Roll Over the rollover, wait or no?

[MarieIG]

I have a 401k with John Hancock through my job. (I'm not crazy about it.) It has administrative costs of .52 on top of the fund fees.

I also have a rollover with Vanguard through an old job. I like the Vanguard fund, very low cost .04.

Also, I have a traditional, non-deductible IRA at Vanguard.
I will eventually want to convert the traditional IRA to a Roth IRA. I was told that having the rollover as an IRA would raise the costs of the conversions.

I am planning (if I don't run screaming into the night) to work another two years. I am seeking opinions as to rolling the rollover from my old job, into my current 401(k) to facilitate Roth conversions upon retirement?


Thank you

 

[NW-Bound]

...
I also have a rollover with Vanguard through an old job. I like the Vanguard fund, very low cost .04.
...
I will eventually want to convert the traditional IRA to a Roth IRA. I was told that having the rollover as an IRA would raise the costs of the conversions...

I wonder what cost that is?

I have both tIRA and Roth IRA accounts at Schwab. When I want to rollover, the transfer is done "in kind" by myself at my computer. Just a few mouse clicks, and the stock/ETF/mutual fund shares that I select instantly disappear from the tIRA account, and reappear on the Roth IRA account holding list. Schwab's computer simply changes its ledger to reflect where the shares belong now.

The amount that I will have to declare as income is based on the market value of the shares right at that moment. They will send a statement to reflect that. There is absolutely no cost.

If I sell the shares, transfer the money, then rebuy the shares in the new account, then there may be transaction fees of a few dollars for selling and buying. It's maybe, because Schwab has many non-fee MFs and ETFs.

Would Vanguard be able to do the same for you? I have Vanguard accounts but not a Roth there, so do not know if the process can be done all by myself at my computer.

 

[MarieIG]

The Vanguard .04 % I believe is for the fund administration fee on the index fund.

I do believe that Vanguard can do Roth conversion from my non-deductible IRA to the Roth, but I wouldn't yet while still working.

I had been wondering if it would be better to remove my rollover money (by moving it into my 401K) due to pro rata conversion requirements on the IRAs.

 

[kaneohe]

..... 401k ..... through my job. ...... administrative costs of .52 on top of the fund fees.

........ rollover with Vanguard ......., very low cost .04.

...... traditional, non-deductible IRA at Vanguard.
.......l eventually want to convert .........to a Roth IRA. I was told that having the rollover as an IRA would raise the costs of the conversions.

......... planning ........ to work another two years. .... seeking opinions as to rolling the rollover ..... into my current 401(k) to facilitate Roth conversions upon retirement?

You should play around w/ F8606 which reports Roth conversion when TIRA has basis (non-deductible contributions). If you keep your TIRA w/ non-deductible contributions when you do the Roth conversion of your other TIRA w/ basis, all the TIRAs are considered as one,and you will be treated as if you converted both non-deductible contributions and deductible contributions in the same proportion as they exist . If the 2 TIRAs are of equal size, approximately half of your Roth conversion will be taxable.

The usual suggestion is to "hide" the rollover in your 401K. Then when you do the Roth conversion, you will only be taxed on any deductible contributions (if any) and any earnings in that "non-deductible" TIRA. You will need to contact your 401K folks and see if they will accept the rollover. If you have any earnings in the other TIRA, you can also ask if they will accept that. Some do/some don't.

You may wish to do the hiding first to make sure all goes well before you do
the Roth conversion. If you can hide all the non-taxed components, all that is left is basis and the Roth conversion will be tax-free.

You will have to judge whether having the TIRA in the high expense 401K is worth it. You could also consider hiding the rollover & doing the Roth conversion one yr; then when you retire, roll the 401K back into TIRA to lower
the expenses. However you must do the 2 parts in 2 different yrs to avoid getting taxed on the conversion.

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

 

[MarieIG]

You should play around w/ F8606 which reports Roth conversion when TIRA has basis (non-deductible contributions). If you keep your TIRA w/ non-deductible contributions when you do the Roth conversion of your other TIRA w/ basis, all the TIRAs are considered as one,and you will be treated as if you converted both non-deductible contributions and deductible contributions in the same proportion as they exist . If the 2 TIRAs are of equal size, approximately half of your Roth conversion will be taxable.

