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Graduating Resident 403b

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  • Graduating Resident 403b

    I am graduating a surgical subspecialty residency in July 2020. My wife is a practicing family medicine physician making just under $200k per year, I currently make around $70k per year. In August 2020, we will be moving to a different state. I have secured an attending position, and my wife plans to take a few months off prior to returning to work. She currently has $25k in her 403b. We each have Roth IRAs that we have max'd out over the past 2 years. My question is: what should my wife do with her 403b?

    I think we have 2 reasonable options and want to know what people think:

    1. Keep it as is or rollover into her new employers retirement account (whichever has better funds, less fees).

    2. Roll over the $25k to a Roth IRA for the 2020-2021 tax year and pay the taxes on the amount. This will be our lowest tax bracket as I will have 1/2 resident and 1/2 attending income. We currently contribute to Roth IRAs through the "back door". How does this work with a 403b rollover? Can she just rollover her 403b directly into a Roth IRA? Or is there an income limit to doing this like the standard contributions to Roth IRA?


  • #2
    You have a (potential) opportunity here, especially given that your wife will be taking a few months off next year. Even though you will be in a higher bracket than a mid-year attending with a SAHS, I would still strongly consider moving the 403b into the Roth. As a 2-income physician family, I totally agree that this is an opportunity to consider. Even if your wife changes to SAHS permanently in the future, I expect you will still be in the top bracket, considering your specialty.

    Yes, she can just r/o directly. No, there is no income limit. There is no reason to open a separate Roth that I can think of, given that she is already contributing via the “back door”.
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    • #3
      We’re in the same boat. 24% marginal rate is my projection for this year and likely next. Definitely higher in 2021 and hopefully for a long time. I’ve decided to roll over my small 403b ($13k) info Roth and just do Roth 403b at my fellowship.

      My wife has about $50k in her 401k from two years of contributions. May keep that as pretax.

      Bottom line: it stinks to pay that tax now but I think you’re making the right call


      • #4
        How much money are you going to be making? Even with wife taking time off you're going to be in a pretty high bracket for 2020. I think the effect of these kinds of moves is often overstated, especially with one spouse that's already an attending even though they will have a couple months less income. I also think these conversions are over recommended.

        Let's conservatively say your combined income is 400k for that yr. Do you think your retirement income will be more than that? You might argue taxes will go up but I think it's unlikely your income will be higher in retirement than for that half yr and thus probably isn't in your interest IMO unless taxes significantly go up.


        • #5
          what will be your marginal rate next year?


          • #6
            We'll be in the 35% tax bracket next year (2020), but I think with maxing out retirement accounts we could get into the 32% tax bracket. The following year (2021) we should be in the 37% tax bracket with my wife and I both working full-time as attendings.


            • #7