Stupid Rollover Question

[Marc]

Been investing for 40 years and fine tuned my FIRE planning over the five years before retirement last year but, just this morning, I realized I might have missed something really valuable.

I have been fine tuning taxable income this year to take advantage of zero percent capital gains on significant ETF sales and use up remaining real estate loss that I have had to carry over for a few years (no longer have rental property, now my primary residence). My taxable income (MFJ) will be right at $101,400 which after standard deduction will keep me at zero capital gains.

My problem is getting ready for 2019; I need to withdraw money in January from my 403(b) in order to pay significant bills coming due. Adding to problem is that I will be out of country from early December until early February and Fidelity requires notarized signature by my wife for any transfers out of 403(b). My plan had been to establish a Rollover IRA (non-taxable event) and fund it in early January (Fidelity rep would hold onto notarized transfer form until first of year).

Today, I am thinking that maybe funding of the Rollover IRA is also NOT a taxable event; i.e., if I transfer 100K of FXAIX from 403(b) to Rollover IRA (FXAIX is supposed to be available for non institutional accounts) it would not affect 2018 taxes.

Was my old way thinking accurate (i.e., I cannot fund IRA until 2019) or is my new thought accurate (i.e., I can fund IRA now).

thanks,

Marc

[OldShooter]

Sometimes the way we state a problem precludes some viable solutions. It seems that your problem is a dearth of available cash for maybe 5 weeks. Right?

I have had a similar problem where I needed some cash at the end of December and didn't want to draw IRA taxable income until January. I simply used the line of credit that I have set up as overdraft protection on my checking account. So the solution to your problem may be as simple as calling your bank and setting up an overdraft protection account. IIRC mine is currently at $10-20K but I have had credit limits up to $50K in the past.

[Bir48die]

Today, I am thinking that maybe funding of the Rollover IRA is also NOT a taxable event; i.e., if I transfer 100K of FXAIX from 403(b) to Rollover IRA (FXAIX is supposed to be available for non institutional accounts) it would not affect 2018 taxes.

It shouldn't be a taxable event. As you transfer money from one to another it just has be be coded correctly. So if you do a portion of your 403(b) make sure that either Fidelity codes it correctly or you do it when you do your taxes. Also make sure you have backup to prove that the full amount was transferred (check stub or printout)

[Marc]

Quote:

Originally Posted by Bir48die It shouldn't be a taxable event. As you transfer money from one to another it just has be be coded correctly. So if you do a portion of your 403(b) make sure that either Fidelity codes it correctly or you do it when you do your taxes. Also make sure you have backup to prove that the full amount was transferred (check stub or printout)

Thanks for the advice. Just got off phone with Fidelity; rep explained that it would be coded "G" as a direct transfer. Opened up rollover iRA online while on phone. Paperwork for transferring shares "in kind" will be snail mailed to me to be signed by my wife and notarized. Very easy process.

Only doing small partial transfer even though brokerage account fees have dropped because of better protections with 403(b) account; I figure one or two partial transfers per year until RMD sets in; then I have to be a little more careful.

Again, thanks,

Marc

[pb4uski]

Yes, a rollover is not a taxable event... you can do it now.

[Marc]

Oops, I just remembered why I can't fund my rollover IRA this year; I emptied out a traditional IRA with 12K of non-deductible contributions this year. If I funded my rollover IRA, part of that 12K wouldn't be tax free this year.

Back to original plan.

Thanks for all the inputs,

Marc

[kaneohe]

Have you checked w/ 403b to see if they allow partial withdrawals? Some don't.....or at least my 401K doesn't........it's all or nothing except for RMDs.

[RunningBum]

Don't use the word "fund" because it's not specific as to where the money is coming from. There are contributions from outside sources, which are limited for a year; and rollovers from other tax deferred accounts, which are not limited. Both are a type of funding, but only contributions are limited. However, I believe only one rollover per year is allowed. I haven't had to do a rollover in years so I'm not going to verify. https://www.irs.gov/retirement-plans...-per-year-rule

I don't understand what "emptied out a traditional IRA with contributions" means because a contribution is putting money in, not emptying the account out. I also don't understand why that affects the tax status of your $12K contribution. So I'm not going to try to fully answer your situation when I'm confused by your wording. But it sounds like what you want to do now is a rollover from a 403b to a traditional (aka rollover) IRA, which I think you can do, if I understand what you're saying, which I may not.

