Tax deferred balance, keep it at 403b or move it to IRA (then convert to Roth)?

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Topic Author
leviathan
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Joined: Tue Jul 09, 2019 3:03 pm

Tax deferred balance, keep it at 403b or move it to IRA (then convert to Roth)?

Post by leviathan »

Hello fellow Bogleheads,
I am thinking about transferring the entire balance on my TIAA 403b (from my previous job) to Vanguard IRA.
Then I plan to do Roth conversion over next a few years starting next year.
I was hesitant to move the whole balance to IRA because of the complication for backdoor Roth contribution.
However, I thought that there may be some advantages in having both types of IRAs at VG at the same time for fast execution of Roth conversion when the opportunity arises (e.g. RBD). Any thoughts?

Edited to discuss my Roth contribution/conversion plan:

I work for Federal government. I plan to retire at about 68 years old. We expect to receive about 90k from SS and FERS pension (if my estimation is correct). The balance on TIAA 403b from previous job is about 280k (all tax deferred). I am concerned that my tax-deferred balance may become too large. Starting next year, I am thinking about switching to contribute to Roth in employer plans. In addition, I am thinking about converting all or part of TIAA 403b balance to Roth IRA over years. Let me know if you have any advice/guidance. Thanks.

Tax Filing Status: (Married Filing Jointly)
Tax Rate: 22% Federal, 8% State/local
State of Residence: MD
Age: Early 50s
Tax deferred: 700k Roth: 300k
Taxable: 600k
Annual TSP/403b contribution: 45.5k (max)
Annual Roth IRA contribution: 13k (max)
Annual HSA contribution: 5k (max)
Current/Desired Asset allocation: 100% stocks (US Equity index funds)
Last edited by leviathan on Thu Apr 15, 2021 10:20 pm, edited 1 time in total.
wordsmith11
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by wordsmith11 »

To the extent that you have a traditional IRA balance anywhere it will impact your ability to do a tax-free backdoor Roth contribution using a non-deductible traditional contribution...doesn't matter the custodian.

RBD?
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retired@50
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retired@50 »

wordsmith11 wrote: Tue Apr 13, 2021 10:02 pm RBD?
Really bad day.

Regards,
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retired@50
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retired@50 »

leviathan wrote: Tue Apr 13, 2021 9:03 pm ...
I was hesitant to move the whole balance to IRA because of the complication for backdoor Roth contribution.
...
However, I thought that there may be some advantages in having both types of IRAs at VG at the same time for fast execution of Roth conversion when the opportunity arises (e.g. RBD). Any thoughts?
Will you be retired?

If you're still working, the traditional IRA will be a complication for backdoor Roth contributions.

If not working, then having a Rollover IRA and a Roth IRA at Vanguard can work smoothly for doing conversions, assuming you're using brokerage-style accounts for both sides of the transaction. They will transfer cash from one settlement account to the other, or you can transfer shares in-kind from one account to the other.

Regards,
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Metsfan91
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by Metsfan91 »

leviathan wrote: Tue Apr 13, 2021 9:03 pm Hello fellow Bogleheads,
I am thinking about transferring the entire balance on my TIAA 403b (from my previous job) to Vanguard IRA.
Then I plan to do Roth conversion over next a few years starting next year...
Sounds like a good plan. I hope to do similar thing years down the road.
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crefwatch
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by crefwatch »

Check whether tax or creditor protection will change. NJ, for example, taxes 403(b) payouts differently.
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retiredjg »

leviathan wrote: Tue Apr 13, 2021 9:03 pm Hello fellow Bogleheads,
I am thinking about transferring the entire balance on my TIAA 403b (from my previous job) to Vanguard IRA.
Then I plan to do Roth conversion over next a few years starting next year.
I was hesitant to move the whole balance to IRA because of the complication for backdoor Roth contribution.
However, I thought that there may be some advantages in having both types of IRAs at VG at the same time for fast execution of Roth conversion when the opportunity arises (e.g. RBD). Any thoughts?
What you want to do is unclear. If you wish to do Roth conversions, a rollover of any amount from 403b to IRA is fine.

If you wish to use the backdoor method to make Roth IRA contributions, do not roll anything into IRA because the contents of the IRA would have to be pro-rated with your backdoor process.
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leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

retiredjg wrote: Wed Apr 14, 2021 7:10 am What you want to do is unclear. If you wish to do Roth conversions, a rollover of any amount from 403b to IRA is fine.

