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Rolling old employer's 401k to a traditional IRA. Backdoor roth implications?

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  • RJ RJ 
    Participant
    Status: Physician
    Posts: 124
    Joined: 01/09/2016

    Hello, I hope to get some advice on my situation. I am switching employers and for certain reasons can’t roll over my old job’s 401k to new job’s retirement plan. I have to roll it into an IRA at my bank, B of A. I also do yearly Backdoor Roth IRA conversions with Vanguard. What are the implications of having a traditional IRA with B of A? Am I no longer allowed to do Backdoor Roth? What about the money that’s already there?

    Thanks in advance.

    #171501 Reply
     Peds 
    Participant
    Status: Physician
    Posts: 2110
    Joined: 01/08/2016

    Pro-rata.

    How big is it?

    You could just leave it alone as well.

    Search my posts for 4 things to do with old retirement plans.

    #171506 Reply
    RJ RJ 
    Participant
    Status: Physician
    Posts: 124
    Joined: 01/09/2016

    Thank you so much for quick reply. Complicating issue is that I am also currently doing a refi of my primary residence. I am getting a great deal on interest rate, but part of the deal I have to bring in a certain amount of new money to the bank to establish relationship. Old 401k seems perfect. Does pro-rata apply to new contributions to backdoor roth only?

    #171510 Reply
     jacoavlu 
    Moderator
    Status: Physician
    Posts: 1202
    Joined: 03/01/2018

    Future Roth conversions would be pro rata in any year you have a non zero balance on 12/31 across traditional, SEP, and Simple IRA accounts.

    Download IRS form 8606 and work through the form and plug in your own numbers and you’ll see the effects.

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

    #171777 Reply
    Liked by ajm184
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1263
    Joined: 02/01/2016

    Does your previous employer allow for partial withdrawals If so, you could just withdraw directly from the 401k, with no need to rollover to an IRA. The distribution would be subject to 20% tax withholding,

    If you are in a lower tax bracket or otherwise do not need the witholding, you could rollover to an IRA just the amount you need and withdraw with less or $0 withholding. Just remember we are getting close to the end of the year. You don’t want the rollover sitting there on 12/31.

    #171785 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6148
    Joined: 01/09/2016

    As @peds said, you can always leave your 401k with your prior employer – and lobby to get your new employer’s plan document changed to accept rollovers. It’s uncommon, but not all plans accept incoming rollovers, probably to reduce complexity of plan management.

    You can always do a backdoor Roth, however. You’ll pay pro-rata tax – which is an early payment of tax you’ll pay on your pre-tax plan assets at some point, anyway. I used to counsel folks to avoid it. Now, I’m Switzerland.

    See The Pro-Rata Tax for Backdoor Roth IRAs

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #171787 Reply

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