What to do with my 401, practice has no retirement...

[NICUfello]

I have $12,000 saved during my fellowship in a 401a through my employer.

My fellowship ends June 30th.

1) What should I roll the 401a money into that would help me most from a tax standpoint? It is with Fidelity

The practice I am joining doesn't have retirement planning while I am there, so it is on me.

2) In addition to doing a ROTH IRA for me and my spouse, what other contibutions/how should I be making them?

I will have $5500 a month for savings post tax and will be getting quarterly lump sump bonuses.

Out of the 5500, I would like to save some liquid, some in a 529c, and some for retirement. Your suggestions apreciated.

My previous investments (through college/med school) has all been Roth IRA Vanguard Index funds.

Thank you.

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[krl7044]

Presumably you'll only be able to do backdoor IRAs because of your income. In order to do that, you don't want any IRAs hanging around. So you might want to move your 401a directly to Roth. However, not knowing your financial situation in detail it is impossible to make other than general recommendations.

A 529 may or may not be worth it depending on whether you get a state tax deduction or not, and you need to be very careful about fees and portfolio choices. Also, depending on how you are paid (employee or an independent contractor) may allow other options as far as retirement plans (a solo 401k if you are an independent contractor).

After tax, my preference is individual municipal bonds (which can also be used for higher education expenses), given the safety and high tax adjusted return.

In any case, you might need to put together a comprehensive plan, as well as an asset allocation for various types of accounts, starting with emergency cash. I prefer low cost index funds from Vanguard, so it makes sense to consolidate everything there. For emergency cash I like money market/CDs. Individual munis are a really underused way of investing, and are a great intermediate-term investment which can be used long term for an income stream it can provide.

 

[NICUfello]

Thank you for taking the time to reply.

Presumably you'll only be able to do backdoor IRAs because of your income. In order to do that, you don't want any IRAs hanging around. So you might want to move your 401a directly to Roth. However, not knowing your financial situation in detail it is impossible to make other than general recommendations..

So you recommend that I can move it from the Fidelity to say a Vanguard ROTH IRa, wihtout any pentalies?

Additionally, what other financial information may I provide that will allow you to give me a better recommendation?

A 529 may or may not be worth it depending on whether you get a state tax deduction or not, and you need to be very careful about fees and portfolio choices. Also, depending on how you are paid (employee or an independent contractor) may allow other options as far as retirement plans (a solo 401k if you are an independent contractor)..

I will be paid as an employer in the state of CA

After tax, my preference is individual municipal bonds (which can also be used for higher education expenses), given the safety and high tax adjusted return.

In any case, you might need to put together a comprehensive plan, as well as an asset allocation for various types of accounts, starting with emergency cash. I prefer low cost index funds from Vanguard, so it makes sense to consolidate everything there. For emergency cash I like money market/CDs. Individual munis are a really underused way of investing, and are a great intermediate-term investment which can be used long term for an income stream it can provide.

Thank you.

My savings is 5500 a month x 12 + about $35,000 bonus give or take. I have two young kids (under 3), and would like to save for them for college, and save for retirement for me and my spouse.

I need to have a 6-8 living expense emergency fund (which I don't fully have). I am buying my first house in a month or so (payment of about $2500). House will eat up most of my current savings.

I have medical school debt (190k)-$1000 a month payment, and no other credit card or unsecured debt.

My goals are: pay off school loan, pay off house, save for retirement and have rainy day fund.

 

[krl7044]

Thank you for taking the time to reply.


So you recommend that I can move it from the Fidelity to say a Vanguard ROTH IRa, wihtout any pentalies?

Additionally, what other financial information may I provide that will allow you to give me a better recommendation?


Yes, that is correct, you can move your IRA to Vanguard. Fidelity might charge you $100 or so to close the account (not sure if this is the case, but its easy to check). Worth it though in my opinion.

I will be paid as an employer in the state of CA

Thank you.

My savings is 5500 a month x 12 + about $35,000 bonus give or take. I have two young kids (under 3), and would like to save for them for college, and save for retirement for me and my spouse.

I need to have a 6-8 living expense emergency fund (which I don't fully have). I am buying my first house in a month or so (payment of about $2500). House will eat up most of my current savings.

I have medical school debt (190k)-$1000 a month payment, and no other credit card or unsecured debt.

My goals are: pay off school loan, pay off house, save for retirement and have rainy day fund.

Buying a house is a very important decision. Without knowing where you are heading in terms of salary/future plans, and without knowing the details of your overall financial situation making precise recommendations is difficult (and counterproductive). I'm a numbers person, so I like to do detailed analysis and look at multiple scenarios. Without doing that it is impossible to identify the best way to proceed since you have many moving parts and all of them have to work together.

 

[NICUfello]

Thanks.

I will move that 401 A to Vanguard and start there...

 

[The White Coat Investor]

I'd convert it to a Roth IRA before year's end if I were you. But that doesn't help you with your taxes THIS year; in fact it will hurt you. But in the long run, I think it is a smart move. It will be a long time before you get back to the marginal tax rate you have this year.

