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help converting spouse\'s 401k plan

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  • help converting spouse\'s 401k plan

    Hi, my spouse currently stays home (mostly - limited part-time work).  He has a 401k from a prior employer with about $6300 that I want to move to Vanguard.  We'd like to have do a backdoor Roth IRA for him in future years to diversify our retirement savings and have some of it in his name.  We have a SEP-IRA currently in my name that I will be converting to a solo 401k in 2017.  I expect my income to be about 8% lower in 2017 than it is this year.

    Does the following plan sound reasonable:

    Convert his 401k to IRA NOW.  In 2017, convert IRA to Roth IRA.  

    Or should I just convert it to a Roth IRA now even though our 2017 income will be a bit less?  Does it matter that I have a SEP IRA currently?

    Thanks for your help!

  • #2
    dmlr06,

    If you will be in the same marginal tax bracket this year and next year, it will not make a difference in the taxes owed by converting the pretax money saved in your spouse's 401(k) to a Roth IRA whether you do it in 2016 or 2017.

    Also, when your spouse does a Roth conversion, it does not matter whether you have pre-tax money saved in a SEP IRA. Even though your tax bill is combined (if you file jointly) all your retirement contribution limits and conversions are individual. But the $6,300 is all taxable anyway. The results would be the same even if it was your spouse's SEP IRA.

    If you are thinking about being able to do back door Roth contributions in the future, that is when you need to consider the balance each of you has in traditional IRAs (including SEPs). The reason is because you are making a traditional IRA contribution with new money, then converting that to a Roth IRA. You haven't deducted the traditional IRA contribution on your taxes so it is not pre-tax money. But you can't pick to only convert the non-deducted contribution -- 100% of you money saved in any traditional IRA in your name is considered in the pro rata amount that is taxable.

    Hope that helps to clear it up a little.

    Molly Stanifer

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    • #3
      I am also not clear why you are trying to get his money into a roth (and pay taxes on it)?  Is the old 401k a terrible plan or something?  If he has current income does he have access to a solo 401k currently?  Otherwise i believe above poster is right, the backdoor roth ira issue is individual, not based on both married persons..

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      • #4
        The expense ratios on the 401k are higher than we'd like.  We're really wanting to take control of all of our retirement funds as well - thus moving it to Vanguard where we can choose lower cost index funds.  We'd like some of our retirement funds to be in a Roth for diversification.  Seemed like it made sense to have the accounts under his name to be the Roth accounts for simplicity since most of our retirement savings is in my name.  No, he doesn't have access to a solo 401k now.

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