Transfer Vanguard IRA back to Fidelity 401k?

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setitandforgetit
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Transfer Vanguard IRA back to Fidelity 401k?

Post by setitandforgetit »

Hi All,

Thanks in advance for your perspective. I am a fairly young investor trying to make all the right moves.

I have a large rollover IRA with Vanguard that is preventing me from being able to do backdoor Roth IRA.

My 401k is with fidelity and has good options - I use brokeragelink to invest in Fidelity Zero funds 80% total US / 20% total international.

Should I transfer the vanguard rollover IRA to my workplace 401k so I can take advantage of backdoor Roth? I assume so but nervous to do something incorrect.

Any gotchas I should know about?

Thanks!
2tall4economy
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by 2tall4economy »

Do your own research but I’m 99% sure you can’t ever roll money into a 401K that you’ve rolled out.

I’m 100% sure that moving the ira money to another bank doesn’t help you from a backdoor perspective. The irs doesn’t look at the bank you use, they look at you as a whole.

You’re in the same position my wife is - we just do the backdoor anyway and pay the prorata taxes on it each year. It’s probably not the smartest move we do but I figure it’s dollar cost averaging for taxes...
You can do anything you want in life. The rub is that there are consequences.
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celia
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by celia »

Go for it! But if you own any bonds, they should be in the 401K or another tax-deferred account. Keep stocks in your Roth to maximize the tax-free growth there.
2tall4economy wrote: Tue Sep 01, 2020 2:41 am Do your own research but I’m 99% sure you can’t ever roll money into a 401K that you’ve rolled out.
The WHOLE POINT of a Rollover IRA is to hold money from a previous employer tax-deferred plan until you have access to another employer plan! It is up to the new 401K if they will accept the Roll-over IRA money. Most plans do, but some want to know that the account owner didn't "contaminate" the Rollover IRA with direct contributions and NO 401K is allowed to accept post-tax dollars.
I’m 100% sure that moving the ira money to another bank doesn’t help you from a backdoor perspective. The irs doesn’t look at the bank you use, they look at you as a whole.
OP is not looking to move the IRA to another bank, but you are correct that it doesn't help prepare for a Backdoor Roth, since the IRS considers all your non-Roth IRAs one big IRA for tax/conversion purposes, even if the IRAs are held at different custodians.
You’re in the same position my wife is - we just do the backdoor anyway and pay the prorata taxes on it each year. It’s probably not the smartest move we do but I figure it’s dollar cost averaging for taxes...
One consideration is how big the non-deductible contribution(s) are in comparison to the pre-tax money already in the IRA. The more pre-tax money there is, percentage-wise, the more the conversion will be taxed. But the big annoyance, to me, is that the pro rata rule needs to be used every year there is a withdrawal (Roth conversion or not, or RMD) until the IRA is emptied. This also includes withdrawals by heirs, unless the account owner decides at some point to pay taxes on every dollar withdrawn.
McDougal
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by McDougal »

OP, I did exactly this in July, same 2 firms. The only gotcha - not really bad, but unexpected - from my perspective was Vanguard had to mail me a paper check. Fido took a mobile deposit of the check on their app. I was out of the market for a total of 5 trading days. It was the largest check I have ever received! I got it done just before the 7/15 tax filing date so I was able to make my first backdoor Roth for 2019 and probably will do one for 2020 later this year. Good luck!
Outer Marker
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by Outer Marker »

Been there, done that. It worked fine and I've been able to backdoor roth for years. . .
mrtwstr
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by mrtwstr »

Just did the same for the exact same reason. Your 401k plan has to allow for it, so make sure you talk to Fidelity first.
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FiveK
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by FiveK »

setitandforgetit wrote: Tue Sep 01, 2020 1:56 am Any gotchas I should know about?
- Make sure the existing money leaves the IRA and goes into the 401k before using the backdoor process
- Do a draft 2020 form 8606 now (before using the backdoor process) based on what you expect for entries when you do it for real in 2021. Does it make sense to you?
tashnewbie
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by tashnewbie »

FiveK wrote: Tue Sep 01, 2020 1:13 pm
setitandforgetit wrote: Tue Sep 01, 2020 1:56 am Any gotchas I should know about?
- Make sure the existing money leaves the IRA and goes into the 401k before using the backdoor process
- Do a draft 2020 form 8606 now (before using the backdoor process) based on what you expect for entries when you do it for real in 2021. Does it make sense to you?
+1

Just make sure your 401k will accept the incoming rollover. I just did this type of transfer, and my rollover IRA was deposited into my 401k today. I was out of the market for 3 weeks. If it's available to you, I would request the IRA custodian wire the funds to your 401k. There will probably be a fee to transfer the money, but it will probably be much smaller than the amount you may lose because the IRA money isn't in the market (it probably was for me, because I was out 3 weeks!).
Topic Author
setitandforgetit
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by setitandforgetit »

Thank you all for your responses. I feel more comfortable now 👊
2tall4economy
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by 2tall4economy »

celia wrote: Tue Sep 01, 2020 3:46 am
2tall4economy wrote: Tue Sep 01, 2020 2:41 am Do your own research but I’m 99% sure you can’t ever roll money into a 401K that you’ve rolled out.
The WHOLE POINT of a Rollover IRA is to hold money from a previous employer tax-deferred plan until you have access to another employer plan! It is up to the new 401K if they will accept the Roll-over IRA money. Most plans do, but some want to know that the account owner didn't "contaminate" the Rollover IRA with direct contributions and NO 401K is allowed to accept post-tax dollars.
Fair -- my point was that you can't do from a non-rollover IRA (just a plain vanilla one) to a 401k (ask me how I know). But that could absolutely be true.
You can do anything you want in life. The rub is that there are consequences.
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FiveK
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by FiveK »

2tall4economy wrote: Tue Sep 01, 2020 9:33 pm Fair -- my point was that you can't do from a non-rollover IRA (just a plain vanilla one) to a 401k (ask me how I know).
That may well be true for the 401k you have. Some 401k plans do allow incoming rollovers from rollover IRAs only. Other 401k plans allow incoming rollovers from any IRA. And others might not allow incoming rollovers at all.

One has to check on the specifics for each plan.
2tall4economy
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by 2tall4economy »

My plan just sucks then I guess :)
You can do anything you want in life. The rub is that there are consequences.
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celia
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Re: Transfer Vanguard IRA back to Fidelity 401k?

Post by celia »

2tall4economy wrote: Wed Sep 02, 2020 1:10 am My plan just sucks then I guess :)
Your plan is probably "tight" since it wants to remain "qualified" for all employees and not mess with questionable rollovers. Here's an example thread about someone who unknowingly rolled post-tax money into their 401K. The OP was responsible for this mistake, but what if he had never informed the 401K plan of the mistake?
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