Annoying IRA rollover problem

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tmcc
Posts: 143
Joined: Tue Feb 06, 2018 6:38 pm

Annoying IRA rollover problem

Post by tmcc » Thu May 10, 2018 3:55 pm

I forgot about my 401k from my first job nearly 10 years ago.

I funded it very lightly at the time because it was during the financial crisis. Little did I know..... Anyway, Putnam has been chipping away $100 in fees per year for about 10 years. Fast forward to now, the amount that's left is pretty trivial: $475. My current employer's 401k plan did not allow me to transfer it in for reasons we won't get into. I transferred it to a fidelity IRA rollover to avoid fees and it is sitting. I don't get the tax deduction for addt'l contributions because my income is too high.... so tIRA and rIRA are out.

I have boiled it down to a few options:

1. Contribute to rollover IRA without deduction the another $2025.xx so I can get into a fidelity fund ($2500 min for FSTMX) and not touch it again for 20 years
2. Eat the penalty and just take the money since the amounts are so small and typing up this post has probably already exceeded the cost benefit
3. ???

Is there any magic to be worked here?

Sidney
Posts: 6693
Joined: Thu Mar 08, 2007 6:06 pm

Re: Annoying IRA rollover problem

Post by Sidney » Thu May 10, 2018 4:14 pm

Assuming you don't have other Traditional IRAs, can you max out the Rollover with new contributions then convert to a ROTH?
I always wanted to be a procrastinator.

tesuzuki2002
Posts: 523
Joined: Fri Dec 11, 2015 12:40 pm

Re: Annoying IRA rollover problem

Post by tesuzuki2002 » Thu May 10, 2018 4:22 pm

tmcc wrote:
Thu May 10, 2018 3:55 pm
I forgot about my 401k from my first job nearly 10 years ago.

I funded it very lightly at the time because it was during the financial crisis. Little did I know..... Anyway, Putnam has been chipping away $100 in fees per year for about 10 years. Fast forward to now, the amount that's left is pretty trivial: $475. My current employer's 401k plan did not allow me to transfer it in for reasons we won't get into. I transferred it to a fidelity IRA rollover to avoid fees and it is sitting. I don't get the tax deduction for addt'l contributions because my income is too high.... so tIRA and rIRA are out.

I have boiled it down to a few options:

1. Contribute to rollover IRA without deduction the another $2025.xx so I can get into a fidelity fund ($2500 min for FSTMX) and not touch it again for 20 years
2. Eat the penalty and just take the money since the amounts are so small and typing up this post has probably already exceeded the cost benefit
3. ???

Is there any magic to be worked here?
yeah.. if it's $475 I'm.... I'm probably just getting this money out.... it sounds like your in a high income bracket... just keep saving more...

tmcc
Posts: 143
Joined: Tue Feb 06, 2018 6:38 pm

Re: Annoying IRA rollover problem

Post by tmcc » Thu May 10, 2018 4:23 pm

Yes, that is option #1. I would only contribute to the min to actually buy a fidelity total market fund ($2500, I think) though because I'd prefer to save in a taxable account.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Annoying IRA rollover problem

Post by retiredjg » Thu May 10, 2018 4:40 pm

If you already have a Roth IRA, you could just convert that $475 to Roth and invest in the same stuff you already have in Roth.

If you have some other traditional IRA, you could fold it into that.

You could roll to Roth and buy an ETF?

Even if you are not interested in using the back door to get money into Roth, doing it this one time gets the 5 year clock on your Roth IRA started. That is worth something. Then just leave it for decades. Nothing lost (unless you forget about it).

If this is mostly a nuisance to you, just cash it out and be done with it. Assume you will lose another $75 or so in an account closing fee. But keep in mind it is good to already have a 5 year old Roth IRA account when you hit 59.5.

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Earl Lemongrab
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Re: Annoying IRA rollover problem

Post by Earl Lemongrab » Fri May 11, 2018 10:53 am

tesuzuki2002 wrote:
Thu May 10, 2018 4:22 pm
yeah.. if it's $475 I'm.... I'm probably just getting this money out.... it sounds like your in a high income bracket... just keep saving more...
How is that better than converting to Roth? In either case, you have to pay income tax at your fed and state marginal bracket. If you withdraw you also pay 10% penalty assuming not 59-1/2. Plus none of the benefits of Roth.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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David Jay
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Location: Michigan

Re: Annoying IRA rollover problem

Post by David Jay » Fri May 11, 2018 11:27 am

I agree with the idea of rollover to tIRA, contributing after-tax to your tIRA to reach your fund minimum and converting all of it to Roth. No penalty, you will only pay taxes on the $475.

And you start the 5 year clock on your Roth (lots of Roth transactions are based on the 5 year clock, I recommend that everybody who doesn't have a Roth should open one this year to get the clock started).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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