How to Keep TIRA Balance at 0 For Future Megabackdoor Roth While Also Rolling Over Old PreTax Funds

[Eda44]

Hello,

I have a conundrum.

I need to move the balance of an old 403b out of a high-fee account now that I'm no longer working for that employer. I initially wanted to move it into my current, active TIAA 403b account but after serious digging, I learned they charge 0.23% quarterly. Thus, I'll soon be paying ~$1000+ annually in fees. No thanks.

I am now considering just moving this balance into my existing Vanguard traditional IRA. That's what all the books recommend, and that makes sense.

However:

I *normally* keep the TIRA at a $0 balance and only use it for annual backdoor Roth contributions so my taxes aren't complicated.

And, in the future, when I have the chance, I really want to participate in a megabackdoor Roth IRA, and everyone recommends a $0 balance in the TIRA to complete that transaction.

Additionally, after learning more, I've considering maxing out my TIRA contribution annually instead of doing a backdoor Roth IRA for the tax deduction, which would, again, leave a balance in my TIRA that could complicate future megabackdoor Roth or regular backdoor Roth contributions.

I just don't understand how I can avoid the TIAA fees by utilizing my VG TIRA to rollover old 403b funds, while also NOT screwing myself over for future a) backdoor Roth OR regular TIRA contributions and b) megabackdoor Roth contributions.

It seems like the people who perform megabackdoor Roths don't ever switch jobs, or I'm missing something, because everyone says "just keep the TIRA balance at zero!" without explaining how that's possible while juggling different funding sources. Unless they are just converting everything and paying the taxes (likely not)? I would love some insight into this. Thank you in advance!

[tashnewbie]

Additionally, after learning more, I've considering maxing out my TIRA contribution annually instead of doing a backdoor Roth IRA for the tax deduction, which would, again, leave a balance in my TIRA that could complicate future megabackdoor Roth or regular backdoor Roth contributions.

Are you saying you're planning to make TIRA contributions instead of doing backdoor Roth? If you're at an income level where you need to use the backdoor, then you will not be able to get a "tax deduction" on TIRA contributions. Therefore, you're working with post-tax money regardless, and getting money into a Roth IRA via the backdoor would be superior to making a non-deductible TIRA contribution.

I just don't understand how I can avoid the TIAA fees by utilizing my VG TIRA to rollover old 403b funds, while also NOT screwing myself over for future a) backdoor Roth OR regular TIRA contributions and b) megabackdoor Roth contributions.

I don't think you can have both. Unless you have self-employed income and can open a solo 401k that you can transfer your old 403b funds into.

Would be helpful if you calculated the extra expense you'd incur in your current or old 403b.

[Eda44]

To add to this, once a person commits to a megabackdoor Roth, does this mean they never contribute to their TIRAs again, performing only regular backdoor Roth conversions annually (in addition to the MBDR), or can they mix and match depending on their annual tax situation?

And, after year one of the MBDR, doesn't this leave money in the TIRA anyhow, which means the balance isn't at $0 ever again after the first year (contradicting the advice to keep a TIRA balance at 0)?

[lakpr]

That is a tough one. In a previous post, I had calculated that the value of a Backdoor Roth is approximately $1000 per year, give or take, in today's dollars. If keeping the 403(b) funds where they are or in current 403(b) costs you $1000 or more, then giving up the Backdoor Roth and investing in taxable is a better deal. You just need to be disciplined enough to add to the taxable account as you would for the Backdoor Roth, annually. If there is no "urgency" to claim the tax-advantaged space before it expires, I am not sure if there will be enough intrinsic motivation to do so.

Here is that post: viewtopic.php?p=5713304#p5713304

[Eda44]

Are you saying you're planning to make TIRA contributions instead of doing backdoor Roth? If you're at an income level where you need to use the backdoor, then you will not be able to get a "tax deduction" on TIRA contributions. Therefore, you're working with post-tax money regardless, and getting money into a Roth IRA via the backdoor would be superior to making a non-deductible TIRA contribution.

You're right, I totally neglected to consider that! I wouldn't get a tax deduction on the TIRA contributions anyhow. So at least that element is not a concern. I've been using a backdoor Roth all these years and just started a new job that enables a MBDR. Now I want to take advantage of that, but, I have to do something with these old 403b funds (about $70K worth).

[sailaway]

And, in the future, when I have the chance, I really want to participate in a megabackdoor Roth IRA, and everyone recommends a $0 balance in the TIRA to complete that transaction.

This is not at all necessary for a mega backdoor Roth. Perhaps you are thinking of the caution to those using the mega backdoor Roth to be aware of their tIRA balance in case they want to to do backdoor Roth in the future?

Additionally, after learning more, I've considering maxing out my TIRA contribution annually instead of doing a backdoor Roth IRA for the tax deduction, which would, again, leave a balance in my TIRA that could complicate future megabackdoor Roth or regular backdoor Roth contributions.

