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Job change, rollovers, and tax implications

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  • Job change, rollovers, and tax implications

    Alright, I'm sure there are similar situations that have been posted before, but I'm seeking some input, advice, or any knowledge of what an optimal move would be for me.

    Short story: Worked at academic institution for a couple years, also where I did residency.  During residency at this UC institution, money was placed into the "DC Safe Harbor" account, which is essentially a 401a.  That money slowly accumulated over 3 years of residency.  (Totals: 401a ~$20k)

    As an attending in 2016, I max contributed $18k to both a 403b and a 457b. I also contributed $7,700 AFTER tax dollars to the 401a (Totals: 403b 18k; 457b 18k; 401a ~$20k DC Safe Harbor funds & $7,700 after tax contributions)

    New job acceptance early 2017, but did not leave UC job until June 30.  Max contributed $18k to the 457b, and put $13.5k in the 403b knowing that I would put the remaining $4.5k (to max 18k) in the 401k at my new job, since the 403b/401k accounts share the same 18k limit.   (2017 Totals: 403b 31.5k; 457b 36k; 401a ~$20k DC Safe Harbor funds & $7,700 after tax contributions; 401k $4,500)

    Keep in mind that the numbers above are just indicative of the money I put in and not the actual values that would include gains over the past years.

    The 401a has two components of sources: the DC Safe Harbor money that was pre-tax dollars during residency and the $7700 that I put in after tax while I was an attending.  The fidelity guy today suggested I move the after tax contributions ($7700) to a Roth IRA which is allowed and what I see referred to as a Mega backdoor Roth on occasion. He then suggested I place the GAINS from the after-tax contributions ($1150.20) into a Rollover IRA account.

    Question 1: Does this make sense to do?  Naturally, I want to get the after tax dollars into a Roth sooner rather than later so the gains are not taxed.  Seems logical.

    Question 2: If and when I move the after tax gains (the $1150.20) into a Rollover IRA, do I pay taxes on those gains now?  If so, how on earth do I report this transfer of money into a Rollover IRA on my taxes this year?

    Question 3: Will moving the remainder of all the previous job retirement accounts (403b, 457b, and the pre-tax portion of the 401a) into my new job 401k have any negative tax implications, or is this a pretty simple change over without any significant hurdles or consequences?

    Any advice is greatly appreciated, or suggestions on other superior moves to be had in this situation.

     

     

     

  • #2
    First, I want to clarify that what you're calling:

    (2017 Totals: 403b 31.5k; 457b 36k; 401a ~$20k DC Safe Harbor funds & $7,700 after tax contributions; 401k $4,500)

    Are really the 2016-217 cumulative totals for the 403b, 457b, 401k and 401a after-tax. Plus, $20K 401a circa 2013-2016.

    1: Yes, you can rollover the 401a after-tax contributions to a Roth IRA. Where you should rollover the pre-tax earnings depends on if your previous employer will rollover those pre-tax earnings to your current employer and your current employer will accept them. If not, if your current employer accepts reverse rollovers from a traditional IRA.

    2: If you rollover the after-tax contributions to a Roth IRA and the pre-tax earnings to a traditional IRA. You will report the total of the rollovers on Form 1040 Line 16a. This is a tax-free rollover and you will enter $0 on 16b.

    If you rollover the pre-tax earnings along with the after-tax contributions to a Roth IRA, you will report the pre-tax earnings as taxable on 16b.

    If you can rollover the pre-tax earnings to the 401k, only the Roth IRA rollover will be reported on 16a worth 16b $0.

    3: You will want to move the 403b, 457b, 401a pre-tax contributions and pre-tax earnings from after-tax contributions by direct rollover. These will be tax-free and non-reportable.

    If you do any of these by indirect rollover, they will be subject to 20% withholding and any amount you didn't make up would be subject to ordinary income taxes and the 10% early withdrawal penalty.

    Your best option for the after-tax rollover is to rollover the after-tax contributions to a Roth IRA and rollover the pre-tax earnings to the 401k. Most people think you can only do a Roth IRA/traditional IRA rollover pair. That is because everyone is always doing this from their current employer. All that is required is that the rollover destination (s) is/are valid.

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    • #3
      Work at UC currently and hopefully can help --

      Disclaimer -  Have no idea on the DC Safe Harbor --how this handles on the distributions

      DCP/401a - post tax contribution:  Yes, distribution to ROTH IRA -  (aka Mega Backdoor Roth) --

      any earnings in the 401a can distribute to Traditional IRA  -- not taxed, but reported at least in the fidelity paperwork (no cost though) - no penalty -- both done with easy phone call to Fidelity.

       

      --is there a reason to move the 403b+457 to the new institution instead of into a rollover IRA?

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      • #4
        Good question, and I don't know the answer...

        Is there a benefit to putting the 403/457 into a Rollover IRA instead of the new institution?

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        • #5




          Good question, and I don’t know the answer…

          Is there a benefit to putting the 403/457 into a Rollover IRA instead of the new institution?
          Click to expand...


          Yes - you maintain control of your investments. Once it goes to the new employer, you lose control of any future investment choices or whether you retain the ability to convert to a Roth IRA. May never matter but, then again, it could.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            You could check with the new 401k. If they allow any in-service rollovers, previous rolled-in assets are very often eligible.

            In this case, if you have good investment options, there may be no downside to rolling over the 403b assets.

            If you have good investment options in the 457b. One reason to keep the 457 assets where they are Is that there is no early withdrawal penalty.

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