The usual suggestion is to "hide" the rollover in your 401K. Then when you do the Roth conversion, you will only be taxed on any deductible contributions (if any) and any earnings in that "non-deductible" TIRA. You will need to contact your 401K folks and see if they will accept the rollover. If you have any earnings in the other TIRA, you can also ask if they will accept that. Some do/some don't.

You may wish to do the hiding first to make sure all goes well before you do
the Roth conversion. If you can hide all the non-taxed components, all that is left is basis and the Roth conversion will be tax-free.

You will have to judge whether having the TIRA in the high expense 401K is worth it. You could also consider hiding the rollover & doing the Roth conversion one yr; then when you retire, roll the 401K back into TIRA to lower
the expenses. However you must do the 2 parts in 2 different yrs to avoid getting taxed on the conversion.

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Thank you. I read the link. I saw that SEPs also factor into the equation. I had better hold my nose and call up John Hancock.

 

[NW-Bound]

I do not have any non-deductible IRA, so have to ask: all this "hiding" is really to simplify the accounting to satisfy the IRS, right?

It does not really impact the cost of doing Roth conversion, other than different account custodians have different administrative costs, right?

 

[MarieIG]

I do not have any non-deductible IRA, so have to ask: all this "hiding" is really to simplify the accounting to satisfy the IRS, right?

It does not really impact the cost of doing Roth conversion, other than different account custodians have different administrative costs, right?

What it appears to allow is this. If I can remove my pre-tax money and gains; and just leave my after tax contributions, I could convert my after tax IRA contributions to a Roth without paying additional tax (or just the little tax if they happen to go up before the conversion is made) as that money would have already been taxed. I am not sure whether this will be worth it as I am not crazy about the 401k.

After I retire, I would then roll my money back into an IRA, and convert a portion each year, but that money would be all pre-tax, and subject to income tax, albeit the taxes on the conversion would be paid at a lower rate.

 

[kaneohe]

An interesting situation......depends on your particular #s......note that the extra 0.5% fees is a real loss.

The tax is just a timing issue...you will eventually pay it or your heirs will.......if you avoid paying the tax now on conversion, that means that all the remaining TIRA hidden in the 401K will be taxed when withdrawn. If you don't hide it, your conversion will be part taxable now but you will have remaining basis in the TIRA that won't be taxed when withdrawn. All you are gaining is the time use of the tax savings......

You also have to consider the tax rates if you do the conversion now vs later when you are retired (presumably lower) vs when you have to take RMDs to decide when to do the Roth conversion.

 

[MarieIG]

An interesting situation......depends on your particular #s......note that the extra 0.5% fees is a real loss.

The tax is just a timing issue...you will eventually pay it or your heirs will.......if you avoid paying the tax now on conversion, that means that all the remaining TIRA hidden in the 401K will be taxed when withdrawn. If you don't hide it, your conversion will be part taxable now but you will have remaining basis in the TIRA that won't be taxed when withdrawn. All you are gaining is the time use of the tax savings......

You also have to consider the tax rates if you do the conversion now vs later when you are retired (presumably lower) vs when you have to take RMDs to decide when to do the Roth conversion.

I am starting to lien against it. I am aiming to retire in two years, so that would just give me two years of growth on a not very large Roth. Paying tax is a way of life for me, but I am losing about 61k in SALT deductions this year, and am not sure what my ultimate tax bill is going to be, so I don't feel comfortable adding additional taxable income at this point. My income will be very much lower in retirement, and we are planning to move to a more tax friendly state as well.

 

[pb4uski]

I wonder if you would be best to hold your nose and keep the 401k for a while, even once you retire. After retiring and being in a low tax bracket focus on converting the non-deductible IRA to Roth, and then rollover your 401k.

 

[deserat]

I wonder if you would be best to hold your nose and keep the 401k for a while, even once you retire. After retiring and being in a low tax bracket focus on converting the non-deductible IRA to Roth, and then rollover your 401k.

