Parting ways with my broker. What next?

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DEBLM1419
Posts: 3
Joined: Fri Dec 29, 2017 5:07 pm

Parting ways with my broker. What next?

Post by DEBLM1419 » Sun Feb 10, 2019 7:38 pm

I currently hold a tIRA with a broker who I will soon be parting with. All proceeds used to fund the tIRA were deductible and I received a tax benefit for several years as a result. The tIRA is nearly entirely composed of UITs that will be maturing later this week, and, as a result I will have ~$20,000 to re-invest pursuant to my ISP.

I am seeking to determine my best option for the tIRA funds from the following options:

1) Roll over into my current 401(k) plan (Fidelity). My understanding is that under this approach, I can more easily contrite to my existing Roth IRA using the backdoor method. This is an important consideration for me given that as of this year I am no longer eligible to contribute directly to my Roth IRA. However, I am concerned about the bond offerings in my 401(k), which may result in me having to seek an alternative account in which to hold better bond funds. 401(k) bond offerings are:

PIMCO Total Return Fund (PTTRX) (0.8% expense ratio)
Fidelity Government Income Fund (FGOVX) (0.45% expense ratio
Fidelity Strategic Income Fund (FSICX) (0.68% expense ratio)
FID INVST GR BD (FBNDX) (0.45% expense ratio)

2) Open a new tIRA with Fidelity and do an in-kind transfer of the funds from the first tIRA to the new tIRA. This would hinder my ability to conduct future backdoor Roth contributions without paying taxes, which is something that I would prefer to avoid. However, under this approach I would have access to much better bond fund offerings that will help me simplify my portfolio to the three-fund portfolio that I desire.

***
Now, the questions:

1) If I proceed with a transfer to my 401(k) and subsequently open a new tIRA in which to contribute after-tax money for the purpose of purchasing a Total Bond Fund, will I be limited in my ability to do backdoor Roth contributions in the future?

2) Are there other considerations I should be taking into account as I assess the two options above?

Thank you for your time and advice.

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Peter Foley
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Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Parting ways with my broker. What next?

Post by Peter Foley » Sun Feb 10, 2019 8:33 pm

If you want to do a back door Roth I would make the transfer to the existing 401k. .45% is not great, but it isn't horrible either. You might check and see if it has a stable value fund that pays the rate of inflation or better. That is an alternative to bond funds that you could use for part of your bond allocation.

Just so everything is clean with a zero year end balance I would be tempted to wait until 2020 to fund a new IRA and do the Roth conversion. I'm overly cautious because I messed it up the first time I did it.

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FiveK
Posts: 6184
Joined: Sun Mar 16, 2014 2:43 pm

Re: Parting ways with my broker. What next?

Post by FiveK » Sun Feb 10, 2019 11:18 pm

DEBLM1419 wrote:
Sun Feb 10, 2019 7:38 pm
1) If I proceed with a transfer to my 401(k) and subsequently open a new tIRA in which to contribute after-tax money for the purpose of purchasing a Total Bond Fund, will I be limited in my ability to do backdoor Roth contributions in the future?

2) Are there other considerations I should be taking into account as I assess the two options above?
1. No. If the transfer completes this year, you have no need to wait.
2. In 3-4 years you could have the same $20K in your Roth IRA and invest in whatever bond fund you desire, for very low fees.

I agree with Peter Foley that 0.45% is neither great nor horrible.

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