A 403b, Drifting At Sea

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jdmjdm
Posts: 7
Joined: Tue Dec 06, 2016 1:55 pm

A 403b, Drifting At Sea

Post by jdmjdm » Fri Dec 07, 2018 11:35 am

Hi, fellow Bogleheads. I'm hoping to get some sage advice. My wife is a Registered Nurse and used to work at a hospital years ago, where she was able to contribute to a 403b managed through Fidelity. She now does part-time home health nursing for a very small company which doesn't offer any type of retirement plans. As such, she's been funding her own Vanguard Roth IRA to sock away some money for retirement. Meanwhile, her old 403b, currently valued at approximately $50k, just sits, unable to be contributed to, but gets hit each and every month with account fees.

We'd like to move her Fidelity 403b into her existing Vanguard Roth IRA. Is this even possible to do? How would we go about it? We'd have to pay taxes on the $50k, right ? What else should I be thinking about? :confused


Thanks!

bryanm
Posts: 39
Joined: Mon Aug 13, 2018 3:48 pm

Re: A 403b, Drifting At Sea

Post by bryanm » Fri Dec 07, 2018 11:50 am

This should be possible. I would start by contacting the management company for the 403b. You would pay taxes if you roll pre-tax contributions of a 403b into a Roth IRA. Have you considered rolling it into a traditional IRA instead? Then there is no tax hit.

pkcrafter
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Re: A 403b, Drifting At Sea

Post by pkcrafter » Fri Dec 07, 2018 12:29 pm

jdmjdm wrote:
Fri Dec 07, 2018 11:35 am
Hi, fellow Bogleheads. I'm hoping to get some sage advice. My wife is a Registered Nurse and used to work at a hospital years ago, where she was able to contribute to a 403b managed through Fidelity. She now does part-time home health nursing for a very small company which doesn't offer any type of retirement plans. As such, she's been funding her own Vanguard Roth IRA to sock away some money for retirement. Meanwhile, her old 403b, currently valued at approximately $50k, just sits, unable to be contributed to, but gets hit each and every month with account fees.

We'd like to move her Fidelity 403b into her existing Vanguard Roth IRA. Is this even possible to do? How would we go about it? We'd have to pay taxes on the $50k, right ? What else should I be thinking about? :confused


Thanks!
Consider simply rolling the old 403b or an IRA and don't pay taxes now. You could use Fidelity for this or go to Vanguard. If Fidelity, don't get into a managed agreement. If Vanguard, contact them to initiate the rollover (custodian to custodian transfer).

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

jdmjdm
Posts: 7
Joined: Tue Dec 06, 2016 1:55 pm

Re: A 403b, Drifting At Sea

Post by jdmjdm » Fri Dec 07, 2018 2:22 pm

Thank you bryanm and pkcrafter. The overwhelming majority of our retirement funds are through my TSP (401k) at work, so I'm thinking converting my wife's 403b into a Roth IRA would help in some measure to balance out our taxable and non-taxable funds when we start drawing from them, even though we have to suffer the tax hit on the conversion right now. Does my logic seem rational?

bryanm
Posts: 39
Joined: Mon Aug 13, 2018 3:48 pm

Re: A 403b, Drifting At Sea

Post by bryanm » Fri Dec 07, 2018 2:40 pm

jdmjdm wrote:
Fri Dec 07, 2018 2:22 pm
Thank you bryanm and pkcrafter. The overwhelming majority of our retirement funds are through my TSP (401k) at work, so I'm thinking converting my wife's 403b into a Roth IRA would help in some measure to balance out our taxable and non-taxable funds when we start drawing from them, even though we have to suffer the tax hit on the conversion right now. Does my logic seem rational?
I think the math here would be to compare your marginal tax rate if you converted now to your expected marginal rate at retirement. The marginal tax rate if you converted now is going to be at least your current marginal rate, but could increase if the $50k conversion puts you into the next bracket. In most situations, your expected marginal rate at retirement is going to be lower, meaning it's better to roll into a Traditional IRA. That said, if you think there is a significant risk of tax rates increasing, putting the 403b into a Roth is a hedge against that.

If you do decide to roll into a Roth, it may make sense to do so over a number of years. Basically, you would roll the 403b into a tIRA, and each year convert a portion (maybe a fifth) into a corresponding Roth. This is especially attractive if the full $50k conversion would bump you into a new bracket, or if you think you'll have a year in the future where you have a lower AGI.

GlacierRunner
Posts: 15
Joined: Mon Apr 16, 2018 5:29 pm

Re: A 403b, Drifting At Sea

Post by GlacierRunner » Fri Dec 07, 2018 6:56 pm

bryanm wrote:
Fri Dec 07, 2018 2:40 pm
jdmjdm wrote:
Fri Dec 07, 2018 2:22 pm
Thank you bryanm and pkcrafter. The overwhelming majority of our retirement funds are through my TSP (401k) at work, so I'm thinking converting my wife's 403b into a Roth IRA would help in some measure to balance out our taxable and non-taxable funds when we start drawing from them, even though we have to suffer the tax hit on the conversion right now. Does my logic seem rational? Yes!
I think the math here would be to compare your marginal tax rate if you converted now to your expected marginal rate at retirement. The marginal tax rate if you converted now is going to be at least your current marginal rate, but could increase if the $50k conversion puts you into the next bracket. In most situations, your expected marginal rate at retirement is going to be lower, meaning it's better to roll into a Traditional IRA. That said, if you think there is a significant risk of tax rates increasing, putting the 403b into a Roth is a hedge against that.

If you do decide to roll into a Roth, it may make sense to do so over a number of years. Basically, you would roll the 403b into a tIRA, and each year convert a portion (maybe a fifth) into a corresponding Roth. This is especially attractive if the full $50k conversion would bump you into a new bracket, or if you think you'll have a year in the future where you have a lower AGI.
+1 Well said.

exigent
Posts: 790
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Re: A 403b, Drifting At Sea

Post by exigent » Fri Dec 07, 2018 8:57 pm

jdmjdm wrote:
Fri Dec 07, 2018 11:35 am
We'd like to move her Fidelity 403b into her existing Vanguard Roth IRA. Is this even possible to do? How would we go about it? We'd have to pay taxes on the $50k, right ? What else should I be thinking about? :confused
At the very least, if you are getting nicked for fees, you should roll it into a traditional IRA. Roth is fine as long as you're okay with the near-term tax consequences.

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