Old 403b

[TheAbacus]

My wife and I have old 403(b) accounts from residency - these are very modestly funded (~$4000 x 2). I wish I was smart enough to rollover these to Roth IRAs when we finished. Anyway, since we are approaching the end of the year, it just occurred to me that our anticipated income for 2017 would be significantly higher as compared to 2016 (my wife is getting a sizable increment in salary when she switches employers in mid 2017). So I'm debating between one of the following:

1. Rollover 403(b) accounts into new employer's 403(b)

• Pros - Simplicity, no additional tax burden till the funds are accessed in retirement


• Cons - Pay a small (but annoying) administrative / management fee to the retirement account provider

2. Rollover 403(b) accounts into our Roth IRAs

• Pros - More tax free retirement funds for the future


• Cons - Lose 33% of ~$8000 as taxes. I shudder to think if I will be able to state this clearly on my tax returns, along with backdoor Roth contributions.

3. Leave 403(b) accounts alone

• Pros - +10 to procrastination (LVL UP!)


• Cons - Feels like I've wasted an opportunity to help the future me

 

I am leaning toward point 2, as I feel that we may not have a lower tax burden than 2016 for many years to come. What does the brain trust think? Shall I wait for the Trump era tax plan to make this decision? Obviously I have missed some Pros / Cons - please enlighten me with your opinions.

[DMFA]

Roth conversions are pretty easy to file at tax time.  Any preparation software should have an easy-to-use sheet.  I know H&R Block's browser-based software had them.

Also, if your income is lower in 2016 than it is in 2017, then 2016 is the better year to pay taxes on it.  You can pay 33% of $8,000 now or 25% of $32,000 in 3 decades, or however long...

I say do the Roth IRA rollover.  You can probably find a good use for an additional $8,000 of Roth space, such as for your less tax-efficient or higher-earning holdings.

[TheAbacus]

Thank you DMFA. We'll be using TurboTax. Did I miss any other viable options with old 403(b) accounts, which are worth considering?

[Bott1637]

Convert to ROTH for me. I'll be paying that rate for converting my wife's old account this year as well. The way I saw it: small amount of money up front to get more ROTH space.

I don't see any other options than you listed. Deciding 1 vs 3 would come down to investment options and fees although the new 403 would have to suck pretty bad for me to leave the money as I value the simplicity of fewer accounts. Will make rebalancing and asset allocation easier with fewer accounts.

[jfoxcpacfp]

You forgot another "Con" for point 1: You lose control over this money. Once it's in your employer's account, it has to stay until you are separated from service or retire (barring a bad decision like a loan or early distribution). If you can afford taxes on the Roth r/o, that w/b my vote, as long as it then goes into a properly diversified equity fund portfolio, rebalanced annually.

TT should handle the paperwork easily.

[Dilaudidopenia]

Wife and I are graduating residency in June and I am going to an IC job.  I have also thought about this question.  403b is held by Fidelity (after vesting, probably around ~15k each) and our Roths are with Vanguard.  Will probably be setting up solo-401k with Fidelity as pre-tax account next year and rolling the 403b into it.  Vanguard solo-401k apparently does not accept 403b rollovers.  I know I can roll into Roth but I just don't feel like dealing with the tax right now.

[SwanSong]

When you say leave the accounts in the old 403(b) as having a con of not helping out the future you, are the investment options not good in the old 403(b)?  If they are invested in something that you like, why bother moving it?  Some would argue for simplicity, but is one additional password that big of a deal?

I just kept my old 403(b) that is invested in Vanguard shares through Fidelity. Why bother?  Now if you have a bunch of terrible investments with high ERs, I would look at rolling into your new 403(b).

[TheAbacus]

2 aspects make me feel that it wouldn't be the right decision:
1. Losing a chance to convert it to a Roth IRA
2. Even if I rollover to my current 403(b), the advantage of doing this would be an easier understanding of the investment allocations in retirement accounts. Having multiple accounts makes me feel that I may run the risk of not rebalancing appropriately.

Lastly, maybe it's just me but it gets exceedingly difficult to find an actual numeric value for fees charged by the retirement account provider (I'm not talking about expense ratios, but "management fees"). I'm scared that they may increase it without my realization, and I will lose money needlessly.