ER Eddie
Thinks s/he gets paid by the post
- Joined
- Mar 16, 2013
- Messages
- 1,788
Now that I've crossed the 59 1/2 mark, I've been puzzling over whether I should roll the 403b from my job over to my Vanguard Roth IRA. Help me out here a little, if you would. I am not a financial wonk and get befuddled by taxes sometimes.
As I understand it, and correct me if I'm wrong, it would be advantageous for me to roll it over, because the gains in a Roth are not taxed on withdrawal, whereas gains in a 401k (I believe a 403b is equivalent) are taxed as ordinary income upon withdrawal. Although the 401k/403b money would be taxed as income when I roll it over into the Roth, its subsequent gains would not be taxed in the Roth, whereas they would be, if I left them in the 403b.
So to take a simple example, if I had a $100 in the 403b, and it grew to $120, and I withdrew it, that $120 would be taxed as ordinary income. If instead I rolled that $100 over to a Roth, the $100 would be taxed as ordinary income at the point of the rollover, but if it later grew to $120 in the Roth, the additional $20 gain would not be taxed at withdrawal.
So rolling it over to a Roth seems like a good choice. Do I have that right?
Oh, I should also mention that I'm retired, so my income isn't going to change in the next couple of decades.
I understand that there may need to be some intermediary step with a 403b, where you first have to roll it over to a 401k, then to a Roth. I'm not sure about that, haven't investigated yet. I also understand there are other potential advantages of rolling over to a Roth, such as wider choice of funds or lower fees. However, I don't think those are much of an issue in my case. Fees for the 403b administration are very low, and choice of stock options are pretty good.
So, my main questions are:
1. Do I understand the tax implications correctly?
2. Is it smart to rollover a 403b to a Roth IRA?
Thanks.
As I understand it, and correct me if I'm wrong, it would be advantageous for me to roll it over, because the gains in a Roth are not taxed on withdrawal, whereas gains in a 401k (I believe a 403b is equivalent) are taxed as ordinary income upon withdrawal. Although the 401k/403b money would be taxed as income when I roll it over into the Roth, its subsequent gains would not be taxed in the Roth, whereas they would be, if I left them in the 403b.
So to take a simple example, if I had a $100 in the 403b, and it grew to $120, and I withdrew it, that $120 would be taxed as ordinary income. If instead I rolled that $100 over to a Roth, the $100 would be taxed as ordinary income at the point of the rollover, but if it later grew to $120 in the Roth, the additional $20 gain would not be taxed at withdrawal.
So rolling it over to a Roth seems like a good choice. Do I have that right?
Oh, I should also mention that I'm retired, so my income isn't going to change in the next couple of decades.
I understand that there may need to be some intermediary step with a 403b, where you first have to roll it over to a 401k, then to a Roth. I'm not sure about that, haven't investigated yet. I also understand there are other potential advantages of rolling over to a Roth, such as wider choice of funds or lower fees. However, I don't think those are much of an issue in my case. Fees for the 403b administration are very low, and choice of stock options are pretty good.
So, my main questions are:
1. Do I understand the tax implications correctly?
2. Is it smart to rollover a 403b to a Roth IRA?
Thanks.
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