Strategies for dealing with blackout period during rollover

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CoastalWinds
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Joined: Sat Apr 06, 2019 8:28 pm

Strategies for dealing with blackout period during rollover

Post by CoastalWinds » Sun Apr 14, 2019 11:02 am

Hi BHs!

I am preparing to roll two existing pre-tax tIRAs into my 401k in preparation for a backdoor Roth conversion of a third tIRA that has only non-deductible contributions in it. The two pre-tax IRAs collectively have about 160K, with 80% in equity mutual funds (VTSAX and VTIAX) and 20% in Bonds (VBTLX). I would like to avoid being out of the market or off-allocation during this transfer period, and am looking for guidance on how to approach this.

The IRAs are with Vanguard. The 401k is with Vanguard but managed by a separate entity, Ascensus. Ideally, there would be some sort of way to do an in-kind transfer of shares. But I’m not sure if that’s allowed for this type of roll-in. Does anyone know?

If I have to liquidate for the transfer process, then I’m exploring the option of, beforehand, selling the stocks to buy bonds within the pre-tax IRAs and swapping some cash in my taxable VG investment account to buy stocks. Would this be the way to go?

If so, I’m struggling with the idea that $1 of stock in the 401k is not the same basis as $1 of stock purchased in the taxable account. The latter is worth more since I have 100% basis. So if I sold all the stocks in my pre-tax IRAs and bought the same $ amount of stocks in my taxable account, this would effectively result in a higher AA stock position afterwards. Meaning if I’m ok with the new AA, then I would have been below my target AA for years. Or, with my luck, I’d be effectively increasing my AA probably right in time for a market correction 😆. Am I thinking about this right or wrong?

More broadly, how would other people approach this?

Thank you in advance.
Last edited by CoastalWinds on Sun Apr 14, 2019 2:24 pm, edited 1 time in total.

dbr
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Re: Strategies for dealing with blackout period during rollover

Post by dbr » Sun Apr 14, 2019 11:11 am

I doubt a 401k plan would hold individual stocks other than company stock purchased in the plan. Stock can be held in a directed brokerage option but the path to that starts by transferring cash.

I wouldn't worry a whit about being out of the market for a little bit. People on this forum generally go ballistic at that suggestion, however.

It would seem that your plan to swap stocks/bonds with your cash would work. Tax adjusting the different accounts is a minor adjustment that I wouldn't worry about.

I might wonder that if you actually have enough cash on hand to pull this off that you are not talking about very large accounts and it probably doesn't matter very much anyway.

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Wiggums
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Re: Strategies for dealing with blackout period during rollover

Post by Wiggums » Sun Apr 14, 2019 11:23 am

I agree. No need to worry about being out of the market for a short period of time. Sometimes you have no other choice.

Topic Author
CoastalWinds
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Re: Strategies for dealing with blackout period during rollover

Post by CoastalWinds » Sun Apr 14, 2019 2:26 pm

There was a recent poster who commented that they lost $25K worth of gain shortly after Christmas because their holdings were in a blackout transfer period during the run up. I would go ballistic at that too! I realize it could go the other way too, but since the market tends to go up more than down, seems prudent to take some action to prevent missing out.

tibbitts
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Re: Strategies for dealing with blackout period during rollover

Post by tibbitts » Sun Apr 14, 2019 2:31 pm

Wiggums wrote:
Sun Apr 14, 2019 11:23 am
I agree. No need to worry about being out of the market for a short period of time. Sometimes you have no other choice.
I think you always have the choice to hedge market movements, but I don't know enough to explain how to do that (without a sufficient stash of cash) or what the cost would be.

I think you do have to worry - I've lost money when markets rose while I was transferring funds, money that I can never recover.

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Earl Lemongrab
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Re: Strategies for dealing with blackout period during rollover

Post by Earl Lemongrab » Sun Apr 14, 2019 2:49 pm

Depends on how much you have in the 401(k). You can consider the cash in the rollover to be fixed income and reallocate the 401(k) to accommodate that if you have enough. Or get as close as you can.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

retiringwhen
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Re: Strategies for dealing with blackout period during rollover

Post by retiringwhen » Sun Apr 14, 2019 2:59 pm

Earl Lemongrab wrote:
Sun Apr 14, 2019 2:49 pm
Depends on how much you have in the 401(k). You can consider the cash in the rollover to be fixed income and reallocate the 401(k) to accommodate that if you have enough. Or get as close as you can.
+1 - i did something similar, moved a Rollover IRA at Vanguard into my Vanguard 401(K). I converted the entire IRA to money market, and at the same time moved that much from bonds in my 401(K) into that stock AA I had in the IRA.

Then did the rollover as cash into the Bond fund in my 401(K). That way I kept the AA the same the whole time and was able to time the original trades for the same day. Then I could not worry about the rollover taking 1 day or 14 days.
Trying to time trades with the rollover is tricky as you don’t know how long it would take.

Vanguard told me it would be between 2 and 10 business days. It in the end only took one day. Since I fixed the AA BEFORE the rollover, I didn’t care.

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