[Marc]

Sorry for my confusing language.

WRT 403(b), no issue with partial rollovers; only planning on one or two per year.

WRT traditional IRA, about ten years ago I made two years of non-deductible contributions of $6K per year that now totaled over 45K. I took all the money out of that IRA to partially fund my first year of retirement.

WRT rollover IRA, that is brand new, just set it up but have not transferred/contributed/rolledover any mutual fund shares (in kind) yet. The timing of that transfer is my conundrum.

Again, thanks for all the help (over the past many years).

Marc

[RunningBum]

OK, I don't know the rules on whether that withdrawal of previous contributions is affected by a rollover. Fairmark.com might cover it. Doesn't seem like it should but maybe you've found something that says it does. If you want someone here to verify that, share a link to what you found.

[gauss]

Are you trying to get to a $0 IRA balance on 12/31/2018 so that your IRS form 8606 (ie form that tracks non-deductible after tax contributions to IRAs and forces you to withdraw contributions in a pro-rata fashion) shows no more after-tax basis in your IRA?

Agreed that if this is indeed your goal, any rollover from an employer qualified plan (ie 401k, 403b, etc) to the IRA this year will cause you to continue to have an after-tax basis in the IRA and thus interfere with your goal.

I did this a few years ago and then in January the following year did a rollover from my 401k to add funds in that were 100% deductible so no more grief with form 8606.

-gauss

[Marc]

Quote:

Originally Posted by gauss Are you trying to get to a $0 IRA balance on 12/31/2018 so that your IRS form 8606 (ie form that tracks non-deductible after tax contributions to IRAs and forces you to withdraw contributions in a pro-rata fashion) shows no more after-tax basis in your IRA? Agreed that if this is indeed your goal, any rollover from an employer qualified plan (ie 401k, 403b, etc) to the IRA this year will cause you to continue to have an after-tax basis in the IRA. I did this a few years ago and then in January the following year did a rollover from my 401k to add funds in that were 100% deductible so no more grief with form 8606. -gauss

EXACTLY what I am trying to do.

[gauss]

Ok,

So the rollover in 2018 would not be taxable, but since it is reportable it will mess up your strategy.

Here is an idea:

Take the distribution from your 403(b) in 2018 but do not deposit the check to your IRA until after Jan 1 2019.

Then your IRA will report a $0 balance for 12/31/2018, but you will have already jumped through the hoops of getting the 403(b) distribution in 2018 when you have the time.

The only downside is that your funds will be out of the market for December.

-gauss

[bingybear]

Quote:

Originally Posted by RunningBum OK, I don't know the rules on whether that withdrawal of previous contributions is affected by a rollover. Fairmark.com might cover it. Doesn't seem like it should but maybe you've found something that says it does. If you want someone here to verify that, share a link to what you found.

I don't really know the answer either. It really is a question of how the forms get filled out. IIRC they don't ask when during the year, but how much and what basis. So I think Marc is correct if both things happen in the same tax
year.

What I don't understand is the small roll overs instead of larger one to the TIRA and then just invest it in that account. Maybe not the whole thing, but why roll multiple times a year between similar accounts.

[gauss]

Marc,

The secondary issue with the idea that I presented above would that be maintaining a $0 balance IRA for an extended period of time may cause the custodian to close the account.

[Marc]

Quote:

Originally Posted by gauss Marc, The secondary issue with the idea that I presented above would that be maintaining a $0 balance IRA for an extended period of time may cause the custodian to close the account.

I don't think it is a problem as two different IRA accounts at Fidelity. The traditional has had a zero balance since February but still on books. Rollover just initiated.

Again, thanks!

Marc