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Rollover residency 403B to SOLOK vs R-IRA conversion

Home Retirement Accounts Rollover residency 403B to SOLOK vs R-IRA conversion

  • Avatar CorporateSlaveMD 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/24/2019

    I’m doing a 1099 IC locum position right now prior to starting my W2 attendingship in October; expecting $21,000 in gross income. Currently I have ~ $15,000 in my residency’s 403B through Fidelity ($10,000 pre-tax 403B + $5,000 Roth 403B). I also have been maxing out my RIRA over the past three years in residency.

    I spent this morning reading these various residency 401/403B WCI posts and I have narrowed it down to two options:

    Option 1. Open my Solo-K with this current 1099 IC income and roll over the residency’s 403B so I can handle my own portfolio with Fidelity.

    Option 2. Convert the 403B to my RIRA and pay the conversion taxes since I’ll likely be facing lower taxes now.

     

    I’m still divided between what’s best of the two options above.

    1. From what I’ve read, it seems that if I can afford the taxes for the RIRA conversion, I should do that because that gives me more Roth allocation. Am I understanding that correctly? What’s the argument for Option 1?

    2. I have both pretax 403B contributions as well as Roth 403B contributions. What happens to the Roth 403B portion of my $15,000 if I pick either one of the above option? With Option 2, I assume that I’ll only have to pay taxes on the pre-taxed portion ($10,000) during the conversion (?). For Option 1, Would a Roth portion be created in my Solo-K after the rollover?

    Thank you in advance.

    #241336 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2374
    Joined: 03/01/2018

    what is your marginal tax rate this year federal plus state?

    what amount of employee contributions have you made to any 403b in 2019, and is there any employer match?

    the Roth 403b amount would be rolled over to a Roth IRA with no taxation

    you could rollover the pretax 403b money to a solo 401k or another qualified plan with no taxation

    you could convert the pretax 403b money to Roth, the full amount would be taxable which is why your marginal tax rate matters – so that you can make an education decision knowing the tax cost of any conversion.

    the amount that you can contribute to any solo 401k depends on the answers to my second question

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

    #241341 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4405
    Joined: 01/08/2016
    1. From what I’ve read, it seems that if I can afford the taxes for the RIRA conversion, I should do that because that gives me more Roth allocation. Am I understanding that correctly? What’s the argument for Option 1?

    Click to expand…

    nope, it all depends on taxes as @jac said. your marginal rate is what matters.

    What happens to the Roth 403B portion of my $15,000 if I pick either one of the above option?

    Click to expand…

    if you roll it over to your rIRA, it will go to your rIRA.

    if you roll it over to a new solo 401k, youll need to pick one with a Roth portion.

     

    if you are 22% or below, id convert it all.

    you can still open a solo 401k for the 1099 income.

    #241342 Reply
    Avatar CorporateSlaveMD 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/24/2019
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    Thank you @Jac and @peds,

     

    So, if I’m understanding the calculation of 2019 calendar year marginal tax rates correctly:

    ~35K (gross residency income – January-June)

    ~21K (gross income from IC 1099 – July-August)

    ~38K (2019 gross attending income – October-December)

    ~35K (gross sign on bonus)

    +

    ——————————————–

    ~129K total income for 2019

    Adjusted from maxed 19K 403B contribution = 110K

     

    1. Is my math correct? This number places me in 24% marginal tax bracket based on 2019 federal tax table.

    2. My State taxes Roth conversions, should I factor that state tax rate into the threshold @peds set for <22%?

    2. If the calculation is correct, can I contribute $6K directly to a RIRA instead of backdoor for 2019, since the maximum limit is <122K for single household?

     

    Thank you.

    Sorry if the question sounds novice.

    #242115 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3030
    Joined: 09/18/2018
    1. Is my math correct? This number places me in 24% marginal tax bracket based on 2019 federal tax table.

    Click to expand…

    You showed the 19K max 401k deduction and $15k total in the residency 401k.

    I would suggest you take the gross less the 401k for the w-2 wages this year. Simply questioning this years contributions. The residency is set and check to make sure your attending position will allow you to hit the max this year. You also have a standard deduction of $12,200 reducing your taxable income.

    110-12.2=97.8 which is still in the 24% bracket. You may have other pretax deductions as well like healthcare. Just pointing out its more than gross minus pretax retirement savings.

     

    #242129 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2374
    Joined: 03/01/2018

    note that your employee deferral limit to a solo 401k is aggregated with your deferral limit to any 403b. So if you make $19k elective deferral contributions to the 403b (pretax or Roth doesn’t matter) you cannot make any employee deferral contribution to a solo 401k. You could only make an employer contribution of 20% of your net self employment income.

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

    #242148 Reply
    Liked by Peds
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 509
    Joined: 06/12/2017
    So, if I’m understanding the calculation of 2019 calendar year marginal tax rates correctly: ~35K (gross residency income – January-June) ~21K (gross income from IC 1099 – July-August) ~38K (2019 gross attending income – October-December) ~35K (gross sign on bonus) + ——————————————– ~129K total income for 2019 Adjusted from maxed 19K 403B contribution = 110K

    Click to expand…

    You’re forgetting your standard deduction (or itemized deductions, if you have enough). If you’re single, you’re probably going to be in the 24% marginal federal tax bracket. But, if you’re married and you have any other above the line deductions (like student loan interest), you might just squeeze into the 22% marginal federal bracket.

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

    #242210 Reply

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