tIRA to 401k to Roth, is this right?

[Clover5]

Am about 6 months away from FIRE. Trying to get my financial picture in order around my deferred assets. Been trying to plan out what to do with my tIRA to ROTH and the sequence I need to do it in. I am 52, unmarried and my income doesn't qualify for deductible IRA or Roth.

I have around 72k in my tIRA, 41,500 of contributions (non-deductible) so net ~30K of gains.

My plan:

2013
-> Convert my tIRA gains (the ~30k) to my MEGA Co 401k.

2014
Pre FIRE
-> Contribute maximum to tIRA and 401k
-> Convert my tIRA to ROTH IRA (can this happen anytime after I max?)

Post FIRE
-> Convert my MEGA 401k to the ROTH IRA

Any chance in the world I am close on this??

Clover5

[GrayHare]

Most people convert the other way: from 401k to IRA. A Roth 401k has required minimum distributions (RMDs), while a Roth IRA does not.

[Clover5]

Thanks, that was a typo. I meant to a Roth IRA.

Quote:

Originally Posted by GrayHare Most people convert the other way: from 401k to IRA. A Roth 401k has required minimum distributions (RMDs), while a Roth IRA does not.

.

[Alan]

Quote:

Originally Posted by GrayHare Most people convert the other way: from 401k to IRA. A Roth 401k has required minimum distributions (RMDs), while a Roth IRA does not.

Quote:

Originally Posted by Clover5 Thanks, that was a typo. I meant to a Roth IRA. .

Now I'm confused, could you restate the steps you are considering. Thanks.

[Rustward]

Quote:

Originally Posted by Clover5 2013 -> Convert my tIRA gains (the ~30k) to my MEGA Co 401k.

It might be better if you just start over with the post.

BTW, how do you convert only the gains from the iIRA to a 401K? Isn't that like trying to get just the cream out of the coffee?

[Alan]

Quote:

Originally Posted by Rustward It might be better if you just start over with the post. BTW, how do you convert only the gains from the iIRA to a 401K? Isn't that like trying to get just the cream out of the coffee?

There is a thread on Bogleheads explaining that the only thing that you can rollover from an IRA to a 401k is the taxable gains. I hadn't realized this was possible before this thread made me go look.

[samclem]

Quote:

Originally Posted by Alan There is a thread on Bogleheads explaining that the only thing that you can rollover from an IRA to a 401k is the taxable gains. I hadn't realized this was possible before this thread made me go look.

Hmm--so, this could be a way to get unhindered access additional funds at age 55 rather than 59.5 (using the provision allowing early access to 401K funds at age 55 if you are terminated etc at that age). I think.

[Alan]

Quote:

Originally Posted by samclem Hmm--so, this could be a way to get unhindered access additional funds at age 55 rather than 59.5 (using the provision allowing early access to 401K funds at age 55 if you are terminated etc at that age). I think.

Good thinking, another good tactic to know about.

[Alan]

Here is that link I mentioned on IRA to 401k rollovers


Bogleheads • View topic - Rules for Rollover from IRA to 401k

[Clover5]

Yep I had read it about on Bogleheads and confirmed with a few other articles, e.g.:

Backdoor Roth IRA conversion: Tax-free? - MarketWatch

and here:

The Backdoor Roth IRA, Advanced Version - Forbes

Think the key is timing the move of the pre-tax dollars in this year prior to the conversion. Cream out of the coffee is a good analogy

[Rustward]

Quote:

Originally Posted by Alan There is a thread on Bogleheads explaining that the only thing that you can rollover from an IRA to a 401k is the taxable gains. I hadn't realized this was possible before this thread made me go look.

OK. I missed that the OP has $41,500 basis and $20,500 in gains in the IRA and is considering moving the $20,500 to the 401K.

The OP's plan looks pretty good, if the 401K allows the tIRA gains to be transferred in.

The only thing I would analyze a little further is the 401K conversion to Roth. This may have to be spread over multiple years to control income (and taxes).

[Animorph]

If post-FIRE is still in 2014 it doesn't seem like the transfer to 401k would make any difference. It's all going into the Roth anyway with the 401k to Roth conversion. So maybe post-FIRE is spread out over a few years and excludes 2014?

[Alan]

Quote:

Originally Posted by Animorph If post-FIRE is still in 2014 it doesn't seem like the transfer to 401k would make any difference. It's all going into the Roth anyway with the 401k to Roth conversion. So maybe post-FIRE is spread out over a few years and excludes 2014?

+1

Also, suppose the gains are transferred in 2013 and the market goes down in 2014. Would doing a ROTH conversion make sense if the tIRA is worth less than the original contributions?

[Clover5]

I need to read more on the backdoor and think more on the 401k post fire...

Revised thoughts...