 

[NICUfello]

I'd convert it to a Roth IRA before year's end if I were you. But that doesn't help you with your taxes THIS year; in fact it will hurt you. But in the long run, I think it is a smart move. It will be a long time before you get back to the marginal tax rate you have this year.

Thank you. I will convert it to a Vanguard Roth IRA in June when I am first eligible.

With a maximum of a ROTH, will there be any issues of converting 11K all at once?

Yeah this year I will be 50% attending salary, and 50% fellow salary.

 

[The White Coat Investor]

Thank you. I will convert it to a Vanguard Roth IRA in June when I am first eligible.

With a maximum of a ROTH, will there be any issues of converting 11K all at once?

Yeah this year I will be 50% attending salary, and 50% fellow salary.

No, there is only a limit on contributions, not conversions.

 

[NICUfello]

Thank you appreciate the help!

According to Fidelity (just fyi) if I withdrew the funds , there is a 10% penalty plus a 30% tax, so I would basically lose half.

So conversion to Roth IRA Vanguard it is!

 

[NICUfello]

DUMB QUESTION

Is there any issue with this, if I don't move the money? I mean there won't be any more contribution since I am leaving my fellowship...

 

[krl7044]

Well, it depends on your investment choices and their cost. If you only have high cost options and not enough asset classes to build a diversified portfolio, you will be paying for this in higher fees and lower performance.

By the way, I can help your new practice open a retirement plan (or at least explain to them why they can benefit from having one). There is no reason why they shouldn't open one if this can be worthwhile for the practice. A custom-designed plan can allow the owners/participants put away good amount of money.

 

[NICUfello]

UPDATE

Now that I have been working for 2.5 weeks.

• House has been bought
• New practice has 401k (NO employer contribution), I am ineligible till 1 year of working here.

I still have the $12000 in the previous 401a.

If I keep it there-no tax hit.

If I move it to a Roth-tax hit.

I have to decided in 6 days.

 

[ThoracicGuy]

UPDATE

Now that I have been working for 2.5 weeks.

• House has been bought
• New practice has 401k (NO employer contribution), I am ineligible till 1 year of working here.

I still have the $12000 in the previous 401a.

If I keep it there-no tax hit.

If I move it to a Roth-tax hit.

I have to decided in 6 days.

Leave it there and then if your new 401k has good options (low ER fees, etc), then roll it over to your new 401k if they allow it. Otherwise you can keep it in the 401a.

 

[NICUfello]

^^^
Thank you

I think for now I decided just to leave it in the old employer's plan. Gotta have something positive to show for the 3 years of slavery, I mean fellowship

 

[cookymonster]

I am facing a similar dilemma. Have about 28k in a 403b from my residency. Could roll it into my Roth from Vanguard, but have chosen to leave it where it is for now. Unfortunately the only low-ER option they have is an S&P 500 index. Even though I'm at 50% resident salary this year I'm still in the 33% marginal tax rate (state and federal) this year thanks to heavy moonlighting, signing bonuses, and capital gains. Unfortunately the options in my 401k and 457 as an attending are about as bad.

 

[krl7044]

^^^
Thank you

I think for now I decided just to leave it in the old employer's plan. Gotta have something positive to show for the 3 years of slavery, I mean fellowship

I would roll it into a traditional IRA. I doubt your previous employer has better choices than a Vanguard IRA, including low cost ETFs, which are as good as Vanguard Admiral shares (but with no minimum and no transaction costs to buy).

 

[krl7044]

I am facing a similar dilemma. Have about 28k in a 403b from my residency. Could roll it into my Roth from Vanguard, but have chosen to leave it where it is for now. Unfortunately the only low-ER option they have is an S&P 500 index. Even though I'm at 50% resident salary this year I'm still in the 33% marginal tax rate (state and federal) this year thanks to heavy moonlighting, signing bonuses, and capital gains. Unfortunately the options in my 401k and 457 as an attending are about as bad.

Roll it into a traditional IRA, unless that would prevent you from doing backdoor Roth contributions. Nobody says you have to convert all at once. You can do it in pieces.

 

[cookymonster]

Roll it into a traditional IRA, unless that would prevent you from doing backdoor Roth contributions. Nobody says you have to convert all at once. You can do it in pieces.

There's the rub....

 

[krl7044]

You should be able to make partial rollovers from a 401k plan into a Roth (details depend on your plan) without having to roll over the entire amount.

There are some games that can be played with a Solo 401k. Some of these accounts accept incoming rollovers. Even a single consulting paycheck might qualify one to open a Solo 401k and then all IRAs/old 401ks can be rolled into it, even if you don't have a consistent paycheck. I would consult with your CPA before doing this first though.

 

[NICUfello]

I would roll it into a traditional IRA. I doubt your previous employer has better choices than a Vanguard IRA, including low cost ETFs, which are as good as Vanguard Admiral shares (but with no minimum and no transaction costs to buy).

Interestingly the Fidliety "customer service" on the phone said , I would recommend you roll into a traditional IRA.

The program I am in (previous employer), allows for "partial" amount to go to new IRA. So if I left $2000 into the account, I could roll the balance.

I will call Vanguard.

Thanks!!