rata rule.