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Old 10-02-2013, 12:09 PM   #21
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I guess I'd read up in the IRS pubs or, heaven forbid, consult a professional on the really important issues.
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Old 10-02-2013, 12:18 PM   #22
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I have heard horror stories about people that had 401k plans with tech companies that went belly up after 2000 found that the plans became orphans. The company was defunct and no longer paid to administrator. Without pay, the administrator didn't do anything for the people with 401ks. I'm not sure how it all worked out. I'd feel much safer with my money with Vanguard (or others).
That happened with a bunch of people I worked with at my last job. The previous company went bankrupt and it took two years and a lawyer's help to get the funds in the 401ks out. They did, however, get it out. Minus attorney's fees, of course.

That's why when I left the job I immediately put the 401k money in an IRA so if the company goes BK then their problems don't become my problem.
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Old 10-02-2013, 06:02 PM   #23
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I have always left my 401(k) money in place since I have been fortunate to have relatively good plans and wanted the extra protection (maybe protection diversification) of provided by having money in 401(k)'s. Now, I have more to consider:

In favor of leaving money in 401(k)'s: Talk of tax savings for Roth conversions. I do not understand this yet and need to know more.

In favor of rolling into IRA's: Fear of companies going bankrupt, etc. This is not likely but not out of the realm of possibility. It is not something I had worried about in the past since the custodians are large, well respected firms like Fidelity. But, it sounds like thee could still be serious (and potentially expensive) issues with getting my $$$ if my old companies went belly up.

I will definitely continue to follow this discussion hoping for additional insight.
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Old 10-02-2013, 06:20 PM   #24
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I suggest you not leave it there indefinitely. Plans can change or even end. I have heard horror stories about people that had 401k plans with tech companies that went belly up after 2000 found that the plans became orphans. The company was defunct and no longer paid to administrator. Without pay, the administrator didn't do anything for the people with 401ks. I'm not sure how it all worked out. I'd feel much safer with my money with Vanguard (or others).

I don't understand how a backdoor Roth could be done any differently from a 401k than a tIRA.
Mine wasn't full-on horror, but I left it there for a while until I had a 401k at my new employer. But before that one was ready, the insiders at my previous employer bailed out of the 401k, because they knew what was happening. Then they announced they were dissolving the plan, and the suckers that were left had to pay the legal fees proportionally to the assets they had. It was under $200, but it stung. And my goal, to get it in the new employer 401k was thwarted.
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Old 10-02-2013, 07:06 PM   #25
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When you convert some IRA money to a ROTH you cannot pick and choose which IRA money to convert. Suppose you have rollover IRA of $400k from a 401k which was all funded from tax-deferred contributions and you have a tIRA which you funded with $60k of after tax money and it is now worth $100k. If you convert $50k to a Roth the amount of basis you can convert is a proportion of the total of all IRA's. $50k is 10% of the all your IRA's so when you do the conversion you get 10% of your basis tax free, i.e. 10% of $60k, which = $6k, and you pay tax on $44k. Your basis going forward is now $54k.

If you don't do do a rollover, and leave that $400k in the 401k, then the only IRA money is the $100k in the tIRA so when you convert $50k, you get 50% of the basis which is $30k and you only pay tax on $20k instead of the $44k in the example above. You now have a tIRA worth $50k with a basis of $30k, plus a ROTH of $50k.

This is what I did when I retired, leaving the 401k money where it was until I had converted my tIRA which all funded on after tax money, so I only paid taxes on the gains within that tIRA.
Thanks for that example. The difference is that you take advantage of the $60k basis in two years (2 50k conversions, and you have all of your after tax money in the Roth, 30k each year). Whereas if the 401k was rolled in, You'd only get $6k of the tax free basis per year, so would take 10 years to get the entire advantage. So what you're looking at is really the gains on what remains of your original $60k inside the tIRA? The longer that after tax money stays in the tIRA (creating gains) the more tax you'll pay on conversion because if it had made it to the Roth sooner, those gains would be tax free. So even though you'll "run out" of tax free conversions after two years, and the alternative strings out the smaller but eventually equal tax free conversions, the advantage is to get the gains inside the Roth. Have I got that right?
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Old 10-03-2013, 07:48 PM   #26
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There is some good info in this thread, but I fear it might be getting lost.
You mention you want to do backdoor roth contributions. If you are going to need to do this because your income will be too high for a regular roth contribution, then you do not want any tax deferred $$ in any rollover IRAs. Either leave the $$ in previous employer 401k plans, or, if possible, open a solo 401k. You simply need a business that makes some income to open one of these. With fidelity it's very easy. Then, roll all of your deferred IRAs to your solo 401k. Then, you can do backdoor roth conversions at your leisure without any tax issues. I'm a couple of cocktails in so I'm not going to look for it, but if you search bogleheads site for backdoor roth, you will find the link to how all of this works, or look for the link I left for the last guy asking questions about roth conversions.

Hope this helps!

-Pan-
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Old 10-03-2013, 07:57 PM   #27
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Helps tremendously, thanks!

Yes our income will be too high so will use backdoor method. And I had forgotten about the solo 401k. Read about it several months ago so will check out Bogleheads and dig up the solo 401k info.
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Old 10-03-2013, 08:38 PM   #28
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Check this out, this is a great link....

Backdoor Roth: A Complete How-To
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