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What to do with my 401K and Roth 401K when leaving a practice

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  • Avatar polaris 
    Participant
    Status: Physician
    Posts: 5
    Joined: 10/23/2017

    I’m leaving my current position as an employee at a private practice where I have both a Traditional 401K and Roth 401K at Ameritas to go to a hospital in Ohio that has a retirement program under the Ohio Public Employee Retirement System OPERS. If I don’t want to leave my accounts with the current company my practice uses, I know I can roll this money into another account. The question is, what account?

    I assume I can roll my Roth 401K into my Roth IRA no problem.

    The problem is the Traditional 401K. I’ve been doing the backdoor Roth IRA and if I roll my Traditional 401K into a Traditional IRA, then that will make doing a backdoor Roth IRA messy from my understanding. I don’t have any other Traditional 401Ks that I kept from previous employment that I can now roll my current Traditional 401K at Ameritas into. My experience using Ameritas online system has not been great. I can’t even tell what funds are in the Roth portion and what are in the traditional portion easily.

    Any advice or options? One thought is that I put my Traditional 401K into my Traditional IRA and do a Roth conversion without any additional contribution in 2019. That allows me to do backdoor Roths cleanly in the future. Any other thoughts?

    A second question: I would like to max out my 401K contributions this year with my remaining paychecks before I leave. Since I’ll go on the OPERS system, there won’t be a 401K to contribute to.  Should I put the extra contributions to the Roth 401K or the Traditional or both and what percentage into each? I know that’s a hard question to answer without going through my tax bracket, likely tax bracket in retirement, etc. but I feel like there are lots of variables like how much taxes may change in the future which can’t be controlled for. My parents never thought they would be in a higher tax bracket in their retirement than they were for most of their working lives but it looks like that may be the case. So what I’m really asking in this question is in light of what to do with the roll over.

    I apologize if I haven’t clearly started my question or situation but any help or advice would be appreciate.

     

    #206542 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 553
    Joined: 07/14/2017

    It appears to me that you are thinking about you options correctly.

    a. Roth 401K to Roth IRA-  Yes, should be able to execute relatively easily.  Only concern here would be that though your contributions to the Roth 401K is essentially after-tax dollars, it is likely that any Employer match would be in pre-tax dollars.  Perhaps someone with more of an accounting background can provided some guidance on your options if this is the case.

    b.  Convert your 401K to a Roth IRA-  As you stated, probably the cleanest way to approach this to execute backdoor IRA in the future.  Depending upon the amount, tax bracket, ability to pay the tax on the conversion amount maybe something to think/discuss further with an accountant.  It is likely that if the amount is relatively high and your non-conversion tax rate is high, that ‘financially’ speaking said conversion would not make sense except in the context to have future backdoor roth flexibility.

    c.  Moving the 401K to a traditional IRA would be my last resort if I was unable to fully convert (b. above) in one year.

    #206561 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1750
    Joined: 02/01/2016

    Many people don’t realize it, but you can rollover to state pension plans. Whether you should or not is another question.

    I have no prior OPERS knowledge, but knowing how many state’s pension plans work I did a quick review of the OPERS site. As I suspected you have 180 days after hire to select the type of plan you want. This can be the traditional pension plan, the combined plan (employer contributions to traditional pension plan and employee contributions to member-directed plan) or the member-directed plan. The latter is a 401a defined contribution plan.

    From a quick reading you could rollover the pre-tax 401k balances to OPERS. You could use the rollover funds to purchase service credits in the traditional pension plan or the traditional pension portion of combined plan. The other option is to directly rollover the funds to the 401a portion of the combined plan or the member-directed 401a plan.

    I think your best option would be to rollover the Roth 401k to a Roth IRA and the traditional 401k to either of the 401a containing plans. Then you have no pre-tax IRA balances in a traditional IRA or aren’t doing a Roth conversion at a likely high marginal rate. The 401a funds are held in trust for you and are not subject to any problems OHIO or OPERS might have.

    OPERS is in a better financial position compared to some other states such as IL, but there are significant unfunded liabilities. Personally, I wouldn’t put all my financial eggs in the leaking OPERS basket. As I suggested above any rollover should go into a member-directed 401a plan.

    As a public employee in OPERS, you pay no social security taxes and receive no SS earnings credit. I have no direct knowledge of OPERS, but such state pension systems tend to have very favorable payout rates. You will have to weigh the pros and cons of the three plans. Personally, I like control over my own destiny and would select the member-directed plan, but the combined plan might more sense to provide some future income stream to replace SS. I would be wary of the full traditional pension plan.

    #206570 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 438
    Joined: 03/26/2018
    medical school scholarship sponsor

    for what it’s worth, after spiritriders response, I went to the website and looked up the options for fun (only people on this forum would do this). The investment options in the 401a plan seem awesome…the stable value fund has by far the highest ER at .18. All of the others are an ER of .05 or lower. there aren’t a lot of options in the plan but they have one of everything…a stable value fund, a bond fund, a large cap fund, a small cap fund, and an international fund.

    #206581 Reply
    Liked by spiritrider
    Avatar DAK 
    Participant
    Status: Other Professional
    Posts: 20
    Joined: 11/30/2016

    Do you have any 1099 income? (answering surveys online to moonlighting, your choice)  You could consider opening a solo 401k and rolling the balance in.

    One advantage of accounts in multi-employee 401k plans is that they benefit from ERISA asset protection, however there is some debate as to how much a rollover from employer plan into a solo 401k plan would benefit from that asset protection.  You might need to check with an attorney in your state on that one.

    EDIT: worth noting that IRAs are generally not perceived to have the same ERISA protections as 401ks/403bs, but I am not a lawyer so do your own research on all asset protection topics

    #206659 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7509
    Joined: 01/09/2016

    I’m not sure if the folks on WCI truly appreciate the absolute gem @spiritrider is for many of us. So grateful that, out of the variety of venues in which he can participate (“he” is generic and jmpo) that he has chosen WCI and the bogle folks. Maybe others, but that’s all I’m aware of b/c I hang here almost 100%.

    Cannot put a price on the value of his advice but it is in the multiple hundreds of $$/hour in many cases. Afaik, he does this strictly as a service, not for any personal gain. If he sent me a bill, I would pay it just to continue access to his knowledge.

    To top it off, he is one of the most humble people with whom I have ever interacted.

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

    #206662 Reply
    Liked by Hank, childay
    Avatar polaris 
    Participant
    Status: Physician
    Posts: 5
    Joined: 10/23/2017

    Wow, you guys rock. And you are totally right @jfoxcpacfp that @spiritrider is an absolute gem! I will highly likely choose the member-directed plan as I don’t know how long I’m going to stay with this job. I took the last job thinking I would stay and it lasted less than 3 years. I’m hoping to stay for at least the 5 years it takes for me to fully vest and keep all of the employer contributions. I’m also working toward FIRE which hopefully means less years of working.

    @dak No 1099 income. I answer the occasional survey but usually get disqualified pretty soon so I’ve stopped bothering. I don’t know if other medical specialties are easier to moonlight. I wasn’t allowed to moonlight in residency, fellowship, or with my current contract. And frankly, I feel like I work so much that I’d rather not work more with my free time. Well, other than mission trips to help those who really need it.

    #206683 Reply

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