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Help rolling over pension to IRA

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  • Help rolling over pension to IRA

    Hello,

    My wife was a teacher prior to becoming a stay at home mom. She had about 4 years service contributing money to a defined benefit “group retirement” plan.

    We have to move this to a different plan. The only other accounts she has are a traditional IRA  at vanguard (zero balance used only to do a backdoor roth ira) and a roth ira at vanguard. Each year we both do backdoor roth iras. Would the best course of action be to roll this over to her traditional IRA at vanguard then convert it to a roth and pay taxes on the conversion amount? Its a small amount  of money total, around 15k. Does this count against her $5500 contribution limit for this year?  Any other plan (401k etc)  she could open to put it in so we don't have to pay taxes on the money now? She has no current employment or income. Thanks

  • #2
    All you have to do is to roll it out to an IRA - no taxes due as it retains its pre-tax status. I would not recommend you co-mingle with the IRA you are using for the backdoor Roth flow-through. Just open a new IRA to receive the rollover.

    This does not impact her annual $5,500 IRA contribution limitation.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Thanks Johanna. But if it's rolled over to a traditional ira then each year when she does the back door Roth wouldn't she have to pay taxes on a percentage of the conversion since she would have traditional ira money that hadn't been taxed yet?
      Thanks

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      • #4




        Thanks Johanna. But if it’s rolled over to a traditional ira then each year when she does the back door Roth wouldn’t she have to pay taxes on a percentage of the conversion since she would have traditional ira money that hadn’t been taxed yet?
        Thanks
        Click to expand...


        You know what? I totally blew that one. Don't know where my mind was. Of course you would have to pay taxes using the pro-rata rule. Yes, you'll need to convert to a Roth before 12/31/17 if you roll it out this year. You won't pay taxes on the rollout, but you'll have to move it out of the IRA. Depending on your tax bracket (i.e., if you are about to cross over into another bracket), you can do a rollover over 2 years and convert each year or just do it all at once. Otherwise, you'll have to leave it there until your wife can get some SE income and set up a SOLO-k.

        I'm so sorry, totally inexcusable.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          I am in a similar situation.  I worked for a county hospital pension plan for 8 years putting pre-tax money into the pension.  In order to qualify for any retirement benefit, one must have worked for the county for 10 years to become vested.  Thus my ~$90,000 is just sitting in an account with no growth.  I recently moved to another state and am working for a state university (making around $250,000) which does not allow any external moonlighting, thus minimal opportunity for supplementary income.  I will get one 1099 this year with about $1000 in income.

          I am not sure what to do with the $90,000.  If I roll the pension money into a traditional IRA, can I then convert the traditional IRA $90,000 to my existing Roth IRA account?  I do not think that is possible.  Can I open an individual 401K base on $1000 of SE income?  Any other ideas.  I do not believe my employer 403(b) and 457 will accept the rollover.

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