Current Roth IRA’s; Rolling over 401K

[Gui0507]

Hello all,

Looking to get some advice/information here. We currently have two Roth IRA’s which we use the “backdoor method” to contribute to them due to being over the income threshold. I am looking to roll over my 401K to an IRA-like account as I am no longer working, only one of us is. Therefore, we would still have one 401K (spouse), 2 Roth IRA’s (back door), and rolling over one of them (mine). How would this affect me tax wise?

- Would rolling over the 401K to my existing Roth have a bad tax implication?

- I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax).

Reasons to roll over: the firm it uses is difficult to perform any rebalancing and they have higher fees.

Thank you!

[HomeStretch]

… Reasons to roll over: the firm it uses is difficult to perform any rebalancing and they have higher fees. …

Good reasons to consider rolling over your traditional 401k to an IRA.

Reasons not to rollover may include, among others:
(1) A 401k has better legal protections than an IRA. How much better depends on your state.
(2) as a plan participant that has separated from service, your 401k funds are available without penalty between ages 55 and 59-1/2 under the ‘Rule of 55’. IRA distributions prior to age 59-1/2 are subject to an early withdrawal penalty.

… Would rolling over the 401K to my existing Roth have a bad tax implication? …

Converting your traditional 401k to a Roth IRA is a taxable event at ordinary income rates.

Rolling over your traditional 401k to a traditional IRA would not be taxable.

… We currently have two Roth IRA’s which we use the “backdoor method” to contribute to them due to being over the income threshold. …

If you rollover your 401k balance to a traditional IRA, your backdoor Roth will be subject to pro-rated taxes.

… I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax). …

I am not sure what you mean. Having a traditional 401k does not preclude you from also having a traditional IRA and a Roth IRA.

[mhalley]

Yes, You would owe taxes on the entire amount of a trad 401k rolled over to a Roth.
You CAN have a trad ira and a Roth IRA. In fact, you can have multiples of each, you just can’t contribute more than the annual amount.
If you roll over the trad 401k to the trad ira, you would no longer be able to do the back door Roth but your wife could still do it.
You are generally not able to roll your 401k to an ira unless you leave your job, but some employers do allow this, so you need to check your plan documents to see if it is allowed at your plan.

https://www.fool.com/knowledge-center/c ... ng-my.aspx

[Gui0507]

Rolling over your traditional 401k to a traditional IRA would not be taxable.

If you rollover your 401k balance to a traditional IRA, your backdoor Roth will be subject to pro-rated taxes.

I get confused with this all the time; does this mean the funds in the back door Roth IRA will have the gains taxed?

… I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax). …

I am not sure what you mean. Having a traditional 401k does not preclude you from also having a traditional IRA and a Roth IRA.

Maybe I didn’t word it correctly; I mean since my 401K is traditional in nature but I have Roth IRA’s I cannot roll over the traditional 401k to a traditional IRA (avoid taxable event) because then I would have both traditional and Roth IRA’s — which it seems you answered above (Pro-rated taxes)

[Gui0507]

You CAN have a trad ira and a Roth IRA. In fact, you can have multiples of each, you just can’t contribute more than the annual amount.
If you roll over the trad 401k to the trad ira, you would no longer be able to do the back door Roth but your wife could still do it.

https://www.fool.com/knowledge-center/c ... ng-my.aspx

So I can roll over the traditional 401k to a traditional IRA and “going forward” cannot perform a backdoor roth in the future.

What about the money that is already in the Roth account(s) (which have been backdoor’d for the last 4 years).

We also file jointly if that makes a difference.

[little_star]

Hello all,

Looking to get some advice/information here. We currently have two Roth IRA’s which we use the “backdoor method” to contribute to them due to being over the income threshold. I am looking to roll over my 401K to an IRA-like account as I am no longer working, only one of us is. Therefore, we would still have one 401K (spouse), 2 Roth IRA’s (back door), and rolling over one of them (mine). How would this affect me tax wise?

- Would rolling over the 401K to my existing Roth have a bad tax implication?

- I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax).

Reasons to roll over: the firm it uses is difficult to perform any rebalancing and they have higher fees.

Thank you!

