Cash Balance Plan Options

[Bonedoc1]

I have a cash balance plan from residency that I'm trying to figure out what to do with. I'm three years out of fellowship and I have paid off my student loans (>$300k). I finally have a net worth in the black so I'm trying to figure out the best route to take with this cash balance pension plan. The amount in the plan currently is just over $12k

I max out my 401k + PSP through my group's retirement plan.

I fully fund a backdoor Roth IRA for my wife and me every year.

I fully fund and invest in an HSA.

And now that I have student loans paid off I am also ready to pay down more of our mortgage and put some retirement money in a taxable account.

Shall I keep the CBP in place ( its currently earning ~ 2.5% ) or is it best to roll this over to a different account?

[jfoxcpacfp]

Well, if you r/o to a TIRA, you'll mess up your tax-free back-door conversions. Since it's "only" $12k, I'd probably recommend rolling it into a Roth and paying the taxes. Since it's earning only 2.5%, you'll make it up with tax-free growth over the lifetime of the Roth (if you invest and manage your portfolio appropriately).

[TheGipper]

If you're in a high tax bracket and you like your current 401k/PSP, you can see if your CBP allows rollover to your 401k. That's what I'd do. Continue to defer taxes. Do Roth conversions later in low income years. If too much of a hastle or not allowed, do rollover into Roth as Johanna suggests and pay the taxes.

[Bonedoc1]

Thanks for the input. Yes, I am in a high tax bracket so I would lose ~39% of it.

I would prefer to continue to defer taxes on this. So, as long as I roll it into the 401k I shouldn't have to pay taxes on it, correct? (pre tax money)

Whereas, if I roll it into a Roth IRA or the Roth 401k, I would have to pay taxes because those accounts are funded with post-tax contributions.

[TheGipper]

Correctomundo........

Counterintuitively, if you are a mega super saver (i.e. will eventually have 10M+ in tax-deferred accounts) and don't plan to retire early, you may actually be better off contributing to Roth 401k now and paying taxes now, even at top rate, but this has always been too much of a leap for me to drink the coolaid. Too many things could go wrong (lose job, cash balance plans disallowed, Roth accounts get RMDs, top tax rate goes way down in some future window).....I'll continue to defer and roll the dice.

[jfoxcpacfp]

Bonedoc#1 wrote:

Thanks for the input. Yes, I am in a high tax bracket so I would lose ~39% of it.

I would prefer to continue to defer taxes on this. So, as long as I roll it into the 401k I shouldn’t have to pay taxes on it, correct? (pre tax money)

Whereas, if I roll it into a Roth IRA or the Roth 401k, I would have to pay taxes because those accounts are funded with post-tax contributions.

Click to expand...

Yes, that's exactly right. You'll lose control of it, of course, but 39% is a high cost to pay (maybe even more at state level), especially if you have a good 401k plan. You need to check your SPD to make sure your 401k accepts roll-ins, but most do.