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Backdoor Roth - worth higher ERs?

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  • Backdoor Roth - worth higher ERs?

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  • #2
    Interesting dilemma.  I'm not sure I have the answer, but I would be inclined to go ahead and transfer the $ so you can do the Backdoor Roth.  If you compare the savings of a Roth versus taxable account with Vanguard, I think you'll more than make up the 25 basis points TA is charging.  That is, if you invested $5500 in a taxable Vanguard account, the 2% dividend would be taxed each year and the gains would be subject to capital gains taxes when sold unless you're in the 15% income tax bracket.

    Also interesting, I have TA for my 401(k) and 457(b) and the fees appear to be quite a bit lower, unless they're really well hidden.  Also, I have access to institutional Vanguard funds, with ER as low as 0.04 for Total Stock Index or S&P 500 funds.  It's a large employer with a lot of money in the plan, which I suspect is the reason for the difference.

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    • #3
      I'd do it for a backdoor Roth, but if you can get some 1099 income, an individual 401(k) would be a better choice to roll that money into.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        Q: Is the $50k traditional IRA all deductible contributions? Any non-deductible?

        The other option is simply pay the tax now.

        We were in a similar situation where we had to do a roll-in to my current 401k plan with old roll-over IRAs.

        I ended doing both where I moved the bulk into my current 401k plan but I did leave some securities "as-is" which I didn't want to liquidate and just going to take the tax hit as a Roth conversion so I can do the backdoor Roth IRA "clean" every year w/o any pro-rata rule.

        In any case think the backdoor Roth IRA is a good vehicle to take advantage of even with the ER hit.

        As you mention the gain of getting the Roth (no tax on any gain) should easily compensate for the extra ER you would get on the $50k.

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