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New Attending- What to do with my previous IRAs so I can do Backdoor Roth?

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  • New Attending- What to do with my previous IRAs so I can do Backdoor Roth?

    I'm a 37 year old new attending having finished residency at the end of June 2021. I took time off afterwards and started my first attending position (a W2 employee for a county employer and without a high deductible medical plan) in December 2021. I haven't yet filed my 2021 taxes (will file as single in California) and wanted to ask this question to see if there's anything I can do in the next few weeks before I do so. I'm open to any input and ideas.

    For calendar year 2021, I only had 6 months of residency income and 1 month of attending income amounting to just a little over $51,000 total. As you can see by my age, I switched careers to go into medicine and have several IRAs from previous jobs and other investments prior to going into medicine. Since starting medical school, I hadn't contributed to them and pretty much left them alone. I'm way overdue to do something about them. Currently my retirement accounts look like this:
    • Fidelity 403b: ~$25,000
    • Fidelity Rollover IRA: ~$100,000
    • Schwab Traditional IRA: ~$38,000
    • Vanguard Roth IRA: ~$36,000 (I started this in residency and already contributed $6,000 for 2021)
    To set myself up to continue to contribute to my Vanguard Roth IRA via the backdoor for 2022 and beyond, I believe I need to do something about my other IRAs to avoid a prorata rule.

    My questions are:
    1. My Fidelity 403b won't factor into the prorata rule, right? So therefore, I can just leave it there for now? Any ideas of what to do with it in the future?
    2. Since I'm a W2 employee, I'm ineligible to set up a Solo 401k to simply transfer my Fidelity Rollover IRA and Schwab Traditional IRA into it? If I was getting a 1099 income, doing this would solve the problem right?
    3. ...so then, I would have to transfer my Fidelity Rollover IRA and Schwab Traditional IRA into my Vanguard Roth IRA?
    4. I heard transferring accounts between different companies doesn't always work. Does Vanguard accept transfers from Fidelity and Schwab retirement accounts?
    5. If I'm able to make these transfers, any idea how much I would have to pay in taxes for 2021? I.e. how much will I need to keep in my bank account right now to cover these taxes?
    6. If this won't work, am I out of luck with doing Backdoor Roth IRA contributions going forward? I feel like I would be leaving a lot of financial potential out on the table.
    Thanks for reading and looking into this in advance! Much appreciated!

  • #2
    Just roll the IRAs into your new employer's 401(k) or 403(b).

    Done. Assuming they accept it.

    Comment


    • #3
      Agree. No problem with transfers, but don't wait until December.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        Oh boy, I feel like I was way overthinking this and forgot about the most obvious solution. Thank you!

        Comment


        • #5
          Note: Rollovers and conversions happen in the calendar year they occur. The contributions are by the tax year.
          Point is that you missed the window for 2021. You will pay pro rata tax on your 2021 contribution.

          Comment


          • #6
            Originally posted by Tim View Post
            Note: Rollovers and conversions happen in the calendar year they occur. The contributions are by the tax year.
            Point is that you missed the window for 2021. You will pay pro rata tax on your 2021 contribution.
            It sounds like the $6000 for 2021 may have been a contribution and not a conversion.

            OP—if this is the case, no tax due, obviously. If you did in fact make a conversion via the backdoor (on $51k income?), then Tim is correct and you will pay pro rata.

            Comment


            • #7
              Correct. In either case, one would owe some tax. Just different mechanics, and different tax.

              Comment


              • #8
                Ah yes, the $6,000 into my Roth in 2021 was a contribution (not a rollover).

                For 2022, I haven’t done anything yet in regards to my Roth due to the aforementioned status of my IRA accounts. I will now look into rolling over those two IRAs into my employer-based 457b account to avoid the pro rata tax since I will have to do a Backdoor conversion for this year and the future.

