Backdoor IRA Preparation with Existing Traditional IRA

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Topic Author
MutualFun
Posts: 23
Joined: Tue Mar 17, 2015 10:33 pm

Backdoor IRA Preparation with Existing Traditional IRA

Post by MutualFun » Mon Jan 13, 2020 4:47 pm

I have a rather large traditional IRA sitting around at Vanguard and I want to be able to do backdoor Roth IRAs in the future. My understanding is that I will have to get it out of T-IRA status so it does not interfere with future backdoor efforts, and I want to to move it into a 401k. Is it difficult to create an Individual 401k, and does Vanguard have that option? I would prefer to transfer assets instead of converting to cash if possible.

Further information: I am not self employed and do not have my own company. The money came from a company that I was at a long time ago that went bankrupt. Not only was I out of a job, they sold off my investments and took forever to send me a paper check. By the time I was able to get it to Vanguard, the market had risen quite a bit and I probably lost 30% or so. Ever since, I've been very hesitant about rollovers and worry about exposure to day to day price fluctuations.

Thanks for reading, any/all advice is welcome!

Edit 1: I see a lot of talk about Solo-401ks on the internet, and they seem to be used interchangeably with Individual 401ks. I think there is a difference between the two, and I generally mean the latter one, though a Solo might work.

retiredjg
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Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by retiredjg » Mon Jan 13, 2020 5:27 pm

I think the right term might be one participant 401k. Different companies call it different things (individual, solo, etc).

You can't set one of these things up just because you want to. You are supposed to have a business.

You can get more information by doing an internet search on "small business plans Vanguard" or "...Fidelity". There's lots to be learned there.

But don't open it at Vanguard because their plan does not accept rollovers from IRA. The Fidelity plan does.

investor997
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Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by investor997 » Mon Jan 13, 2020 5:27 pm

Does your current employer have a 401k? If so, find out if it accepts rollover contributions. That's the easiest way of wiping out a tIRA such that you're prepped for Back Door contributions.

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Tamarind
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Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by Tamarind » Mon Jan 13, 2020 5:41 pm

investor997 wrote:
Mon Jan 13, 2020 5:27 pm
Does your current employer have a 401k? If so, find out if it accepts rollover contributions. That's the easiest way of wiping out a tIRA such that you're prepped for Back Door contributions.
+1. This is easiest if you can. I would suggest you do this unless you have very high fees in your current 401k.

You must have self-employment income in the year you open a solo 401k. Some folks advocate answering surveys, doing a couple of tasks on gig apps, etc to generate a few bucks SE income in one year just to create a place to roll tIRAs into to protect ability to backdoor.

Only certain solo 401k providers permit rolling in IRAs. Vanguard is not one of them.
Last edited by Tamarind on Mon Jan 13, 2020 5:49 pm, edited 1 time in total.

Topic Author
MutualFun
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Joined: Tue Mar 17, 2015 10:33 pm

Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by MutualFun » Mon Jan 13, 2020 5:44 pm

investor997 wrote:
Mon Jan 13, 2020 5:27 pm
Does your current employer have a 401k? If so, find out if it accepts rollover contributions. That's the easiest way of wiping out a tIRA such that you're prepped for Back Door contributions.
Yeah, my current employer does have a 401k through Vanguard. Was hoping I could avoid selling off, transferring, then reinvesting the money. I lost a lot being forced to do it in the past. Any idea how many days of out-of-market exposure I would have?

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Tamarind
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Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by Tamarind » Mon Jan 13, 2020 5:50 pm

MutualFun wrote:
Mon Jan 13, 2020 5:44 pm
investor997 wrote:
Mon Jan 13, 2020 5:27 pm
Does your current employer have a 401k? If so, find out if it accepts rollover contributions. That's the easiest way of wiping out a tIRA such that you're prepped for Back Door contributions.
Yeah, my current employer does have a 401k through Vanguard. Was hoping I could avoid selling off, transferring, then reinvesting the money. I lost a lot being forced to do it in the past. Any idea how many days of out-of-market exposure I would have?
Since your tIRA is at Vanguard too, I imagine it'll be as short as possible, since you don't have to deal with the liquidation and check mailing process.

It might help mentally to calculate how much you'd have to lose by being out of market to offset pro-rata taxes or loss of Roth growth that will happen if you don't do the rollover.

Topic Author
MutualFun
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Re: Backdoor IRA Preparation with Existing Traditional IRA

Post by MutualFun » Mon Jan 13, 2020 6:00 pm

Tamarind wrote:
Mon Jan 13, 2020 5:50 pm

Since your tIRA is at Vanguard too, I imagine it'll be as short as possible, since you don't have to deal with the liquidation and check mailing process.

It might help mentally to calculate how much you'd have to lose by being out of market to offset pro-rata taxes or loss of Roth growth that will happen if you don't do the rollover.
Oh yes that helps a lot, thanks!

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