If you wish to use the backdoor method to make Roth IRA contributions, do not roll anything into IRA because the contents of the IRA would have to be pro-rated with your backdoor process.
Thanks to all who responded.
I am still working but considering converting some of the tax deferred balance to Roth before it becomes too big.
retiredjg,
I intend to do both (Roth conversion + backdoor Roth IRA contribution).
Maybe I should move only a part of the 403b balance I intend to convert to Roth each year.
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retiredjg »

If you intend to do both, you can just roll whatever amount you want directly from 403b to Roth IRA each year. There is no need to go through tIRA at all.
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retiredjg »

If available, you could also accomplish the same thing by just contributing to Roth 403b (or whatever you have) instead of traditional.
Topic Author
leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

retiredjg wrote: Wed Apr 14, 2021 8:00 am If you intend to do both, you can just roll whatever amount you want directly from 403b to Roth IRA each year. There is no need to go through tIRA at all.
That option is not available at least on TIAA 403b. It only allows the rollover of the tax-deferred balance to tIRA.
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leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

retiredjg wrote: Wed Apr 14, 2021 8:02 am If available, you could also accomplish the same thing by just contributing to Roth 403b (or whatever you have) instead of traditional.
I'll do that as well. Thanks.
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retiredjg »

leviathan wrote: Wed Apr 14, 2021 8:30 am
retiredjg wrote: Wed Apr 14, 2021 8:00 am If you intend to do both, you can just roll whatever amount you want directly from 403b to Roth IRA each year. There is no need to go through tIRA at all.
That option is not available at least on TIAA 403b. It only allows the rollover of the tax-deferred balance to tIRA.
I don't think they have a choice, but if you don't mind the two steps, I guess it does not matter. And I suppose it suits you fine if you want to target RBDs. :D
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ruralavalon
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by ruralavalon »

leviathan wrote: Tue Apr 13, 2021 9:03 pm Hello fellow Bogleheads,
I am thinking about transferring the entire balance on my TIAA 403b (from my previous job) to Vanguard IRA.
Then I plan to do Roth conversion over next a few years starting next year.
I was hesitant to move the whole balance to IRA because of the complication for backdoor Roth contribution.
However, I thought that there may be some advantages in having both types of IRAs at VG at the same time for fast execution of Roth conversion when the opportunity arises (e.g. RBD). Any thoughts?
W I'll you current employer's plan accept a rollover of the old 403b?

Does your current employer's plan offer good funds with with low expense ratios?

If so then a rollover into your new employer's plan may be the best choice for you.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

ruralavalon wrote: Wed Apr 14, 2021 10:51 am W I'll you current employer's plan accept a rollover of the old 403b?

Does your current employer's plan offer good funds with with low expense ratios?

If so then a rollover into your new employer's plan may be the best choice for you.
Thanks for the suggestion. However, I have not reached the age of 59, and my current employer plan will accept a rollover but does not offer in-plan Roth conversion. So I if I move my 403b balance to my current employer plan, I cannot convert any of the balance to Roth for the time being. That's my understanding.
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ruralavalon
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by ruralavalon »

leviathan wrote: Wed Apr 14, 2021 1:37 pm
ruralavalon wrote: Wed Apr 14, 2021 10:51 am W I'll you current employer's plan accept a rollover of the old 403b?

Does your current employer's plan offer good funds with with low expense ratios?

If so then a rollover into your new employer's plan may be the best choice for you.
Thanks for the suggestion. However, I have not reached the age of 59, and my current employer plan will accept a rollover but does not offer in-plan Roth conversion. So I if I move my 403b balance to my current employer plan, I cannot convert any of the balance to Roth for the time being. That's my understanding.
What is your tax bracket, both federal and state?

Why do you wish to do Roth IRA conversions before retiring?
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by retiredjg »

I would agree with where ruralavalon seems to be going....unless you have a a huge tax-deferred balance, Roth conversions may not be a good choice for you right now.
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leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

ruralavalon wrote: Wed Apr 14, 2021 2:21 pm What is your tax bracket, both federal and state?

Why do you wish to do Roth IRA conversions before retiring?
Thanks for the link. I am not decided about Roth IRA conversion yet. But in general, I am just concerned that the tax-deferred balance will become too big without any early action.
retiredjg wrote: Wed Apr 14, 2021 3:53 pm I would agree with where ruralavalon seems to be going....unless you have a a huge tax-deferred balance, Roth conversions may not be a good choice for you right now.
I guess that it is a complicated issue. Probably I may seek guidance with a separate thread in the future.
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ruralavalon
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by ruralavalon »

leviathan wrote: Thu Apr 15, 2021 7:20 am
ruralavalon wrote: Wed Apr 14, 2021 2:21 pm What is your tax bracket, both federal and state?

