Announcement

Collapse
No announcement yet.

Rolling over traditional IRA

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Rolling over traditional IRA

    My wife worked for a few years and had a 403(b) worth about $20k that we rolled over into a traditional IRA. I was mulling over the possibility of moving it to a Roth IRA since I am in my last year of residency and will only have 1 more year of non-attending level salary (I hope). Unfortunately, I don't really want to pay taxes on $20k in income as the budget is a little tight this year, but I also don't want to pay even more taxes on it later when my marginal tax rate goes up. What is a guy to do?

    BUT, I heard Dr. Dahle give an awesome suggestion on one of his podcasts that maybe we could open up a solo 401(k) if we had any income on the side and roll the traditional IRA into it (while also opening up the possibility of future backdoor Roth IRA transfers). My wife so happens to be helping out a friend with dog walking and gets paid (a paltry) $25/week.

    So I call up Fidelity and asked one of their tax specialists about opening up a solo 401(k) and they replied that I can't just open one up and roll over money into it. Apparently, I was told that it requires regular deposits and that the IRS frequently audits such accounts.

    Does anyone have any experience with solo 401(k)s and using them when actual self-employed income is low? I admit my motivation for using it is as a receptacle for the rollover funds from the traditional IRA and we will not likely put much into it in the future. Thanks for any direction!

  • #2


    Does anyone have any experience with solo 401(k)s and using them when actual self-employed income is low? I admit my motivation for using it is as a receptacle for the rollover funds from the traditional IRA and we will not likely put much into it in the future. Thanks for any direction!
    Click to expand...


    Yes, you can do this. There is no minimum limit for opening a SOLO-k. $1300 earnings (25*52) is ok.

    You mentioned in your opening that part of your motivation was to "pay even more taxes on it later when my marginal tax rate goes up". You will not accomplish your goal with the SOLO-k. Might want to convert in pieces over 2 years or convert at least part of the TIRA to a Roth in addition to the SOLO-k.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3
      If I was in your situation I would get everything out of traditional IRA before I hit my attending salary. One you hit that, you will likely be ineligible for direct Roth contributions and your traditional IRA contributions will be taxable. If you want to do backdoor Roth contributions, you will have pro rata taxes to worry about because of that $20K IRA.

      If your tax rate is in the 15-20% bracket this year you would have a $3000-$4000 extra taxes this year, but if you wait and pay taxes along the way with pro rata taxes from back door Roth IRA, you will be paying $6600-8000 later since you'll likely be in the 33-39.6% bracket.

      Obviously I'm just guessing but you won't get these low tax Roth contribution years back. Having a big enough Roth (tax free) basket for retirment will help you pay even less tax then.  It might be worth it to try to suck it up this year so that $20,000 has room to grow to $160+ K over the next 30 years (at 7% growth) and all tax free. Otherwise you would pay income taxes on that $160+ when you retire.

      Comment


      • #4
        Buckle down, convert now.

        Comment

        Working...
        X