any reason not to rollover/convert to Roth?

[crabbypatty]

So I was wrong and my old 403/457's can be rolled (yea for being wrong). They can also be converted into my Roth if I pay taxes on the amount.

I have a target date Roth. Is there any reason not to rollover and then convert to the Roth?

[Coleroo]

i have the same question! i have a lot built up in my 403b and our company is about to lay us off in july ... I have to do something with the money so converting to roth has been heavy on my mind (i have a target date roth with troweprice with about 500 in it). I fear though that almost 40 years until my official retirement, uncle sam will pull something dirty on the roth tax laws! i guess thats the game of risk though as with any investment huh...

[jIM_Ohio]

TAXES.

The Roth is making 2-3 bets:

1) Your tax rate now is lower than it will be when you retire
2) you are willing to pay taxes now for the governments "PROMISE" it will not tax the earnings later.
3) You have the money to pay the taxes outside of the 40x account.

IMO I think it is best to have multiple tax legs for retirement:

Roth leg which is "tax free" withdraws. This is a promise now which government could change.

Taxable investment leg. This leg gets taxed at 10-15% long term capital gains rates and 10-15% dividend tax rates.

40x leg. This is a tax defferred leg. Withdraws are required starting at age 70 1/2, and are taxed at your income tax bracket.

If you have 3 legs to stand on, you can manipulate each leg to your advantage. The fewer legs, the less flexibility you have.

In addition, "conventional" wisdom suggests defferring taxes as long as possible... taking deductions and tax incentives now and worrying about future taxes in the future.

[poundwise]

I like the Roth for nearly everyone (who qualifies), however, I don't think I would roll any tax deferred accounts into a Roth, and thereby incur the taxes.

Roll them over into a traditional IRA. Open a separate Roth for future contributions if you wish.

[crabbypatty]

What about rolling them into a traditional IRA? I don't want to keep them where they are.

ETA: Ok, we were typing at the same time (apparently I'm slower LOL)

[creditcardfree]

Yes roll them into the traditional ira. If you already have a traditional established the money can go there. But keep in mind that if you are ever interested in rolling the money into another employers plan, it is required by irs guidelines that this rolled money be kept seperate from other traditional contributions. Its a traditional ira, but referred to as a rollover ira in order to distinguish it from the traditional. In the end, for tax purposes, they both work the same.

[jIM_Ohio]

Originally Posted by crabbypatty

What about rolling them into a traditional IRA? I don't want to keep them where they are.

ETA: Ok, we were typing at the same time (apparently I'm slower LOL)

traditional IRA is an idea.

Don't take my comments as what I think you should (or should not) do. I have some traditional IRAs which I am converting to Roths in 2010.

You asked for a reason, I gave you one. You never asked if my reason was GOOD.



If we are talking 1-4k, the Roth "risk" is low... if we are talking 5-10k+, the tax bill will be larger. This changes the answer.

I am converting a 3k rollover IRA (from EDS pension) to a Roth. If this was 30k, I would leave it alone (the tax bill would be too large, IMO). My wife has a 4500 rollover IRA we will convert in another year. If this was 45,000, the answer would be to leave it be.

What would the tax bill be on the conversion.

[crabbypatty]

I haven't figured out the taxes yet on the conversion.

I guess my main question (although it wasn't written clearly ) was if it's a good idea to roll something over. Or asked another way "why would you not roll something over"

I was told that the process is 1. to roll into a traditional and then if I choose, 2. roll to the Roth after paying taxes. So I could stop at step #1 if I wanted. I just wasn't sure if there was any reason not to initiate the first step.

In my mind, it made sense to roll it b/c I could open the account where I opened my Roth. Less folders to keep track of , kwim? For whatever reason I was under the wrong impression and thought I couldn't do it.

I'm just unhappy with the co. it is currently held with. It's an annuity co. and they don't make it easy for you to see expense ratio's, fee's etc. Not that anyone is begging you to know how much they're taking. But I've found that it's harder for me to find this out w/this partoicular co. than at other co's. And I don't like that.

[Coleroo]

Question i just thought of ---

Can a rollover from one account be split into 2 accounts? Like, lets say I wasn to convert my 5k 403b.... send 2500 to roth and 2500 to a traditional ira. Can that be done? Or does a rollover have to go to just one account?

[jIM_Ohio]

YES you can split it.

Here's the process

1) rollover to an IRA
2) Process conversion

when processing, it will ask you "from what, how much, where to put it". Tell them its from rollover, $2500, to fund X (or $1250 to fund X and $1250 to fund Y).

[kv968]

Originally Posted by crabbypatty

I haven't figured out the taxes yet on the conversion.

I guess my main question (although it wasn't written clearly ) was if it's a good idea to roll something over. Or asked another way "why would you not roll something over"

I was told that the process is 1. to roll into a traditional and then if I choose, 2. roll to the Roth after paying taxes. So I could stop at step #1 if I wanted. I just wasn't sure if there was any reason not to initiate the first step.

In my mind, it made sense to roll it b/c I could open the account where I opened my Roth. Less folders to keep track of , kwim? For whatever reason I was under the wrong impression and thought I couldn't do it.

I'm just unhappy with the co. it is currently held with. It's an annuity co. and they don't make it easy for you to see expense ratio's, fee's etc. Not that anyone is begging you to know how much they're taking. But I've found that it's harder for me to find this out w/this partoicular co. than at other co's. And I don't like that.

I would say roll it over at least into a traditional. First of all, the investments could be all with one company making it easier paperwork-wise like you stated. Also you'll have many more funds to choose from and more control over the investments. I'm also sure you'll have much, much lower operating expenses (expense ratios, fees, etc...) since annunities are known to charge exorbitant fees.

As far as the traditional to Roth conversion, I'd say go by what the others are saying. If the amount isn't that much and the tax bill won't be that big, then convert it. If the tax bill is going to be too big to deal with then just leave it with the traditional.

[kv968]

Originally Posted by jIM_Ohio

IMO I think it is best to have multiple tax legs for retirement:

Roth leg which is "tax free" withdraws. This is a promise now which government could change.

Taxable investment leg. This leg gets taxed at 10-15% long term capital gains rates and 10-15% dividend tax rates.

I agree that it's a good idea to have multiple tax legs for retirement. It's kind of diversifying accounts tax-wise. However, instead of worrying about what the government will do with future Roth provisions, the long term capital gains and dividend tax rates on taxable accounts are a more pressing issue. Those lower rates just got extended until 2010 but who knows if they'll be extended after that? You could end up paying regular taxes on the gains.