As a general comment, if you roll your 401k into a traditional IRA, you will probably no longer want to use the backdoor Roth process to contribute to your Roth IRA. However, it is also possible that you will be below the direct Roth income limits if you are reduced to a single income, so this may not be a significant consideration going forward (although see below regarding tax year 2023).

For tax year 2023, if you have already made a non-deductible contribution to your traditional IRA this year (step one of the backdoor Roth process), you should not rollover your 401k until at least January 1, 2024. If you have any funds in a traditional IRA on December 31 of the year in which you do a Roth conversion, you will be subject to the pro rata rule until you have emptied the traditional IRA accounts (via withdrawal or Roth conversion). If you have made a non-deductible contribution this year, you should convert prior to December 31, 2023. If you have NOT YET made a non-deductible contribution, and assuming that you will not make non-deductible contributions this year, then you still have options regarding your 401k account during 2023.

I would not recommend rolling the 401k into a Roth IRA. First, you will owe taxes on the entire amount, probably at a very high marginal tax rate. Second, having some pre-tax funds available is useful if you plan to make charitable contributions (QCDs, leaving $$ to charity, etc) or have major medical expenses in the future. Making all of your $$ Roth is great for your heirs (if they are in a high tax bracket), but not usually fiscally prudent.

You may have both a Roth IRA and a traditional IRA. However, as noted above, having pre-tax $$ in a traditional IRA interferes with a 'clean' backdoor Roth process. Once you are no longer using the backdoor Roth process (either by choice or because there is no earned income (both retired), or the income is low enough to enable direct contributions), then it is perfectly fine to rollover the pre-tax 401k into a traditional IRA.

Short version: don't rollover into a traditional IRA until you no longer want to use the backdoor Roth process. And, do not do the rollover until the next calendar year (i.e., January 1 of the year following the final year in which you have Roth converted non-deductible contributions).

[Gui0507]

Hello all,

Looking to get some advice/information here. We currently have two Roth IRA’s which we use the “backdoor method” to contribute to them due to being over the income threshold. I am looking to roll over my 401K to an IRA-like account as I am no longer working, only one of us is. Therefore, we would still have one 401K (spouse), 2 Roth IRA’s (back door), and rolling over one of them (mine). How would this affect me tax wise?

- Would rolling over the 401K to my existing Roth have a bad tax implication?

- I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax).

Reasons to roll over: the firm it uses is difficult to perform any rebalancing and they have higher fees.

Thank you!

Short version: don't rollover into a traditional IRA until you no longer want to use the backdoor Roth process. And, do not do the rollover until the next calendar year (i.e., January 1 of the year following the final year in which you have Roth converted non-deductible contributions).

Excellent, thank you very much. I think it makes perfect sense to not fiddle with that rollover until both are retired. Unfortunately or fortunately (I should say) we still are over the income threshold for the direct Roth contribution or taking a deduction from a traditional. The fund in the 401K is using VINIX which I had 100% in it since the other funds were not great and their bond funds were bad as well.

[retiredjg]

Looking to get some advice/information here. We currently have two Roth IRA’s which we use the “backdoor method” to contribute to them due to being over the income threshold. I am looking to roll over my 401K to an IRA-like account as I am no longer working, only one of us is. Therefore, we would still have one 401K (spouse), 2 Roth IRA’s (back door), and rolling over one of them (mine). How would this affect me tax wise?

If you roll traditional 401k into traditional IRA, you should stop using the backdoor to "contribute" to Roth IRA. If you have already used the backdoor Roth method this year, DO NOT DO THIS 401K TO IRA ROLLOVER UNTIL NEXT YEAR. If you roll the 401k into IRA this year, it will interfere with the backdoor Roth for this year (causing pro-rating this year and all years in the future).

Would rolling over the 401K to my existing Roth have a bad tax implication?

Yes. It would all be taxable.

I am of the understanding that I cannot have a Roth IRA and a traditional IRA, since my 401K is of the traditional variety (Pre-tax).

As already mentioned, this is not correct.

Reasons to roll over: the firm it uses is difficult to perform any rebalancing and they have higher fees.

These are good reasons to do a rollover. There are also good reasons to leave the money where it is. YOu just have to decide which is most important to you.

There is definitely a good reason to leave it for the rest of this year (the backdoor Roth contribution that I think you have already done.)