Approach to rolling over previous state pension money to IRA

[redsand]

In 2016, I left state employment (and moved to a different state) and now I'm trying to figure out what to do with the money that was put into the state-managed retirement account.  The contributions were all tax-deferred.  My options are that I could either leave the funds in the account (which would be a consideration if I thought I would return to state employment in the future, because the time I worked would factor into retirement calculations if I worked more than 10 years total for the state, doesn't have to be continuous employment) or roll the money into an IRA (I imagine tIRA because the contributions were not taxed) at any time.  (Or I could take a refund and pay taxes and penalties, which I do not plan to do.)  I don't plan to return to state employment.  The state retirement account earns 2% interest compounded annually.  That isn't much for someone who expects to work another ~30 years before retirement.

I went into a fellowship job so my income in 2017 is going to be about $65,000, and I can make direct Roth contributions for 2017.  My current 403(b) does not accept rollovers.  Would rolling over ~$19,000 currently located in a state retirement account to an IRA affect how much I could contribute to an IRA (for example, $5500 for 2017)?  I expect to finish fellowship in 2018, so I don't know what my income will be for 2018 (possibly too high for direct Roth contribution), which would depend on the job I take.  What are the pros and cons of rolling over to a tIRA and then recharacterize to a Roth IRA in 2017?  I wouldn't want to shut down my ability to do a backdoor Roth in the future.  Is it worth it to pay the taxes on it now, or should I just leave it in getting 2% interest until my next job and see whether my next job offers a 401(k)/403(b) that accepts rollovers from an IRA (because the state account only allows rollovers to an IRA).  Thanks in advance.

[Peds]

so if you roll it to an IRA, you will definitely need to either move it to an allowed 401k/403b type plan or convert it to a Roth to free up future hassle free backdoor rIRA plans.

you can move it then convert it if your taxes will never be lower (also consider state tax).

if it were me, i would leave it alone for now. cont to fund your 403b and rIRA. then once you have your post fellowship job re-assess. if able to accept IRAs, move the pension and roll it over. easy.

if not, then wait for the next job, etc, etc.

nothing wrong also with having a (albeit) small pension in the future for diversification sake.

[jfoxcpacfp]

• Roll it out into a TIRA simply because it is earning only 2%/yr if for no other reason.


• Find a way to earn some IC income, set up a SOLO-k, and then roll your TIRA into it.

It is possible that your post-fellowship employer will have a plan that accepts rollovers. However, the above is far preferable to rolling the account into another qualified account (401k/403b) as you lose a huge measure of control over your investments that you will retain.

imho, having a small pension in addition to another kind of retirement account as "diversification". Diversification is what is held within the accounts, not the accounts or the method of payout themselves.

 

[redsand]

Thanks for the tips.  I'll have to look at additional income options as an IC.  I think moonlighting is so strongly discouraged that it might not be possible.  Not sure whether people in other training programs do this at my institution.

I do think that my tax bracket this year (2017) is going to be lower than in the future, including during retirement (state taxes included because I could easily see myself in a state with relatively high income tax).

Just to clarify, while it is a state government pension fund, all I can get back from the fund is my contributions plus 2% annual interest unless I work 10 or more years for the state (does not have to be 10 continuous years).  I genuinely do not think I will work for 10 years for the state (would need about 8 more years), so the motivation to keep the money in the account for the purpose of retaining my current work credit toward the 10-year total is basically nonexistent.