Roth conversion vs 403b ; plus other tax q\'s for an upcoming grad.

[idoc]

I am a longtime reader first time poster that would like to start off by thanking the WCI and Forum posters for everything you have done for me and my family.

That said, I am graduating from residency later this month and moving from FL (no state income tax) to CA (high state income tax). I was wondering if I should convert my current 403b (combined 75k including wife) to a roth IRA? Our expected total income for the year would be around 185k and the conversion would throw us into the 28% tax bracket. Are these taxable by state? Should I do this before I move to CA? Would it make a difference? Also, I currently have a 403 b and max it out at 17k a year and plan on contributing the max to a backdoor (Roth 5.5 k each) . Can I open any other tax deferred accounts to bump down my taxable income.

Thanks again for everything

 

 

[consultpsych]

Can you anything (moonlighting, surveys, whatever) to get some 1099 income? Then you could open a solo-401k, and rollover your 403b into it. Then you will keep it all tax-deferred, can invest as you see fit, and will encounter no tax issues when you do backdoor Roths.

That is my plan. I just opened my solo-401k with Fidelity and will roll over my 403b/401a next month.

[idoc]

Wouldn't you still be taxed for converting to roth at the current marginal tax rate for the year? Would you still have a max of 17k to contribute? Would the state taxes apply?

 

 

[IRdoc]

consultpsych wrote:

Can you anything (moonlighting, surveys, whatever) to get some 1099 income? Then you could open a solo-401k, and rollover your 403b into it. Then you will keep it all tax-deferred, can invest as you see fit, and will encounter no tax issues when you do backdoor Roths.

That is my plan. I just opened my solo-401k with Fidelity and will roll over my 403b/401a next month.

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If you have 1099 income, but that 1099 income is far less than your 403b amount, you can't convert it all can you?

[jfoxcpacfp]

IRdoc wrote:

If you have 1099 income, but that 1099 income is far less than your 403b amount, you can’t convert it all can you?

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Yes, you can roll it all over into your SOLO-k. What you do is:

• Set up a SOLO-k and contribute 20% of your net profits from 1099 income into it


• Roll your 403b into the established SOLO-k.

This is not any different from rolling your 403b into the 401k that you have just established at your new employer and have just begun funding.

[jfoxcpacfp]

idoc wrote:

Wouldn’t you still be taxed for converting to roth at the current marginal tax rate for the year? Would you still have a max of 17k to contribute? Would the state taxes apply?

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hmmm - just saw you never got an answer. consultpsych's suggestion was to open a SOLO-k if you have (or will have) any IC income. You would be rolling a pre-tax account into a pre-tax account, so no taxes would be due. You could hire your wife and open a SOLO-k for her, too. You still have time to do this before the eoy and can then contribute to a back-door Roth IRA.

However, on 2nd reading of your original post, if you are "only" at $185k AGI, then you and your wife can contribute 90% of $11k, or $9,900, directly to your Roth IRAs and only $1,100 through the back-door.

State taxes wouldn't apply to a rollover to a SOLO-k, either.

[IRdoc]

do all 401K accept 403b conversions?  And as noted above, this would NOT be a taxable event, correct?  If given the option of conversion to SoloK or 401K, is there any difference/better option?  Thanks

[jfoxcpacfp]

IRdoc wrote:

do all 401K accept 403b conversions?  And as noted above, this would NOT be a taxable event, correct?  If given the option of conversion to SoloK or 401K, is there any difference/better option?  Thanks

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No, they don't. The plan provider has complete discretion. Read the SPD (Summary Plan Description) or contact your HR dept. to find out if yours does.