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Fund 403b and 457b while in fellowship and convert to rothIRA once done?

Home Retirement Accounts Fund 403b and 457b while in fellowship and convert to rothIRA once done?

  • Avatar uglyturtle 
    Participant
    Status: Resident
    Posts: 1
    Joined: 08/02/2019
    Earnest refinancing bonus

    Hi sorry if this question has been asked before.

    Currently a 1 year fellow at an institution that offers a 403b and a 457b, along with a mandatory defined contribution plan (automatic 7% instead of SS).

    My question is would it be prudent to max out both plans 403b and 457b (19k x 2) both pretax accounts and then convert it to a roth IRA once I am done with fellowship?

    I would just borrow some money for family to live for the year and pay it back. My idea is to maximize roth space so I can do the conversion when I’m in the lowest tax bracket of my potential career (next year when its basically half fellow salary).

     

    Was also wondering if I could do 19k for both year 2019 and 2020… although I assume that will be based on my plan itself.

     

    Thoughts?

    #235722 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8359
    Joined: 01/09/2016

    Wouldn’t this year be your lowest tax year? Are you sure the plans d/n/h a Roth option – kind of unusual these days.

    Otherwise, if the loans are interest-free, I’m good with r/o to a Roth next year.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #235782 Reply
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 1152
    Joined: 03/18/2017

    Are you going to have the cash to pay taxes on the conversions? That’s going to be like 8k+ probably depending on your bracket between state and federal.

    #235783 Reply
    Avatar fasteddie911 
    Participant
    Status: Physician
    Posts: 310
    Joined: 05/31/2016

    It depends.  You’re putting money in now that falls in say the 12% bracket, when you convert next year it’ll likely be in a higher bracket. Half a year of attending salary will bump your tax brackets.  So you have to compare paying taxes on the conversion and then getting tax free growth vs letting it sit and paying taxes when you withdraw at 59.5.

    Edit: To clarify, I’m proposing that it may be beneficial to just leave the money in 401k/457b accounts instead of rolling over next year.  Depends on a lot of assumptions, your 401k/457b options, etc.  But in all likelihood it’s probably not a big deal either way.

    #235965 Reply
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 1152
    Joined: 03/18/2017

    Well it’s always going to be less tax paid if paid now. But I think the more practical standpoint is ” will I have a chunk of money to pay for this conversion.”

    Like I’m anticipating having like 100k that I could convert to Roth after finishing residency and obviously that would be ideal, but am I going to have 20 something thousand sitting around to do it? Definitely not.

    #235998 Reply

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