Rollover IRA Questions

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bck63
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Joined: Fri Sep 28, 2018 4:59 pm

Rollover IRA Questions

Post by bck63 » Sun Oct 21, 2018 9:37 am

Good morning --

I'm not sure if this is the right forum, but I have a question about rollover IRAs. I have two 403(b) accounts from former employers. I would like to roll them over to a Vanguard rollover IRA. My wife and I each file our taxes as Married Filing Separately (as a state employee she is eligible for a student loan forgiveness program but our combined income would make her ineligible). I know the rules regarding IRA contributions when filing as Married Filing Separately. What I can't find information on is whether that filing status makes me ineligible for initiating a rollover IRA? It's not new contributions, but I just can't seem to find the answer. I know I should call my accountant, but thought I would just ask here for starters. Any help would be greatly appreciated.

-- Brian

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: Rollover IRA Questions

Post by ExitStageLeft » Sun Oct 21, 2018 9:53 am

There are no limitations on rolling from a qualified retirement plan into an IRA. That money is already in a tax-deferred status so it isn't dependent upon whether you can contribute in the current year.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

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Earl Lemongrab
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Re: Rollover IRA Questions

Post by Earl Lemongrab » Sun Oct 21, 2018 2:38 pm

A potential problem you might face is that the MAGI limit for making a Roth IRA contribution is very low for MFS in your case. Normally that could be worked around with the backdoor Roth, but your rollovers would cause a problem there.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

bck63
Posts: 32
Joined: Fri Sep 28, 2018 4:59 pm

Re: Rollover IRA Questions

Post by bck63 » Sun Oct 21, 2018 4:03 pm

Earl Lemongrab wrote:
Sun Oct 21, 2018 2:38 pm
A potential problem you might face is that the MAGI limit for making a Roth IRA contribution is very low for MFS in your case. Normally that could be worked around with the backdoor Roth, but your rollovers would cause a problem there.
Thank you for the response. Why would it cause a problem?

bck63
Posts: 32
Joined: Fri Sep 28, 2018 4:59 pm

Re: Rollover IRA Questions

Post by bck63 » Sun Oct 21, 2018 4:03 pm

ExitStageLeft wrote:
Sun Oct 21, 2018 9:53 am
There are no limitations on rolling from a qualified retirement plan into an IRA. That money is already in a tax-deferred status so it isn't dependent upon whether you can contribute in the current year.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
Thank you!

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Earl Lemongrab
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Re: Rollover IRA Questions

Post by Earl Lemongrab » Sun Oct 21, 2018 4:59 pm

bck63 wrote:
Sun Oct 21, 2018 4:03 pm
Earl Lemongrab wrote:
Sun Oct 21, 2018 2:38 pm
A potential problem you might face is that the MAGI limit for making a Roth IRA contribution is very low for MFS in your case. Normally that could be worked around with the backdoor Roth, but your rollovers would cause a problem there.
Thank you for the response. Why would it cause a problem?
The rollover IRA would be pro-rated with the after-tax contribution.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

bck63
Posts: 32
Joined: Fri Sep 28, 2018 4:59 pm

Re: Rollover IRA Questions

Post by bck63 » Sun Oct 21, 2018 6:24 pm

Earl Lemongrab wrote:
Sun Oct 21, 2018 4:59 pm
bck63 wrote:
Sun Oct 21, 2018 4:03 pm
Earl Lemongrab wrote:
Sun Oct 21, 2018 2:38 pm
A potential problem you might face is that the MAGI limit for making a Roth IRA contribution is very low for MFS in your case. Normally that could be worked around with the backdoor Roth, but your rollovers would cause a problem there.
Thank you for the response. Why would it cause a problem?
The rollover IRA would be pro-rated with the after-tax contribution.
Thanks again Earl. I'm so sorry, but I still don't understand. I'm not able to make any Roth contribution. I just need to roll over two 403(b) plans. I've decided to just go with taxable investments in Vanguard from here on out. So my only concern is whether I can roll over my 403(b) plans without tax problems while filing MFS.

Sorry for my confusion. This MFS has been a big adjustment. I had already contributed fully for 2017 and fully on 1/1/18 for 2018. So had to pull those contributions out and will pay taxes on the profit, which wasn't too much. It's been a pain in the pants but will be worth it in the end.

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Earl Lemongrab
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Re: Rollover IRA Questions

Post by Earl Lemongrab » Sun Oct 21, 2018 7:01 pm

If you don't have IRAs with pretax amounts, which normally a 401(k) rollover will have, then you can use the so-called backdoor Roth. In that case, you make a contribution to a traditional IRA, which is not deductible, then convert to a Roth IRA with little tax due. If you have pretax IRA holdings, then you can't just convert the non-deductible part but you need to pro-rate the tax.

It comes down to whether the Roth contribution is better than rolling over from your old 401(k). We'd need details on that to make any recommendations.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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