IRA to Roth IRA or employer 401k

[eltonm45]

Hi everybody.

I was hoping to get some advice in regards to what to do with my IRA. When I graduated residency, I transferred my 401k to a vanguard IRA ( about $40000). I'm currently in fellowship and this summer with start as an attending. I would like to take advantage of the backdoor roth IRA  but my understanding is that it is much easier/simpler if the IRA account is zeroand start doing backdoor roth IRA conversions that way. Any opinions if i should convert the IRA to roth IRA now and take the large tax hit, or can I transfer my IRA to my future employers 401k plan. My understanding is that one does not pay taxes for IRA to 401k rollover. Are there any other options?

 

Thank you very much.

[Peds]

Yes move to employers 401k if allowed. Can also open a solo 401k if you have any 1099 income. I wouldn't pay the tax hit on 40K but others might disagree.

[cgossage]

eltonm45 wrote:

Hi everybody.

I was hoping to get some advice in regards to what to do with my IRA. When I graduated residency, I transferred my 401k to a vanguard IRA ( about $40000). I’m currently in fellowship and this summer with start as an attending. I would like to take advantage of the backdoor roth IRA  but my understanding is that it is much easier/simpler if the IRA account is zeroand start doing backdoor roth IRA conversions that way. Any opinions if i should convert the IRA to roth IRA now and take the large tax hit, or can I transfer my IRA to my future employers 401k plan. My understanding is that one does not pay taxes for IRA to 401k rollover. Are there any other options?

 

Thank you very much.

Click to expand...

You pretty much have it down.  Any time you perform a Roth Conversion you have to convert a portion of all of your IRA balances.  This is the issue with attempting to use a Backdoor Roth Conversion when you already have an IRA balance.  Your options are:

1. You could convert the whole balance to a Roth.  You would recognize income on the whole $40,000, but your tax rate may be as low as it will ever be again which makes this an attractive option.

2. You could also roll it into the 401(k) or 403(b) of your new employer. You don't have to pay any taxes now and can continue the tax-free growth.

3. If you have any side income, you could open a Solo-401k and roll your IRA balance into it.  This doesn't seem like a current possibility, but something to keep in mind in the future.

[Lithium]

Before you decide to roll over to your 401k, see if they charge AUM fees and how much.  It would probably be a long time before those exceed the taxes with converting to a Roth IRA, but I'd still want to know.  For this reason, it may be cheaper to roll into a Solo 401(k) if you're eligible to open one.

[eaglestrong]

I agree that the easiest no tax effect is to roll the IRA funds into your employers 401k. Solo 401ks are great if you have any 1099 income.

If you have extra cash savings (outside the IRA) to pay the tax on the Roth conversion, then it may be worth considering especially if you think your income for this year will be low vs. what you expect it to average over your career. However, sometimes the emotional pain of paying the tax now is too great.

[eltonm45]

Thank you everybody who replied- very informative.

As it turns out, my future employer does not accept IRA to 401k ( I was told the opposite just one week ago haha).

As far as 1099- I did do some moonlighting for which we were considered independent contractors. I only made 3k though my last 6 months of residency (jan-june 2017). Can I open a solo 401K for this and transfer the whole amount ( I apologize I am not too familiar with solo 401k).

 

thank you very much.

[cgossage]

eltonm45 wrote:

Thank you everybody who replied- very informative.

As it turns out, my future employer does not accept IRA to 401k ( I was told the opposite just one week ago haha).

As far as 1099- I did do some moonlighting for which we were considered independent contractors. I only made 3k though my last 6 months of residency (jan-june 2017). Can I open a solo 401K for this and transfer the whole amount ( I apologize I am not too familiar with solo 401k).

 

thank you very much.

Click to expand...

Your income in 2017 would definitely qualify. The issue is you are supposed to be in a trade or business.  So if you anticipate to earn more 1099 income in the future, you would meet the requirements for opening a Solo-K.

You will want to open your Solo-K at a brokerage that allows incoming rollovers (I use TD Ameritrade, but you can use Fidelity and Schwab as well).