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Roll 401(a) from residency into personal Roth IRA?

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  • Avatar CyanideDN 
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    Status: Physician
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    I currently have a 401(a) with about $24k (Fidelity) after 4 years with my residency program. I’m now starting my first attending job and was wondering if I should roll the 401(a) into my personal Roth IRA (Vanguard) since I’m done with residency. If I recall correctly, I’ll have to pay the tax amount on that rollover to get it into my Roth IRA. However, I figure my income this year is fairly low: 6 months of residency followed by only 4 months of attending salary since I am taking summer off for vacation. I just got married to another resident physician who still has more training to do, so our combined income is probably going to be taxed in the 22% bracket should we file jointly. With all that said, any serious disadvantages in rolling the 401(a) into a Roth IRA?

    #139192 Reply
    Liked by pslfhopeful
    Avatar JBME 
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    you cited the main disadvantage to me-paying taxes on $24k that you can’t use now. I’d do it personally if I were you…next opportunity to do this in an advantaged manner would be when you retire and before you’re 70.5.

    I know 401a plans are different from 401k, but like a 401a you put pre-tax dollars in there (the main difference being you don’t elect how much to put in there…your employer makes you put a set amount in there). check around to make sure a 401a can be rolled into a roth IRA. You might need to roll the 401a first to a tIRA and then roll over. Roll over by the end of the year so your tIRA balance is $0 and you can do backdoor Roth IRA contributions going forward

    #139205 Reply
    Avatar Peds 
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    Status: Physician
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    Joined: 01/08/2016

    I currently have a 401(a) with about $24k (Fidelity) after 4 years with my residency program. I’m now starting my first attending job and was wondering if I should roll the 401(a) into my personal Roth IRA (Vanguard) since I’m done with residency. If I recall correctly, I’ll have to pay the tax amount on that rollover to get it into my Roth IRA. However, I figure my income this year is fairly low: 6 months of residency followed by only 4 months of attending salary since I am taking summer off for vacation. I just got married to another resident physician who still has more training to do, so our combined income is probably going to be taxed in the 22% bracket should we file jointly. With all that said, any serious disadvantages in rolling the 401(a) into a Roth IRA?

    Click to expand…

    you have three options

    1- do nothing, leave it alone. do if good options, low mgmt cost.

    2- move to new employer. do if good options, low mgmt cost.

    3- rollover/convert to rIRA and pay the tax. never moved a 401a so not sure if you can do it directly, but vanguard will answer that if not a bogleheads search.

    you need to consider marginal rate (adding in the extra 24K), state tax, loan situation, new job plan, future Roth conversions, etc etc

    #139211 Reply
    Liked by pslfhopeful
    Avatar HGuy 
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    Status: Physician
    Posts: 8
    Joined: 11/01/2017

    When I finished residency in 2012, I struggled with the very same issue for weeks or months. I did some research online, read stuff here at WCI (was in its infancy) as well as other financial sites, even ran calculations etc. I ultimately decided against it, due to a number of factors including the fact that I was a bit older (finished training at 39 yrs of age) and rolled it into my new job’s 401k. I have revisited that choice and now regret it. Typically better to convert it, and pay the tax. Even more of a no brainier if you are a typical new attending in your early 30s but also because you’ll have a 2 physician income family (same here as my wife is also a doc). Your income and your tax bracket will (hopefully) never be as low as now, so take advantage of it. Hope that helps.

    Best of luck.

    #139269 Reply
    Liked by SLC OB
    Avatar lidocation 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/09/2019

    I’m currently in the same situation. I’m an anesthesiologist in California just starting my first job and I have about 26K in my residency 401a. my wife who is a therapist and is going back to work has about 20K in her 401k. I’m trying to figure out whether to rollover or convert, but I think it’ll put us at a marginal tax rate of 27% this year. HGuy, i’m curious why you regret it?

    #237644 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016

    I’m currently in the same situation. I’m an anesthesiologist in California just starting my first job and I have about 26K in my residency 401a. my wife who is a therapist and is going back to work has about 20K in her 401k. I’m trying to figure out whether to rollover or convert, but I think it’ll put us at a marginal tax rate of 27% this year. HGuy, i’m curious why you regret it?

    Click to expand…

    If I can presume what @hguy was saying, it was that s/he did not convert when at a similar bracket to you. For many HIPs, the ability to convert at “only” a 27% bracket would be a dream come true. Of course, according to the above post, @hguy was including state tax rates. Are you?

    Given the facts, I would seriously consider converting to a Roth. I’ve never had a client who took this step who expressed regrets, even at higher rates than yours. Can’t say the same for those who didn’t. On the surface, it appears t/b a simple math calculation, but it’s not.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #237745 Reply
    Liked by SLC OB
    Avatar wa2106 
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    Status: Physician
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    Joined: 11/29/2017

    My only word of caution (learned the hard way) – If you are going for PSLF you will pay an additional 10% tax on the conversion in the form of higher loan payments next year which would be like converting at 32% rate and may not be worth it.

    #237834 Reply
    SerrateAndDominate SerrateAndDominate 
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    Status: Physician
    Posts: 470
    Joined: 02/01/2018

    I’m in a similar boat. Have $10k in fellowship 403b. Planning to max out $19k for 2019 and 2020 during my last fellowship. We are currently in the 24% bracket as wife is a dentist.

    For 2020, we will get close to 32% bracket. Definitely in 34% for 2021. I’m still debating this, but it seems we are in a relatively good spot to do a Roth conversion.

    This thread makes me think we should totally do it by end of 2019

    Earn everything.

    #237835 Reply
    Faithful Steward Faithful Steward 
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    As long as you’re comfortable with paying the taxes at the 22% bracket, which I agree is probably the lowest you’ll see for the remainder of your working life, then yes it make sense. You seem to have a good grasp of the concept and what needs to be done.

    Rolling to a Roth has a few advantages:

    1. You can control the expenses associated with your Roth IRA
    2. Compared to rolling it into an employer plan, you have absolute control over what investment options you can invest in.

    I saw this is your first post. Welcome to the forum. Best of luck as you start your career as a new attending!

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #237836 Reply
    Faithful Steward Faithful Steward 
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    I’m still debating this, but it seems we are in a relatively good spot to do a Roth conversion.

    Click to expand…

    Yes, if you’re ever going to convert, given the future tax brackets you laid out, then 2019 is the year to do it.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #237837 Reply
    Avatar lidocation 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/09/2019

    You’re right, I was using the smartasset calculator and that included state income taxes with the calculation. Federal marginal rate would be about 22%

    #238227 Reply

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