OK, I have $60,000 in a 401k account that I need to do something with. Fees are about .5% which is unacceptably high in my opinion. I can either roll it into a new 401k (fees are around .07% which is acceptable), move it to a Traditional IRA, or do a backdoor Roth conversion and merge it with existing funds in a Roth IRA.
2015 marginal tax rate was 28%. My income is variable (think sales) so I don't know what my tax rate will be in 2016 but let's figure it will be 28% to make things easy.
Don't really know what my tax rate in retirement will be. Right now, financial engines is showing an annual "salary" in retirement that would put me in the 28% tax bracket. But a lot of my money is Roth IRA which will not be taxed, and I understand that I'm only taxed on what I pull out and I don't see how I spend enough each year to put me in the 28% tax bracket. But then again, taxes might go up (way up) based on current economics. So I really don't know how much I'll pay in taxes in retirement at this point.
Do you think it makes sense to leave the money in a Traditional IRA or 401k, or move it to a Roth IRA? I like the idea of moving it into a Roth IRA because I generally think that paying taxes today in lieu of paying taxes in the future makes better economic sense. (I'm predicting taxes will go up in the future.) It also allows me to consolidate my accounts which makes things simpler.
On the other hand, I don't want to work longer just so I can pay taxes for others (Livesoft's theory), so want to make the best decision possible today.
Thoughts?
Leave money in 401k or rollover to Roth IRA?
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Re: Leave money in 401k or rollover to Roth IRA?
I'd only do a Roth conversion if I were fairly sure it would lower my lifetime taxes (the present value, to be more precise). Otherwise, you're paying money now for an uncertain benefit. You might want to do estimates of future taxable income, life expectancy, tax rates, etc.
Do you have any reason Immediately move out of current high fee 401(k)? Are the investment options the same in your alternatives?
A 401(k) is protected against a creditor if you are successfully sued. An IRA may or may not be.
Do you have any reason Immediately move out of current high fee 401(k)? Are the investment options the same in your alternatives?
A 401(k) is protected against a creditor if you are successfully sued. An IRA may or may not be.
Re: Leave money in 401k or rollover to Roth IRA?
You don't need the backdoor method for a Roth conversion. Make sure you have enough in Traditional to fill lower tax brackets in retirement.
Re: Leave money in 401k or rollover to Roth IRA?
I think it would be a mistake to do a Roth conversion at 28%. Many (even wealthy) people are in the 15% tax bracket in retirement.
I would not roll the money to tIRA either because it appears you may need to use the back door method to contribute to Roth IRA and a tIRA would interfere.
You have a perfectly good new 401k to roll this money into. You should probably do that.
If you do decide to do a Roth conversion, you'll need about $17k in savings to pay the tax. If you pay the tax out of the IRA, that will trigger a 10% penalty on the amount of the tax.
I would not roll the money to tIRA either because it appears you may need to use the back door method to contribute to Roth IRA and a tIRA would interfere.
You have a perfectly good new 401k to roll this money into. You should probably do that.
If you do decide to do a Roth conversion, you'll need about $17k in savings to pay the tax. If you pay the tax out of the IRA, that will trigger a 10% penalty on the amount of the tax.
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