2013
-> Convert my tIRA gains (~30k) to my MEGA Co 401k.
-> Rollover the remainder (41,500) to new ROTH IRA (questioning my original rational for waiting, one more call to CPA is in order

2014
Pre FIRE
-> Contribute maximum to tIRA and 401k
-> Convert my 2014 tIRA contribution to ROTH IRA

Post FIRE
-> Convert my MEGA 401k to tIRA [said Roth before, thank you for the schooling]

So at this point I would have a small Roth and large tIRA... Is this where I begin to slowly backdoor into the Roth or not bother? Obviously in a much lower bracket by 2015.

Clover5

[Alan]

Quote:

Originally Posted by Clover5 I need to read more on the backdoor and think more on the 401k post fire... Revised thoughts... 2013 -> Convert my tIRA gains (~30k) to my MEGA Co 401k. -> Rollover the remainder (41,500) to new ROTH IRA (questioning my original rational for waiting, one more call to CPA is in order 2014 Pre FIRE -> Contribute maximum to tIRA and 401k -> Convert my 2014 tIRA contribution to ROTH IRA Post FIRE -> Convert my MEGA 401k to tIRA [said Roth before, thank you for the schooling] So at this point I would have a small Roth and large tIRA... Is this where I begin to slowly backdoor into the Roth or not bother? Obviously in a much lower bracket by 2015. Clover5

Good plan.


Note that you can also make a nondeductible tIRA contribution this year and immediately convert to a ROTH (as well as in 2014)


After 2014 you'll have no earned income so no more contributions to IRA allowed but you can start doing tIRA to ROTH conversions spread over a number of years depending on how much tax you want to pay each year.

[samclem]

Quote:

Originally Posted by Clover5 I need to read more on the backdoor and think more on the 401k post fire... . . . . So at this point I would have a small Roth and large tIRA... Is this where I begin to slowly backdoor into the Roth or not bother? Obviously in a much lower bracket by 2015.

Yes. To do this, people need to make some assumptions about unknowable things (future growth of your portfolio, future tax rates and policies, etc), and then do a look ahead, by year, to see if tIRA--> Roth conversions make sense. Two "gotchas" to consider:
1) The RMDs from tIRAs when you turn 70.5--it can drive your taxable income up into higher brackets in the outyears, so that improves the case for doing tIRA--> Roth conversions earlier. To some folks (me included), these "when I'm much older" taxes are not a big deal (if I've got that mucg money when I'm very old, I'm probably gonna be okay). But other people want/need to leave more behind.
2) Going from MFJ to Single Taxpayer (not an issue in your case, but for others): The loss of standard deduction/exemptions and the lowered brackets really put the tax hit on the surviving spouse compared to MFJ status. That can be another reason to convert more funds to Roth accounts in the earlier years (when the couple is MFJ and has lower income) when there's more "headroom" before hitting the higher rates.

[Olbidness]

I guess it pays to lurk here every now and then. I left Mega-corp A and rolled over my entire 401K to an existing tIRA. Now I am employed at Mega-corp B and in another 401K. I am now 52 and if I were to retire at 55 I don't think there will be enough to fund retirement from 55 to 591/2. I called my 401K administration today and asked about the possibility of a transfer from the tIRA to 401K. They said it's no problem.

I'm now going to have to study it some more and talk to my CPA.

I've had this on my mind for a couple of years,

Guess I shoulda just asked.

[samclem]

Quote:

Originally Posted by Olbidness I am now 52 and if I were to retire at 55 I don't think there will be enough to fund retirement from 55 to 591/2.

Did the numbers work out if you took 72(T) SEPP withdrawals from your tIRA starting at age 55 while you also tapped your existing employer's 401(k)? That would be another way of getting access to your retirement accounts early, if you don't want to put everything in your new employer's 401(k) plan for whatever reason.

[Olbidness]

Quote:

Originally Posted by samclem Did the numbers work out if you took 72(T) SEPP withdrawals from your tIRA starting at age 55 while you also tapped your existing employers 401(k)? That would be another way of getting access to your retirement accounts early, if you don't want to put everything in your new employer's 401(k) plan for whatever reason.

I see the 72T as a last resort. I like the idea if decide to pull the plug at 55 ( or if Mega-corp pulls it for me ) that I can drift into and out of the work force at will from 55 to 59.5 . With the 72T I'm locked into 5 years of SEPP.

My thinking now would be to wait until the year I turn 55 to make a partial transfer to the 401K. I could see what the 401K balance is, make some guesses, and transfer that amount.

This way I keep control of the majority of my assets for the longest amount of time.

I'm going to have to study this chess board for a while.

[samclem]

Quote:

Originally Posted by Olbidness I see the 72T as a last resort. I like the idea if decide to pull the plug at 55 ( or if Mega-corp pulls it for me ) that I can drift into and out of the work force at will from 55 to 59.5 . With the 72T I'm locked into 5 years of SEPP.

Yes, I see. The 401(k) route does give you more flexibility.