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Own an IRA, horrible 401k options, want to start backdoor Roth

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  • Own an IRA, horrible 401k options, want to start backdoor Roth

    I want to start contributing to a Roth IRA this year via backdoor, but currently own an existing IRA. Pro-rata rules would force me to convert or roll-into an existing 401k.

    The IRA is approximately $125k and I do not want to pay the taxes on it currently. Expense ratio is 0.08%

    Rolling into my employer's 401k is an option - but they have terrible investment options.

    American Funds - 1.31% expense ratio is the lowest available, up to 1.75%

    Do my losses rolling into a terrible fund outweigh the $6000 I would be able to put into a Roth IRA?

  • #2
    Do you have any side income that would allow you to establish a solo 401k?

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    • #3
      Originally posted by Larry Ragman View Post
      Do you have any side income that would allow you to establish a solo 401k?
      No, I do not

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      • #4
        The more important question is what can you do about your employer's terrible 401k. In the long run, that matters far more than any IRA does, because the 401k contribution limits are so much higher than an IRA's. I'd start lobbying hard for better funds in the 401k.

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        • #5
          Originally posted by artemis View Post
          The more important question is what can you do about your employer's terrible 401k. In the long run, that matters far more than any IRA does, because the 401k contribution limits are so much higher than an IRA's. I'd start lobbying hard for better funds in the 401k.
          I instantly got the "no can do" response. I can see why they wouldn't be incentivized to stop a 1.5% expense ratio!

          The difference in fees is a few thousand a year for rolling in - I'm wondering if I'm just better keeping it where it's at and skipping my individual backdoor roth until the future changes.

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          • #6
            Originally posted by quacklikeadoc View Post
            I instantly got the "no can do" response. I can see why they wouldn't be incentivized to stop a 1.5% expense ratio!
            Keep pushing. By law, an employer stands in the role of a fiduciary when it comes to employer-sponsored retirement accounts. Your employer is failing in that role, and may have legal exposure.

            Originally posted by quacklikeadoc View Post
            The difference in fees is a few thousand a year for rolling in - I'm wondering if I'm just better keeping it where it's at and skipping my individual backdoor roth until the future changes.
            Given that the survival of the Backdoor Roth isn't certain, I'd certainly keep the IRA for now. I'd also make saving in a quality taxable account a priority.

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            • #7
              Markets are down. Not a bad time to do a Roth conversion. Depends how close to retirement you are and current tax bracket. Just another option...

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              • #8
                Originally posted by quacklikeadoc View Post

                I instantly got the "no can do" response. I can see why they wouldn't be incentivized to stop a 1.5% expense ratio!

                The difference in fees is a few thousand a year for rolling in - I'm wondering if I'm just better keeping it where it's at and skipping my individual backdoor roth until the future changes.
                Who gave you the "no can do" response? A low level staffer in HR, or an officer of the company? Does your employer understand the fiduciary duty of a plan sponsor? Might want to drop a copy of Tibble v. Edison International on their desk. Perhaps a copy for in house counsel as well.

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                • #9
                  Originally posted by quacklikeadoc View Post

                  I instantly got the "no can do" response. I can see why they wouldn't be incentivized to stop a 1.5% expense ratio!

                  The difference in fees is a few thousand a year for rolling in - I'm wondering if I'm just better keeping it where it's at and skipping my individual backdoor roth until the future changes.
                  How big is your employer? You should be talking to the owners/partners if this is a medical practice. If your employer has an HR department, it is probably no use talking to them. I think the reason they are doing this is because the revenue sharing is paying for all of the plan expenses, this was also addressed by the courts as a practice that can get them sued.
                  Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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                  • #10
                    Originally posted by quacklikeadoc View Post
                    The IRA is approximately $125k and I do not want to pay the taxes on it currently. Expense ratio is 0.08%
                    It all depends on your long term approach. It might be better to convert to Roth, pay taxes on the gains and let that 125K grow tax free for a long time. Especially if you are young and have a long career. And this also allows you to start doing 6/12K backdoor IRA till it is gone ( which may or may not happen).

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