Leaving job, advice on 403b, 457 rollover options

[aredoubleyou]

First post, unfortunately pretty new to thinking about finance.  I have an old vanguard IRA from pre-medicine job many moons ago with 40+K that I was thinking of converting to Roth, take the hit for taxes, kinda back and forth on the idea.  However, now I've decided to leave my job and have a 403b and 457, each with about $150-200K.  They are in target date retirement accounts with a fairly high expense ratio, etc...I think I could do better on my own with index funds.  From what I can tell I can keep the funds in the accounts (would rather not), roll them over possibly with new employer's 401k (would really rather not), or roll them into my IRA.

 

Is this correct (as far as my options go), and would rolling over into a traditional IRA and probably just giving up on the idea of transferring to a backdoor Roth?  Am I missing something?  Appreciate insight.

 

 

[Peds]

Why would you not consider moving them to your next employer?

What is your marginal rate? I don't think I would convert 40K.

[Faithful Steward]

aredoubleyou wrote:

Is this correct (as far as my options go), and would rolling over into a traditional IRA and probably just giving up on the idea of transferring to a backdoor Roth?

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Yes, rolling over to a Traditional/Rollover IRA will create a pro-rate rule issue with your Backdoor Roth strategy.

This is easily avoided, as you mentioned, by rolling these accounts into your next employers retirement plan. You could also do this with your Vanguard Traditional IRA that was a rollover of an old 401(k), if you decide not to fully convert it but still want to do Backdoor Roth.

[JBME]

the only reason NOT to roll them over to your new employer is that the investment options in your new 401k really suck...like the lowest expense ratio is .75 or something and there are no vanguard or fidelity funds in there. I doubt that's the case in your instance. Why in the world would you otherwise not roll over? You should roll everything over and keep everything in one place...easier for you to track...including your Vanguard IRA of $40k so you can do the backdoor roth

[borg]

agree with above--if you have reasonable index funds at new employer's 401k, this is a no-brainer--roll them into that.  Then you have the backdoor roth option available.

[jhwkr542]

Agree with above.  The only way Roth conversions would make sense is if you go for an extended period of time between jobs (probably at least 3 months, if not 6) and you'll have a low income year this year.  Otherwise, rolling into your new employer's 401k is likely the best strategy.

[Lordosis]

What type of 457 plan?  That could cause issues.

[aredoubleyou]

Thanks!  Super helpful, glad I asked!  I'll have to see what options I'll have at my new gig (still negotiating contract).

 

 

[jfoxcpacfp]

Lordosis wrote:

What type of 457 plan?  That could cause issues.

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Hey guys, you just zoomed past @lordosis - is this a non-governmental (NPO) 457b or a governmental 457b? If a governmental 457b, carry on. If non-governmental, you've got more to think about than a rollover.

[aredoubleyou]

Its a state 457 through Nationwide.  I'm assuming that qualifies as a governmental.

 

Curious, whats the issue with a non-governmental?

 

Thanks!

[Lordosis]

Non-governmental plans can only be rolled over to another non governmental plan. And not all plans accept rollover so you can get stuck cashing it out when you would rather not.

[jfoxcpacfp]

Lordosis wrote:

Non-governmental plans can only be rolled over to another non governmental plan. And not all plans accept rollover so you can get stuck cashing it out when you would rather not.

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...and, in addition, NG plans do not comply with ERISA distribution rules. You may have to take a distribution of your account with 5 years of separation from service, for example. Finally, they cannot be rolled out to IRAs - they are taxable when distributed. Only way around that is to go to work for another NGO that uses a 457b plan that also accepts rollovers.

The good part is that you are not subject to the 10% penalty for early distributions.