Backdoor Roth IRA - Is it worth it for me?

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luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Wed Sep 12, 2018 3:08 pm

Hello,

I am looking for feedback on backdoor Roth IRA situation for me.
Until last year, our household income was within the Roth IRA limit. We have been contributing the full amount each year for me and my spouse. This year we are over the limit so I am considering backdoor Roth IRA. The only problem is that I had consolidated all my past 401(k) accounts into one Rollover IRA account at Vanguard and the same thing for my spouse at Fidelity. Below are our balances:

His Age: 41
His Rollover IRA Balance: $550k (Vanguard)
His Roth IRA Balance: $90k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Age: 37
Her Rollover IRA Balance: $230k (Fidelity)
Her Roth IRA Balance: $102k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)

Questions:
1. His situation: 401(k) has fund options with high expense ratio (~0.8%) except for one Fidelity 500 Index Fund with an expense ratio of 0.035%. All investments are currently in 3-fund portfolio at Vanguard. Is it worth rolling over $550k to Fidelity 500 Index fund to be able to do Backdoor Roth?

2. Her Situation: 401(k) is with Fidelity so there are some good low expense ratio index fund options available. I don't see any reason why I couldn't rollover the balance from the Fidelity IRA account to the 401(k) account to be able to do Backdoor contributions. Am I missing anything that I should consider here?

Appreciate your help!

PFInterest
Posts: 2073
Joined: Sun Jan 08, 2017 12:25 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by PFInterest » Wed Sep 12, 2018 3:13 pm

luminol wrote:
Wed Sep 12, 2018 3:08 pm
Hello,

I am looking for feedback on backdoor Roth IRA situation for me.
Until last year, our household income was within the Roth IRA limit. We have been contributing the full amount each year for me and my spouse. This year we are over the limit so I am considering backdoor Roth IRA. The only problem is that I had consolidated all my past 401(k) accounts into one Rollover IRA account at Vanguard and the same thing for my spouse at Fidelity. Below are our balances:

His Age: 41
His Rollover IRA Balance: $550k (Vanguard)
His Roth IRA Balance: $90k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Age: 37
Her Rollover IRA Balance: $230k (Fidelity)
Her Roth IRA Balance: $102k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)

Questions:
1. His situation: 401(k) has fund options with high expense ratio (~0.8%) except for one Fidelity 500 Index Fund with an expense ratio of 0.035%. All investments are currently in 3-fund portfolio at Vanguard. Is it worth rolling over $550k to Fidelity 500 Index fund to be able to do Backdoor Roth?

2. Her Situation: 401(k) is with Fidelity so there are some good low expense ratio index fund options available. I don't see any reason why I couldn't rollover the balance from the Fidelity IRA account to the 401(k) account to be able to do Backdoor contributions. Am I missing anything that I should consider here?

Appreciate your help!
is it worth it? yes if you need more retirement space.
for her, easy. rollover to workplace plan, do backdoor rIRA. they are individual so doesnt impact you.

for him, if you can make your AA work with s&p 500 in the 401k, then sure move there. do you have any 1099 income where you could open a solo 401k and move it there?

TwstdSista
Posts: 982
Joined: Thu Nov 16, 2017 4:03 am

Re: Backdoor Roth IRA - Is it worth it for me?

Post by TwstdSista » Wed Sep 12, 2018 3:15 pm

Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.

luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Wed Sep 12, 2018 3:29 pm

PFInterest wrote:
Wed Sep 12, 2018 3:13 pm
luminol wrote:
Wed Sep 12, 2018 3:08 pm
Hello,

I am looking for feedback on backdoor Roth IRA situation for me.
Until last year, our household income was within the Roth IRA limit. We have been contributing the full amount each year for me and my spouse. This year we are over the limit so I am considering backdoor Roth IRA. The only problem is that I had consolidated all my past 401(k) accounts into one Rollover IRA account at Vanguard and the same thing for my spouse at Fidelity. Below are our balances:

His Age: 41
His Rollover IRA Balance: $550k (Vanguard)
His Roth IRA Balance: $90k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Age: 37
Her Rollover IRA Balance: $230k (Fidelity)
Her Roth IRA Balance: $102k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)

Questions:
1. His situation: 401(k) has fund options with high expense ratio (~0.8%) except for one Fidelity 500 Index Fund with an expense ratio of 0.035%. All investments are currently in 3-fund portfolio at Vanguard. Is it worth rolling over $550k to Fidelity 500 Index fund to be able to do Backdoor Roth?

2. Her Situation: 401(k) is with Fidelity so there are some good low expense ratio index fund options available. I don't see any reason why I couldn't rollover the balance from the Fidelity IRA account to the 401(k) account to be able to do Backdoor contributions. Am I missing anything that I should consider here?

Appreciate your help!
is it worth it? yes if you need more retirement space.
for her, easy. rollover to workplace plan, do backdoor rIRA. they are individual so doesnt impact you.

for him, if you can make your AA work with s&p 500 in the 401k, then sure move there. do you have any 1099 income where you could open a solo 401k and move it there?
Thank you! Unfortunately I don't have any 1099 income. From what I read, sounds like having an individual 401k can be a bit of hassle from a paperwork point of view too?

luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Wed Sep 12, 2018 3:30 pm

TwstdSista wrote:
Wed Sep 12, 2018 3:15 pm
Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.
Thanks! I hadn't thought about that approach. It would be close to the AA we'd like at this point in our lives.

PFInterest
Posts: 2073
Joined: Sun Jan 08, 2017 12:25 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by PFInterest » Wed Sep 12, 2018 4:41 pm

TwstdSista wrote:
Wed Sep 12, 2018 3:15 pm
Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.
I would hesitate heavily to put FI into a rIRA.