+1

To the OP, I just did this with VG...however, I had a personal SEP IRA and Roth with them. My employer 401a was administered by VG but due to some odd rules, I couldn't just roll the pretax portion into the SEP IRA, I had to roll the pretax portion to a new rollover IRA, then exchange the funds in rollover IRA to SEP....however, the after tax portions of the 401a could rollover directly into ROTH.

In any case, I no longer work for said employer and am in process of consolidating and converting to ROTH while in gray area before pension to minimize and/or eliminate RMDs later on.

 

[MarieIG]

+1

To the OP, I just did this with VG...however, I had a personal SEP IRA and Roth with them. My employer 401a was administered by VG but due to some odd rules, I couldn't just roll the pretax portion into the SEP IRA, I had to roll the pretax portion to a new rollover IRA, then exchange the funds in rollover IRA to SEP....however, the after tax portions of the 401a could rollover directly into ROTH.

In any case, I no longer work for said employer and am in process of consolidating and converting to ROTH while in gray area before pension to minimize and/or eliminate RMDs later on.

I have a very tiny SEP and a very tiny Roth in my Vanguard account as well. I will not have a pension, although DH will have one. I am trying to do my financial housekeeping/preparation now. I will not have access to transfer funds into the 401k after I retire.

 

[JohnTeetootoo]

I do not have any non-deductible IRA, so have to ask: all this "hiding" is really to simplify the accounting to satisfy the IRS, right?

It does not really impact the cost of doing Roth conversion, other than different account custodians have different administrative costs, right?

Google pro rata rules. If you have tIRA, you will need to pay tax proportionally to your tIRA.

 

[MarieIG]

I think I have figured out the timing on this one.

Fully fund this years non-deductible IRA by end of Sept.

Early October transfer my roll over IRA (from an old job) and SEP both pure pre-tax into my 401k. (By waiting till Oct, I don't pay the first three quarterly fees imposed by the 401k).

Convert the pre-tax amount of my non-deductible IRA as will be reflected on the 2019 8606 to a Roth. (This would be best done with the stock market is lower rather than higher, but I have never had the least ability to time the market, and don't anticipate developing any such skill in the near future.)

Roll the remainder of the non-deductible IRA into the 401k.

From the way I read it: all this rolling needs to be accomplished by the end of the year, but the order is not strict.

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

I hope I am not missing anything here.

Thoughts?

 

[kaneohe]

.....................................

Convert the pre-tax amount of my non-deductible IRA as will be reflected on the 2019 8606 to a Roth. (This would be best done with the stock market is lower rather than higher, but I have never had the least ability to time the market, and don't anticipate developing any such skill in the near future.)

Roll the remainder of the non-deductible IRA into the 401k.

From the way I read it: all this rolling needs to be accomplished by the end of the year, but the order is not strict.

...............................

Shouldn't the remainder of the non-deductible IRA (the non-deductible contributions) be going to the Roth?

Also if your 401K will accept..........the pre-tax amount (earnings) of non-deductible IRA could also go to 401K so they won't be taxed.

 

[MarieIG]

Shouldn't the remainder of the non-deductible IRA (the non-deductible contributions) be going to the Roth?

Also if your 401K will accept..........the pre-tax amount (earnings) of non-deductible IRA could also go to 401K so they won't be taxed.

Yes, the plan is for all the non-deductible portion to go into the Roth with all the pre-tax money going into the 401k. I would have preferred if I could have moved all the pre-tax money into the 401k first; but the withdrawal forms pulling the money out of the IRAs into the 401k specify a dollar amount or a percentage to be withdrawn, and due to the fluctuation in price, I could not be certain of the amount left behind to be converted.

 

[MarieIG]

Yes, the plan is for all the non-deductible portion to go into the Roth with all the pre-tax money going into the 401k. I would have preferred if I could have moved all the pre-tax money into the 401k first; but the withdrawal forms pulling the money out of the IRAs into the 401k specify a dollar amount or a percentage to be withdrawn, and due to the fluctuation in price, I could not be certain of the amount left behind to be converted.

This had been done.