                As an aside, does it make any sense to leave my 403b alone as is? Should I might as well just roll it over into my 457b along with my two IRAs to consolidate everything into one account?

                Thank you all for your insights!

                Comment


                • #9
                  Do you work for a governmental entity or a NPO? If NPO, you don’t have the option to roll anything into your 457b.

                  Wish you had asked this question in 2021, as it w/h/b an ideal year for taxable Roth conversions. Prob not so this year.

                  Whether you consolidate your 403b into your current retirement plan (assuming it allows r/o’s) depends on the quality of each plan. If your orphan 403b has a nice variety of low-cost choices and your current one doesn’t, you’ll probably want to leave it where it is. All things being equal, I agree with consolidating and simplifying.

                  Don’t you also have a 401k or a 403b paired with your 457b at current employer? That is what I’d be looking at for r/o’s, not the 457b.

                  Good luck and welcome to the forum!
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10
                    I do work for a governmental entity that has a 457b (with rather lousy investment choices) and even a pension that appears to be worth it should I choose to stay with them for the majority/entirety of my career. They don't offer an additional 401k or 403b. In regards to the 457b, they offer the option to increase the investment choices by linking it up with a Schwab PCRA (Personal Choice Retirement Account) for an annual fee of $50. I will have to do some more research about the mechanics of this PCRA but perhaps it'll be worth it to be able to put together a Boglehead-like three fund portfolio using Schwab mutual funds (SWTSX, SWISX, SWAGX), which I otherwise wouldn't be able to with my current 457b default options.

                    To summarize the above advice that I've been given, I appears that I should do:
                    • Keep my Fidelity 403b orphaned as is
                    • Rollover my Fidelity IRA and Schwab IRA into my current employer 457b
                    • Sign up for the Schwab PCRA option ($50 annual fee) of my employer 457b to increase my investment choices to put together a Schwab equivalent of a Boglehead-like three-fund portfolio (SWTSX, SWISX, SWAGX)
                    • Proceed with the Backdoor Roth into my Vanguard account for 2022 and on
                    Now I have a follow up questions: Let's say I end up leaving this job in a few years and end up with a new employer that does offer a 401k or 403b, would it be just as easy to then rollover the funds of my 457b into that new 401k or 403b account? I plan to stay with my current employer to take advantage of loan repayment which will pay off my all student loans in exchange for a 3 year commitment.

                    Another possibility just came to mind: Would it be feasible to create a Solo 401k if I do those online physician surveys and rollover my Fidelity and Schwab IRAs into that? Otherwise, I don't intend to pick up moonlighting shifts just to start a Solo 401k.

                    Thank you all for your insights!
                    Last edited by -speeds-; 03-27-2022, 02:20 PM.

                    Comment


                    • #11
                      Now I have a follow up questions: Let's say I end up leaving this job in a few years and end up with a new employer that does offer a 401k or 403b, would it be just as easy to then rollover the funds of my 457b into that new 401k or 403b account? I plan to stay with my current employer to take advantage of loan repayment which will pay off my all student loans in exchange for a 3 year commitment.

                      https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

                      Comment


                      • #12
                        Originally posted by -speeds- View Post
                        [/LIST]Now I have a follow up questions: Let's say I end up leaving this job in a few years and end up with a new employer that does offer a 401k or 403b, would it be just as easy to then rollover the funds of my 457b into that new 401k or 403b account? I plan to stay with my current employer to take advantage of loan repayment which will pay off my all student loans in exchange for a 3 year commitment.

                        Another possibility just came to mind: Would it be feasible to create a Solo 401k if I do those online physician surveys and rollover my Fidelity and Schwab IRAs into that? Otherwise, I don't intend to pick up moonlighting shifts just to start a Solo 401k.

                        Thank you all for your insights!
                        Regarding rolling over into a new employer plan: certainly, that is an option if the plan allows it. Most plans do, but not all.

