Pro-Rata Traditional IRA to Roth IRA Conversion Question

[boogiba]

I currently have the majority of my retirement savings in a 401k plan with my most recent and now former employer. I do not anticipate working for a new employer for the foreseeable future, so I was investigating the option of rolling over the 401k into my smaller, but growing, Vanguard IRA accounts. I am invested in Vanguard funds with my 401k, but there is an additional fee (0.20%) imposed by the custodian that results in higher fees that if I transferred everything to Vanguard directly. My spouse makes above what is allowable for contributing tax deferred to an IRA, so we have be utilizing the backdoor Roth conversion in our Vanguard IRA accounts. Currently the entire balance of the Vanguard accounts is invested in Roth and we have no other IRAs.

My question is, should I roll over my 401k into my Vanguard account or leave it in my former employers 401k plan (I am not required to withdraw the money as far as I am aware)? My 401k is about an even mix between IRA and Roth ($250k total value). From what I have been reading, it appears that if I roll over my 401k I will no longer be able to utilize a backdoor Roth conversion without incurring a significant tax penalty due to the Pro-Rata rule.

It seems like the potential lifetime benefit of backdoor Roth conversions outweighs the higher fees from my current 401k plan. Thought?

[Peds]

You are correct.

Leave the 401k, they cannot make you move it. Roll it over to your new employer in the future (if the plan is better). If not, continue leaving it alone.

20bp is not the end of the world, but agree not perfect.

You can roll the Roth 401k over to your Roth IRA however. You avoid RMDs, and you save the admin fee.

[nachos31]

boogiba wrote:

...I do not anticipate working for a new employer for the foreseeable future, so I was investigating the option of rolling over the 401k....

My question is, should I roll over my 401k into my Vanguard account or leave it in my former employers 401k plan (I am not required to withdraw the money as far as I am aware)? My 401k is about an even mix between IRA and Roth ($250k total value)....

It seems like the potential lifetime benefit of backdoor Roth conversions outweighs the higher fees from my current 401k plan. Thought?

Click to expand...

Hi Boogiba,

Is there any way you can make some sort of 1099 or self-employment income of some kind so you can open a solo 401k? If you can, then you could roll your former employer 401ks into the solo 401k and have your choice of funds without that annoying 0.2% account fee.

If you can't open a solo 401k, then I'd suggest keeping it with your employer to allow yourself the backdoor Roth IRA option.

When you say your 401k is a mix of IRA and Roth do you mean a mix of a regular tax-deferred 401k (not an IRA) and Roth 401k? If that's the case, then you could roll the Roth portion over to your Roth IRA like Peds suggested.