Why do you wish to do Roth IRA conversions before retiring?
Thanks for the link. I am not decided about Roth IRA conversion yet. But in general, I am just concerned that the tax-deferred balance will become too big without any early action.
retiredjg wrote: Wed Apr 14, 2021 3:53 pm I would agree with where ruralavalon seems to be going....unless you have a a huge tax-deferred balance, Roth conversions may not be a good choice for you right now.
I guess that it is a complicated issue. Probably I may seek guidance with a separate thread in the future.
It may be best not to have a separate thread on this.

The two issues are interrelated in my opinion. If your current employer's plan offers good funds with low expense ratios and if now is not a good time to do Roth IRA conversions, then your best move is to rollover your old 403b into your current employer's plan.

For most people traditional contributions are likely better than Roth contributions. But that's not true for everyone. Will you be eligible for both a significant pension and Social Security benefits? What is your profession or occupation? About how much do you currently have in traditional tax-deferred accounts? How much do you currently contribute annually to your accounts?

Often the best time for Roth Roth IRA conversions is after retirement before starting Social Security and before beginning Required Minimum Distributions (RMDs), or during any other period when your tax bracket is low. What is your current tax bracket, both federal and state? What is your age? About when do you expect to retire?

What funds are offered in your current employer's plan? Please give fund names, tickers and expense ratios. What type of plan does your current employer have (401k, 403b, 457b,TSP)?

Please simply add all this new data to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Please see this for information needed and format: Asking Portfolio Questions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA?

Post by leviathan »

ruralavalon wrote: Thu Apr 15, 2021 10:06 am It may be best not to have a separate thread on this.

The two issues are interrelated in my opinion. If your current employer's plan offers good funds with low expense ratios and if now is not a good time to do Roth IRA conversions, then your best move is to rollover your old 403b into your current employer's plan.

For most people traditional contributions are likely better than Roth contributions. But that's not true for everyone. Will you be eligible for both a significant pension and Social Security benefits? What is your profession or occupation? About how much do you currently have in traditional tax-deferred accounts? How much do you currently contribute annually to your accounts?

Often the best time for Roth Roth IRA conversions is after retirement before starting Social Security and before beginning Required Minimum Distributions (RMDs), or during any other period when your tax bracket is low. What is your current tax bracket, both federal and state? What is your age? About when do you expect to retire?

What funds are offered in your current employer's plan? Please give fund names, tickers and expense ratios. What type of plan does your current employer have (401k, 403b, 457b,TSP)?

Please simply add all this new data to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Please see this for information needed and format: Asking Portfolio Questions.
As you suggested, I added the new data in the original post. Let me know if you have any guidance. Thanks.
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retiredjg
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Re: Tax deferred balance, keep it at 403b or move it to IRA (then convert to Roth)?

Post by retiredjg »

leviathan wrote: Tue Apr 13, 2021 9:03 pm Tax Filing Status: (Married Filing Jointly)
Tax Rate: 22% Federal, 8% State/local
State of Residence: MD
Age: Early 50s
Tax deferred: 700k Roth: 300k
Taxable: 600k
Annual TSP/403b contribution: 45.5k (max)
Annual Roth IRA contribution: 13k (max)
Annual HSA contribution: 5k (max)
Current/Desired Asset allocation: 100% stocks (US Equity index funds)
With a tax-deferred balance of 700k, there is no reason for alarm at this point in my opinion. However, it seems it may be 15ish years until retirement and reducing your future tax-deferred contributions makes a lot of sense to me. I'm not sure I would go as far as doing Roth conversions too.

Retirement income of $90k ish is in the current 12% tax bracket so I would probably not be doing conversions at 22%. However, we know tax rates will go up in 2026 (unless the law changes). So maybe I would do a limited amount of conversion at 22% until then based on the generality that one of you will survive the other and that person's tax rate will go up and be at least 22%.

If you switch over to Roth contributions in your work plan(s), will that push you out of the 22% bracket? If no, how much space is left in the 22% bracket for Roth conversions?

Would you expect the $90kish to cover your living expenses? Any possibility of retiring before 68?

It will be interesting to hear what ruralavalon thinks.
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leviathan
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Re: Tax deferred balance, keep it at 403b or move it to IRA (then convert to Roth)?