                        If you are in business to make a profit and have net self-employment income, then, yes, you can set up and fund a solo-k. If that is answering surveys and you intend to continue with 1099-NEC work into the unforeseeable future, then, yes, that could work. The minute you decide to close the “business”, though, you will also be required to terminate the plan.

                        I tend to side with SR on this one and d/n suggest to clients to do a few surveys primarily for the purpose of setting up a solo-k It is, however, technically allowed given the provision with which I began the preceding paragraph. Your intent is up to you (and to the IRS, if you’re ever audited)..

                        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13
                          Clarification please: "The minute you decide to close the “business”, though, you will also be required to terminate the plan."
                          If one works 1099 for a year, self employed with no employees, or self employed, I am under the impression that they are definitely eligible for a solo 401k.
                          If they take a w-2 job and are no longer generating 1099 or self employed income then they are not eligible for making contributions.
                          No business activity for a year would seem to imply you closed the business. Thus are required to close the solo 401k.
                          I was under a mistaken impression that since "you the owner" were still alive, you would be allowed to keep it open and rollover when and if needed.
                          The solo 401k attached you, not the specific business.
                          Please clarify the termination requirements. Under this (probably mistaken) interpretation, a solo 401k would be required to be terminated upon retirement of a sole practioner and never have RMD's. Not sure if this is the correct interpretation.
                          Just seeking clarification of the 401k rules for terminating the plan.

                          I agree with the interpretation of the intent of a continuing business in order to be eligible.

                          Comment


                          • #14
                            Originally posted by Tim View Post
                            Clarification please: "The minute you decide to close the “business”, though, you will also be required to terminate the plan."
                            If one works 1099 for a year, self employed with no employees, or self employed, I am under the impression that they are definitely eligible for a solo 401k.
                            If they take a w-2 job and are no longer generating 1099 or self employed income then they are not eligible for making contributions.
                            No business activity for a year would seem to imply you closed the business. Thus are required to close the solo 401k.
                            I was under a mistaken impression that since "you the owner" were still alive, you would be allowed to keep it open and rollover when and if needed.
                            The solo 401k attached you, not the specific business.
                            Please clarify the termination requirements. Under this (probably mistaken) interpretation, a solo 401k would be required to be terminated upon retirement of a sole practioner and never have RMD's. Not sure if this is the correct interpretation.
                            Just seeking clarification of the 401k rules for terminating the plan.

                            I agree with the interpretation of the intent of a continuing business in order to be eligible.
                            A business can be dormant for a sole proprietor. There is no requirement for one to have activity annually, nor is there a requirement for a profit annually. SR can say it better than I, but it makes sense. Some doctors take on 1099 work when they have some time or need for extra income. That doesn’t have to occur annually.

                            Tbh, it actually doesn’t have to occur annually for an S-corp, but few shareholders want or need to maintain an s-corp solely for the “possibility” of future income - it’s just not practical.
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              Originally posted by jfoxcpacfp View Post

                              A business can be dormant for a sole proprietor. There is no requirement for one to have activity annually, nor is there a requirement for a profit annually. SR can say it better than I, but it makes sense. Some doctors take on 1099 work when they have some time or need for extra income. That doesn’t have to occur annually.

                              Tbh, it actually doesn’t have to occur annually for an S-corp, but few shareholders want or need to maintain an s-corp solely for the “possibility” of future income - it’s just not practical.
                              Absolutely not a challenge by any means. I was under an likely uneducated impression.
                              If you close a business, of course you want to shut it down. Primarily, liquidation and avoid future liability or expenses. Duhhh.
                              However, a solo 401k has value to the solo owner. A very useful retirement vehicle, as is. Primarily for future rollovers or the chance one generates sole proprietor income or 1099. Eventually, you would keep it or close it. Better asset protection vs IRA’s have less compliance issues.
                              Short version, I thought closing a solo 401k was optional for the owner. Not an immediate requirement.
                              As usual Johanna. thank you. Carryon.

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