If you are eligible for tIRA deductions, you are also eligible for direct Roth IRA contributions, so I do not understand why you have been messing with the backdoor option?

I just don't understand how I can avoid the TIAA fees by utilizing my VG TIRA to rollover old 403b funds, while also NOT screwing myself over for future a) backdoor Roth OR regular TIRA contributions and b) megabackdoor Roth contributions.

Having a balance in tIRA *only* affects future backdoor Roth, not any of the other options.


Basically, it seems like you are trying to have your cake and eat it to, but you haven't quite even figured out what the cake is made of.

[David Jay]

I've been using a backdoor Roth all these years and just started a new job that enables a MBDR.

MBDR does not involve the use of a tIRA, the roll-over is directly to a Roth.

[Eda44]

I've been using a backdoor Roth all these years and just started a new job that enables a MBDR.

MBDR does not involve the use of a tIRA, the roll-over is directly to a Roth.

Doesn't the pre-tax portion get rolled into a TIRA via in-service withdrawals?

[lakpr]

I've been using a backdoor Roth all these years and just started a new job that enables a MBDR.

MBDR does not involve the use of a tIRA, the roll-over is directly to a Roth.

Doesn't the pre-tax portion get rolled into a TIRA via in-service withdrawals?

You can roll those t-IRA funds right back into the 401k plan. if a plan is savvy enough to offer MBDR, it is also surely going to accept incoming rollovers of pre-tax assets.

[Eda44]

This is not at all necessary for a mega backdoor Roth. Perhaps you are thinking of the caution to those using the mega backdoor Roth to be aware of their tIRA balance in case they want to to do backdoor Roth in the future?

Yes, precisely. I wasn't aware that the caution (which is usually followed up with "it could make taxes complicated") is specifically related to potential issues with regular BDR conversions, and nothing else.

If you are eligible for tIRA deductions, you are also eligible for direct Roth IRA contributions, so I do not understand why you have been messing with the backdoor option?

I addressed this in a subsequent post. It was my oversight. In short, I am not eligible. BDR it is.

Having a balance in tIRA *only* affects future backdoor Roth, not any of the other options.

Got it. Thanks.

Basically, it seems like you are trying to have your cake and eat it to, but you haven't quite even figured out what the cake is made of.

Thanks for the feedback. I think understanding how to maximize tax advantaged savings as a supersaver while reducing fees is something many people on these forums share, especially those on the FIRE track. And you're right, I don't know how the cake ingredients interact with one another and that's why I'm asking here.

*Edited for readability.

[Eda44]

That is a tough one. In a previous post, I had calculated that the value of a Backdoor Roth is approximately $1000 per year, give or take, in today's dollars. If keeping the 403(b) funds where they are or in current 403(b) costs you $1000 or more, then giving up the Backdoor Roth and investing in taxable is a better deal. You just need to be disciplined enough to add to the taxable account as you would for the Backdoor Roth, annually. If there is no "urgency" to claim the tax-advantaged space before it expires, I am not sure if there will be enough intrinsic motivation to do so.

Here is that post: viewtopic.php?p=5713304#p5713304

Thanks very much, I will explore this!

[Eda44]

You can roll those t-IRA funds right back into the 401k plan. if a plan is savvy enough to offer MBDR, it is also surely going to accept incoming rollovers of pre-tax assets.

A reverse rollover? I love this solution. Thank you.

[Eda44]

You can roll those t-IRA funds right back into the 401k plan. if a plan is savvy enough to offer MBDR, it is also surely going to accept incoming rollovers of pre-tax assets.

A reverse rollover? I love this solution. Thank you.

So, in the simplest sense, if you participated in a MBDR, you could just leave the pre-tax money in the 401K and roll the after tax money into your Roth IRA immediately to avoid earnings. As mentioned by another poster, the TIRA doesn't need to be involved at all. If there happened to be earnings on the after tax money, those could get rolled over to a TIRA, then moved back into the 401K in a reverse rollover (within 60 days). This would keep the TIRA with a 0 balance and available for regular backdoor Roth IRA conversions. I hope this is sound, because it makes sense now.

I think I was getting tripped up because one FIRE website indicated that the 401K pretax money (not earnings, but contributions) needed to be rolled over to a TIRA right away, inservice. That doesn't seem necessary anymore, unless you're leaving that job.

[AnEngineer]

Note: there are two flavors of mega backdoor Roth.

1) As you discuss, where after tax contributions are moved to a Roth IRA and any earnings on them go to a traditional IRA.

2) Using in plan Roth rollover, which converts after tax contributions into Roth 401k, and you pay income tax on any earnings up to that point.

I encourage you to spend more time looking into and fully understanding things before doing some of these, as there can be serious consequences. If you don't fill out some of the forms correctly, you could accidentally convert your entire traditional 401k balance to Roth and have to pay the associated taxes. Also, since you mentioned FIRE, consider how much you need in each type of account: traditional, Roth, taxable. MBDR is a good tool, but there are some restrictions.