TwstdSista
Posts: 982
Joined: Thu Nov 16, 2017 4:03 am

Re: Backdoor Roth IRA - Is it worth it for me?

Post by TwstdSista » Wed Sep 12, 2018 4:50 pm

PFInterest wrote:
Wed Sep 12, 2018 4:41 pm
TwstdSista wrote:
Wed Sep 12, 2018 3:15 pm
Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.
I would hesitate heavily to put FI into a rIRA.
Correct -- like I said in my post, invest her 401k in bonds. Equities are generally preferred in Roth accounts.

Unless her 401k is a Roth 401k? Did I miss that?

User avatar
Silly Wabbit
Posts: 83
Joined: Sat Mar 25, 2017 9:54 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by Silly Wabbit » Wed Sep 12, 2018 5:01 pm

TwstdSista wrote:
Wed Sep 12, 2018 4:50 pm
PFInterest wrote:
Wed Sep 12, 2018 4:41 pm
TwstdSista wrote:
Wed Sep 12, 2018 3:15 pm
Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.
I would hesitate heavily to put FI into a rIRA.
Correct -- like I said in my post, invest her 401k in bonds. Equities are generally preferred in Roth accounts.

Unless her 401k is a Roth 401k? Did I miss that?
Why are equities preferred in Roth over traditional, pre-tax?

The trick is to maintain your AA taking into account the future taxes on the pre-tax money.

The only way you make more by moving equities into Roth is by having a higher allocation to stocks, after taxes. That equates to adjusting your AA.

TwstdSista
Posts: 982
Joined: Thu Nov 16, 2017 4:03 am

Re: Backdoor Roth IRA - Is it worth it for me?

Post by TwstdSista » Wed Sep 12, 2018 5:07 pm

Since Roth IRAs are tax free growth, the thinking is to have your most likely higher performing assets there -- equities.

Since Traditional accounts are subject to both taxes upon withdrawal and RMDs, the thinking is to keep your bond allocation there for the slower growth and therefore lesser taxes.

That being said, there is nothing wrong with bonds in a Roth account if that is what works for you and your overall portfolio.

PFInterest
Posts: 2073
Joined: Sun Jan 08, 2017 12:25 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by PFInterest » Wed Sep 12, 2018 6:14 pm

TwstdSista wrote:
Wed Sep 12, 2018 4:50 pm
PFInterest wrote:
Wed Sep 12, 2018 4:41 pm
TwstdSista wrote:
Wed Sep 12, 2018 3:15 pm
Yes. I would roll both tIRA accounts into your respective 401k accounts. Invest hers in your bond allocation and yours in the 500 Index fund. Then the Backdoor Roth contribution will be open to you.
I would hesitate heavily to put FI into a rIRA.
Correct -- like I said in my post, invest her 401k in bonds. Equities are generally preferred in Roth accounts.

Unless her 401k is a Roth 401k? Did I miss that?
might be my mistake: i read invest hers in bonds as her rIRA.

SoAnyway
Posts: 108
Joined: Tue Jul 31, 2018 11:49 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by SoAnyway » Wed Sep 12, 2018 6:26 pm

luminol wrote:
Wed Sep 12, 2018 3:08 pm
His Rollover IRA Balance: $550k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Rollover IRA Balance: $230k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)
OP, ALL of the above above balances are PRE-TAX contributions, correct? In other words, neither of you has made after-tax 401k or after-tax (non-deductible) IRA contributions at any point in the past, correct?

luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Wed Sep 12, 2018 7:51 pm

SoAnyway wrote:
Wed Sep 12, 2018 6:26 pm
luminol wrote:
Wed Sep 12, 2018 3:08 pm
His Rollover IRA Balance: $550k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Rollover IRA Balance: $230k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)
OP, ALL of the above above balances are PRE-TAX contributions, correct? In other words, neither of you has made after-tax 401k or after-tax (non-deductible) IRA contributions at any point in the past, correct?
That's right. All balances above are pre-tax contributions only.

SoAnyway
Posts: 108
Joined: Tue Jul 31, 2018 11:49 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by SoAnyway » Wed Sep 12, 2018 8:08 pm

luminol wrote:
Wed Sep 12, 2018 7:51 pm
SoAnyway wrote:
Wed Sep 12, 2018 6:26 pm
luminol wrote:
Wed Sep 12, 2018 3:08 pm
His Rollover IRA Balance: $550k (Vanguard)
His 401(k) Balance: $3k (Mass Mutual - New job)

Her Rollover IRA Balance: $230k (Fidelity)
Her 40(k) Balance: $70k (Fidelity)
OP, ALL of the above above balances are PRE-TAX contributions, correct? In other words, neither of you has made after-tax 401k or after-tax (non-deductible) IRA contributions at any point in the past, correct?
That's right. All balances above are pre-tax contributions only.
Perfect, OP - You're home free. Others will weigh in if I'm wrong and/or on the allocation piece but all options are available to you.

luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Thu Sep 13, 2018 12:53 pm

Thank you everyone! One last question - after I rollover both the tIRAs into 401(k) accounts, is there a waiting period before I can initiate the backdoor process?

TwstdSista
Posts: 982
Joined: Thu Nov 16, 2017 4:03 am

Re: Backdoor Roth IRA - Is it worth it for me?

Post by TwstdSista » Thu Sep 13, 2018 12:59 pm

^ Nope. Just make sure the balance in all traditional/SEP/SIMPLE IRAs is $0 before 12-31-2018.

luminol
Posts: 13
Joined: Tue Jul 05, 2016 2:27 pm

Re: Backdoor Roth IRA - Is it worth it for me?

Post by luminol » Thu Sep 13, 2018 5:32 pm

Thanks!

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