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Advice about 401a account.

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  • Avatar SiR99 
    Participant
    Status: Resident
    Posts: 14
    Joined: 12/10/2016

     

    Hi everyone,

    I’m currently in my last year of training and I’m a little confused with what I should do about my 401a account.

    401a: ~$35k. If I remove this money I’ll only get to keep 75% of my employer contributions so I’ll end up with about ~$31k

    Roth IRA: ~$22k

    No debt, currently plan on working as an independent contractor and eventually starting my own practice, but things can change.

    I was reading a few other threads with other residents/fellows who had 403b accounts that were considering converting them to their Roth IRAs. I was wondering what you guys would recommend for me? I’ve also considered cashing out the $31k, but tried to calculate the taxes/penalties and it seems like I’d only be left with 15-17k.

    Thanks

    #239456 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4447
    Joined: 01/08/2016
    I was reading a few other threads with other residents/fellows who had 403b accounts that were considering converting them to their Roth IRAs. I was wondering what you guys would recommend for me?

    Click to expand…

    whats your marginal tax rate? cause likely the answer is the same as those other people.

    I’ve also considered cashing out the $31k, but tried to calculate the taxes/penalties and it seems like I’d only be left with 15-17k.

    Click to expand…

    that is the wrong answer.

    #239457 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2381
    Joined: 03/01/2018

    So if you move the money you lose $4k in employer contributions. That’s less than ideal. I would assume this is the case whether you rollover to a qualified plan elsewhere, or Roth convert

    So how can you not lose that $4k? If you leave funds in the 401a what happens? Is this an option?

    i definitely would not cash out for 50 cents on the dollar.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #239462 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4447
    Joined: 01/08/2016

    im assuming they are not vested, and if they are leaving the program they will never vest that last part. so essentially its gone no matter what.

    #239463 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2381
    Joined: 03/01/2018

    agreed, should be confirmed by OP

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #239465 Reply
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    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1907
    Joined: 02/01/2016

    401a: ~$35k. If I remove this money I’ll only get to keep 75% of my employer contributions so I’ll end up with about ~$31k

    im assuming they are not vested, and if they are leaving the program they will never vest that last part. so essentially its gone no matter what.

    Click to expand…

    @peds is correct. Vesting only occurs with time of service. Once you separate, your vesting is frozen based on your time of service. Unless you are rehired by the 401a employer within five years, the 401a will not fully vest. If this is unlikely to occur, there is no reason not to rollover the 401a when you separate.

     

    #239472 Reply
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    Avatar SiR99 
    Participant
    Status: Resident
    Posts: 14
    Joined: 12/10/2016

     

    Thanks for everyones response.

    I’m currently going to make ~70k for this last year, state tax for me will be ~6% and federal tax ~22%.

    You guys are correct in that I will not have been at this hospital long enough to keep the full employer contribution, so no matter what I do, I’ll only get to keep 75%.

    I’ve been told I can keep the money in the current account it is in and then collect it once I am of the appropriate age (not sure what age they said but it was something like a min ago of 60-65).

    How does it work if I roll it over to my roth IRA? I know I’ll have to pay taxes on it, but I was under the impression that I could only contribute $5,500/year to my roth IRA, what will happen to the rest of the money?

    Thanks

     

    #239514 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4447
    Joined: 01/08/2016

    6k. Contribution and rollovers are not the same.

    #239515 Reply
    Avatar SiR99 
    Participant
    Status: Resident
    Posts: 14
    Joined: 12/10/2016

    6k. Contribution and rollovers are not the same.

    Click to expand…

    Thanks for clearing that up.

    So I can rollover the entire 30k to my Roth IRA account and just pay the tax on that 30k when I do my taxes for 2019?

     

    One more question, if I am a first time home buyer, can I pull out all my contributions from my roth IRA (while leaving my earnings in the roth IRA) to help fund my first house?

    This website states that you can only pull out a maximum of 10k, but then goes on to say that you can withdraw all of your contributions at any time—for any reason—without penalty or tax. Is it saying that you can pull out all your contributions to the roth IRA at any time without penalty/tax, but can only pull out up to 10k of the earnings?

    https://www.rothira.com/blog/should-i-use-a-roth-to-buy-a-house

    #239648 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2381
    Joined: 03/01/2018

    6k. Contribution and rollovers are not the same.

    Click to expand…

    Thanks for clearing that up.

    So I can rollover the entire 30k to my Roth IRA account and just pay the tax on that 30k when I do my taxes for 2019?

     

    One more question, if I am a first time home buyer, can I pull out all my contributions from my roth IRA (while leaving my earnings in the roth IRA) to help fund my first house?

    This website states that you can only pull out a maximum of 10k, but then goes on to say that you can withdraw all of your contributions at any time—for any reason—without penalty or tax. Is it saying that you can pull out all your contributions to the roth IRA at any time without penalty/tax, but can only pull out up to 10k of the earnings?

    https://www.rothira.com/blog/should-i-use-a-roth-to-buy-a-house

    Click to expand…

    yes you can rollover to Roth and this will be taxable at your marginal rate. This doesn’t count toward your yearly IRA contribution limit

    there are situation where Roth contributions can be withdrawn without penalty but you shouldn’t consider this beyond extreme circumstances. Once withdrawn, the contributions can’t be replaced. So you’ve given up that valuable Roth space and you can’t get it back.

    You would wait to buy a house until you can afford to do so without using Roth funds

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #239649 Reply
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    Avatar SiR99 
    Participant
    Status: Resident
    Posts: 14
    Joined: 12/10/2016

     

    I See, thank you for the reply.

    If I earned that money in state A during residency (ended in June 2019), but I’m currently in State B for fellowship, would I have to pay the state income tax for State A or State B?

     

    #239650 Reply

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