Post by leviathan »

retiredjg wrote: Fri Apr 16, 2021 7:17 am With a tax-deferred balance of 700k, there is no reason for alarm at this point in my opinion. However, it seems it may be 15ish years until retirement and reducing your future tax-deferred contributions makes a lot of sense to me. I'm not sure I would go as far as doing Roth conversions too.

Retirement income of $90k ish is in the current 12% tax bracket so I would probably not be doing conversions at 22%. However, we know tax rates will go up in 2026 (unless the law changes). So maybe I would do a limited amount of conversion at 22% until then based on the generality that one of you will survive the other and that person's tax rate will go up and be at least 22%.

If you switch over to Roth contributions in your work plan(s), will that push you out of the 22% bracket? If no, how much space is left in the 22% bracket for Roth conversions?

Would you expect the $90kish to cover your living expenses? Any possibility of retiring before 68?

It will be interesting to hear what ruralavalon thinks.
Thanks for the feedback.
We will be at the boundary between 22% and 24% after itemized deductions, if we switch over to Roth contributions.
$90k may cover our basic living expenses even though I haven't done detailed analysis. It is possible that one of us may retire earlier than planned.
Another consideration is the balance in my taxable account. I thought that it might a good idea to increase the Roth balance at the expense of the balance in the taxable account.
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ruralavalon
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Re: Tax deferred balance, keep it at 403b or move it to IRA (then convert to Roth)?

Post by ruralavalon »

leviathan wrote: Tue Apr 13, 2021 9:03 pm Hello fellow Bogleheads,
I am thinking about transferring the entire balance on my TIAA 403b (from my previous job) to Vanguard IRA.
Then I plan to do Roth conversion over next a few years starting next year.
I was hesitant to move the whole balance to IRA because of the complication for backdoor Roth contribution.
However, I thought that there may be some advantages in having both types of IRAs at VG at the same time for fast execution of Roth conversion when the opportunity arises (e.g. RBD). Any thoughts?

Edited to discuss my Roth contribution/conversion plan:

I work for Federal government. I plan to retire at about 68 years old. We expect to receive about 90k from SS and FERS pension (if my estimation is correct). The balance on TIAA 403b from previous job is about 280k (all tax deferred). I am concerned that my tax-deferred balance may become too large. Starting next year, I am thinking about switching to contribute to Roth in employer plans. In addition, I am thinking about converting all or part of TIAA 403b balance to Roth IRA over years. Let me know if you have any advice/guidance. Thanks.

Tax Filing Status: (Married Filing Jointly)
Tax Rate: 22% Federal, 8% State/local
State of Residence: MD
Age: Early 50s
Tax deferred: 700k Roth: 300k
Taxable: 600k
Annual TSP/403b contribution: 45.5k (max)
Annual Roth IRA contribution: 13k (max)
Annual HSA contribution: 5k (max)
Current/Desired Asset allocation: 100% stocks (US Equity index funds)
leviathan wrote: Fri Apr 16, 2021 9:11 am
retiredjg wrote: Fri Apr 16, 2021 7:17 am With a tax-deferred balance of 700k, there is no reason for alarm at this point in my opinion. However, it seems it may be 15ish years until retirement and reducing your future tax-deferred contributions makes a lot of sense to me. I'm not sure I would go as far as doing Roth conversions too.

Retirement income of $90k ish is in the current 12% tax bracket so I would probably not be doing conversions at 22%. However, we know tax rates will go up in 2026 (unless the law changes). So maybe I would do a limited amount of conversion at 22% until then based on the generality that one of you will survive the other and that person's tax rate will go up and be at least 22%.

If you switch over to Roth contributions in your work plan(s), will that push you out of the 22% bracket? If no, how much space is left in the 22% bracket for Roth conversions?

Would you expect the $90kish to cover your living expenses? Any possibility of retiring before 68?

It will be interesting to hear what ruralavalon thinks.
Thanks for the feedback.
We will be at the boundary between 22% and 24% after itemized deductions, if we switch over to Roth contributions.
$90k may cover our basic living expenses even though I haven't done detailed analysis. It is possible that one of us may retire earlier than planned.
Another consideration is the balance in my taxable account. I thought that it might a good idea to increase the Roth balance at the expense of the balance in the taxable account.
I don't believe we know what Congress might or might not do about tax brackets by 2026, so wouldn't consider that in planning.

I think the better solution (rather than a Roth IRA conversions) is making a substantial part of the Thrift Savings Plan (TSP) contributions Roth contributions rather than traditional tax-deferred contributions.

This allows a rollover of the old 403b plan into the current employer plan (TSP), and preserves the ability to do the backdoor Roth IRA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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