tIRA => Roth IRA or 401(k), now or later?

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Topic Author
Bayareatechie
Posts: 6
Joined: Tue May 14, 2019 11:37 pm

tIRA => Roth IRA or 401(k), now or later?

Post by Bayareatechie » Fri May 17, 2019 12:41 am

I've searched and didn't see anything immediately helpful to my situation, so I figured I'd poll to see what Bogleheads would do. For most of my early career, I always thought I'd end up retiring at a lower tax bracket than I was in, so I always contributed to a tIRA and to my 401(k) pre-tax. After switching companies, I rolled my 401(k) into my tIRA. Its current account value is $400k; all contributions were made pre-tax. At this point I'm deciding between:

1) Leave it as-is, and maybe reconsider during a market downturn or early retirement (maybe in 5-10 years? I like my current job)
2) Roll into my company's 401(k) plan (it does allow this)
3) Convert now and take the hit on taxes
4) Convert a portion each year

Personal
  • Work in tech in the CA Bay area
  • Me: 36, wife: 38, kids: 5 & 3
Income
  • 35% federal tax bracket, 12.3% CA state tax
  • ~$500-600k total compensation, depending mostly on company stock performance
  • $20k interest + dividend income
  • $12k rental income
Assets
  • Total NW ~5.5M
  • 1.5M house
  • 320k rental condo
  • 2.5M in taxable accounts (index funds and individual stocks)
  • 400k tax-free bonds (VCLAX)
  • 300k 401(k) (90% pre-tax, 10% Roth)
  • 400k aforementioned tIRA in question
  • 65k Roth IRAs (10k mine, 55k wife's)
  • $46k x 2 529 plans
Liabilities
  • No mortgage on primary residence
  • 60k mortgage on rental property, planning to pay it off this year to go debt-free
Currently I'm leaning toward option 1. I've come to realize there's a higher-than-expected probability I won't be retiring at a low tax bracket, which has spurred more consideration into options 3 and 4 (but hi 47.3% taxes!). Option 2 would make sense if I wanted to backdoor Roth, but (a) I can already do that with my wife's spousal account, (b) have access to mega-backdoor Roth, (c) like having more choices in investments, and (d) feel like our retirement funds are sufficient for our age. Any other ideas or considerations? What would you do?
Last edited by Bayareatechie on Fri May 17, 2019 9:04 am, edited 1 time in total.

TBillT
Posts: 643
Joined: Sat Sep 17, 2011 1:43 pm

Re: Another tIRA => Roth IRA conversion thread

Post by TBillT » Fri May 17, 2019 3:13 am

401k has some legal protection vs. tIRA, so that has some merit.
You are in high tax state and I guess likely bumping in to Obamacare surcharge on MAGI, so withdrawal/convert from IRA seems less advantageous to me. The amount you have in 401k is still modest, so I think I'd be socking it away for now with a review a little later. But gotta admit your comp level is out of my experience range. Consider future could be lower tax state.

Lou354
Posts: 595
Joined: Sun Apr 03, 2016 10:51 pm

Re: Another tIRA => Roth IRA conversion thread

Post by Lou354 » Fri May 17, 2019 7:14 am

I would do option 2 and do more Backdoor Roth than you’re already doing via Mega Backdoor Roth and spouse‘s IRA.

Topic Author
Bayareatechie
Posts: 6
Joined: Tue May 14, 2019 11:37 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by Bayareatechie » Fri May 17, 2019 10:58 pm

Thanks for the suggestions - definitely making me consider option 2 more seriously.
I would do option 2 and do more Backdoor Roth than you’re already doing via Mega Backdoor Roth and spouse‘s IRA.
I just learned about Mega Backdoor so haven't started on that train yet - getting on this year. For sure will be maxing all of these out, just not sure another $6k is worth going through with option 2 when compared against the $33k I will contribute otherwise.
Consider future could be lower tax state.
Yeah, by pure numbers perspective it doesn't make sense to stay here long-term. We're definitely considering moving in the future, especially if the income side of the equation changes.

MotoTrojan
Posts: 4179
Joined: Wed Feb 01, 2017 8:39 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by MotoTrojan » Fri May 17, 2019 11:01 pm

I wouldn’t convert now, no way that wins out in my eyes. I’m also in the 401K transfer and additional backdoor unless your 401K options aren’t satisfactory (selection, expenses). Simplifies your financial accounts too.

Olemiss540
Posts: 953
Joined: Fri Aug 18, 2017 8:46 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by Olemiss540 » Sat May 18, 2019 4:11 am

Whatever is most convenient. At 600k/yr and 5.5 mil NW, your time is more valuable than the tax difference either way. This is just picking nits considering. Spend your time on something more valuable.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

lakpr
Posts: 1429
Joined: Fri Mar 18, 2011 9:59 am

Re: tIRA => Roth IRA or 401(k), now or later?

Post by lakpr » Sat May 18, 2019 4:20 am

Bayareatechie wrote:
Fri May 17, 2019 10:58 pm
Thanks for the suggestions - definitely making me consider option 2 more
..........
I just learned about Mega Backdoor so haven't started on that train yet - getting on this year. For sure will be maxing all of these out, just not sure another $6k is worth going through with option 2 when compared against the $33k I will contribute otherwise.
Option 2 is a one time effort. After that is done, instead of having 20+ years of $33k each into Roth accounts, you will have 20+ years of $39k each. Definitely do it!

Topic Author
Bayareatechie
Posts: 6
Joined: Tue May 14, 2019 11:37 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by Bayareatechie » Sat May 18, 2019 9:39 am

Thanks everyone for spending your time to help. I've been convinced that option 2 + maxing everything out is the best way to go.
MotoTrojan wrote:
Fri May 17, 2019 11:01 pm
I wouldn’t convert now, no way that wins out in my eyes. I’m also in the 401K transfer and additional backdoor unless your 401K options aren’t satisfactory (selection, expenses). Simplifies your financial accounts too.
Actually the 401K choices kind of make this a no-brainer - we have some pretty reasonable choices of low-expense Vanguard funds.

MotoTrojan
Posts: 4179
Joined: Wed Feb 01, 2017 8:39 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by MotoTrojan » Sat May 18, 2019 11:19 am

Bayareatechie wrote:
Sat May 18, 2019 9:39 am
Thanks everyone for spending your time to help. I've been convinced that option 2 + maxing everything out is the best way to go.
MotoTrojan wrote:
Fri May 17, 2019 11:01 pm
I wouldn’t convert now, no way that wins out in my eyes. I’m also in the 401K transfer and additional backdoor unless your 401K options aren’t satisfactory (selection, expenses). Simplifies your financial accounts too.
Actually the 401K choices kind of make this a no-brainer - we have some pretty reasonable choices of low-expense Vanguard funds.
Sweet, get after it!

FYI you can go ahead and do your backdoor Roth today if you'd like. Only requirement is to get the 401k transfer complete (no pre-tax tIRA holdings) by 12/31/19.

Topic Author
Bayareatechie
Posts: 6
Joined: Tue May 14, 2019 11:37 pm

Re: tIRA => Roth IRA or 401(k), now or later?

Post by Bayareatechie » Sat May 18, 2019 7:47 pm

MotoTrojan wrote:
Sat May 18, 2019 11:19 am
FYI you can go ahead and do your backdoor Roth today if you'd like. Only requirement is to get the 401k transfer complete (no pre-tax tIRA holdings) by 12/31/19.
Right, I remember reading this elsewhere but appreciate the direct confirmation here. Thanks!

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