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Converting Traditional IRA to SOlo 401K (to be eligible for Backdoor IRA)

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  • Converting Traditional IRA to SOlo 401K (to be eligible for Backdoor IRA)

    I had half my portfolio in Vanguard and half in Fidelity, the way my residency and job related Roths and 401ks were set by hospitals. Last year this time, when trying to rebalance and consolidate my portfolio, I moved everything to Vanguard. My Fidelity "Roll over IRA" was renamed as "Traditional IRA" by Vanguard. I did not know the implications, and I went ahead and did a Backdoor IRA!! My tax preparer insists that it does not matter, despite Vanguard warning me and asking me to consult with her. Since I am really not good at math, I have blindly trusted her for the past 15 years to do my taxes, but now that I started reading more about backdoor, I got concerned. Now how do I get out of Vanguard TIRA to be able to do a Backdoor? Thanks!

  • #2

    1. See if your current employer plan accepts rollovers (most do) and, if so, start the process to roll your TIRA into your 401k/403b. You can find out more by reading your SPD (Summary Plan Description). If you don't have a hard copy, you can probably download one from your plan administrator's website.

    2. If you happen to have any IC income during 2017, you can also set up a solo-k and roll the TIRA into it.

    3. Get a new CPA who is familiar with taxes and tax planning.


    You don't have much time remaining this year, of course, so make #'s 1 and 2 top of your to-do list on Tuesday.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3




      1. See if your current employer plan accepts rollovers (most do) and, if so, start the process to roll your TIRA into your 401k/403b. You can find out more by reading your SPD (Summary Plan Description). If you don’t have a hard copy, you can probably download one from your plan administrator’s website.

      2. If you happen to have any IC income during 2017, you can also set up a solo-k and roll the TIRA into it.

      3. Get a new CPA who is familiar with taxes and tax planning.


      You don’t have much time remaining this year, of course, so make #’s 1 and 2 top of your to-do list on Tuesday.
      Click to expand...


      Thanks. Both #1 and 2 you suggest are complicated.I am trying to do the best as I can (I just started a new job and just opened the 401K and no contributions for Dec have gone thru yet)

      For #1: My hospital has been bought over and the new owner is taking over on Jan 3rd. They have Transamerica for the 401K (we just signed up for it last week) and I don't like the online reviews about that company (I had not even heard of this company!), to want to roll over a 6 figure amount to such a company without trying them out.

      For #2: I have $2000 consulting income for 2017. However, I don't see a Solo 401K option with Vanguard on the site - is their Solo 401 K called Individual 401K?? : https://investor.vanguard.com/what-we-offer/small-business/compare-plans?Link=facet

      This Jan 2014 article from WCI suggests that Vanguard is not the best for solo 401K - which seems outdated based on what the Vangaurd site says:  https://www.whitecoatinvestor.com/where-to-open-your-solo-401k/

      So I am getting confused where to move my Vanguard TIRA. I just spoke with the tax person, and she insists that having a TIRA with six figures should not be a problem to doing a Backdoor "just like we did last 2 years" -she is not getting it that I may have paid pooled taxes - have asked her to look thru my returns), but having done so much reading on WCI and other websites, I do not agree with her. Yes, I will be looking for a new person but that is for next year

      Comment


      • #4
        Yes, use "individual" 401k as your search term (solo-k is simply common vernacular). Vanguard, however, will not let you do rollovers into a solo-k, to the best of my knowledge (not a Vanguard fan, so maybe others with more experience will step in). Fidelity and TDA would both be good choices.

        Of course, another option is simply to pay the pro-rata tax on the backdoor Roth conversion.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5




          Yes, use “individual” 401k as your search term (solo-k is simply common vernacular). Vanguard, however, will not let you do rollovers into a solo-k, to the best of my knowledge (not a Vanguard fan, so maybe others with more experience will step in). Fidelity and TDA would both be good choices.

          Of course, another option is simply to pay the pro-rata tax on the backdoor Roth conversion.
          Click to expand...


          I agree about not being a Vanguard fan as I have tried them for a year. I regret leaving Fidelity, who I was with for 19 years. I may move back to them with this TIRA back to old Rollover account, or a solo/individual account with them

          Comment


          • #6
            Be familiar with the asset protection laws of the state you practice in.  Typically, retirement accounts are protected from lawsuits.  However, some states make IRAs vulnerable (as opposed to 401Ks, 403bs) after certain contribution limits (e.g. the first $20,000 is safe, but then any amount over that can be seized).  A "roll over IRA" is safe if it comes from a previous 401K or 403b plan.  I suspect that if you theoretically lost a lawsuit that was not entirely covered by your insurance, then your attorney could make the successful argument that your "traditional IRA" was actually a "roll over IRA" for asset protection purposes.  All of this is very remote, but there is an asset protection benefit in some states between a "roll over IRA" and "customary traditional/ROTH IRA"

            Comment


            • #7




              Be familiar with the asset protection laws of the state you practice in.  Typically, retirement accounts are protected from lawsuits.  However, some states make IRAs vulnerable (as opposed to 401Ks, 403bs) after certain contribution limits (e.g. the first $20,000 is safe, but then any amount over that can be seized).  A “roll over IRA” is safe if it comes from a previous 401K or 403b plan.  I suspect that if you theoretically lost a lawsuit that was not entirely covered by your insurance, then your attorney could make the successful argument that your “traditional IRA” was actually a “roll over IRA” for asset protection purposes.  All of this is very remote, but there is an asset protection benefit in some states between a “roll over IRA” and “customary traditional/ROTH IRA”
              Click to expand...


              Good point. Check your state here.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8
                Thanks, Mitochondria and Johanna

                Comment


                • #9




                  Be familiar with the asset protection laws of the state you practice in.  Typically, retirement accounts are protected from lawsuits.  However, some states make IRAs vulnerable (as opposed to 401Ks, 403bs) after certain contribution limits (e.g. the first $20,000 is safe, but then any amount over that can be seized).  A “roll over IRA” is safe if it comes from a previous 401K or 403b plan.  I suspect that if you theoretically lost a lawsuit that was not entirely covered by your insurance, then your attorney could make the successful argument that your “traditional IRA” was actually a “roll over IRA” for asset protection purposes.  All of this is very remote, but there is an asset protection benefit in some states between a “roll over IRA” and “customary traditional/ROTH IRA”
                  Click to expand...


                  Not necessarily.

                  Rolled over IRA assets do retain the unlimited federal bankruptcy protection, whereas the protection of IRA contributions is limited to $1M inflation adjusted from 2005 for all traditional and Roth IRA accounts combined.

                  However, neither receive ERISA anti-alienation protection against creditors outside of bankruptcy. That is subject to state law and about 10% of states do not fully protect them.

                  CA, limits IRA protection only to "the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor." Note: The court gets to decide what lifestyle that "support" needs to enable and not the lifestyle you have become adjusted to or planned to retire to.

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