Author Topic: Rolling over 401k to Vanguard - Mixed Tax-Deffered and Roth  (Read 525 times)

Michael in ABQ

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Rolling over 401k to Vanguard - Mixed Tax-Deffered and Roth
« on: March 21, 2018, 11:02:36 AM »
I'm going to be starting a new job soon and I'm thinking of moving the funds from my current 401k to Vanguard. My 401k is though Fidelity and my current balance is right around $50k. About 75% is Roth as I've been doing a $10,000 in-plan Roth conversion every January for the last three years. So I think I'd have to roll that $40k into a Roth IRA and the other $10k into a traditional IRA. On the other hand my tax rate is low (12% for 2018) and we'll be getting back a few thousand dollars from lots of child tax credits so I would be fine paying the $1,200 or so in taxes now (in early 2018) to just convert the rest to Roth. Not sure about the mechanics of that though.

Current asset allocation:
30% S&P 500 index fund - 0.015% expense ratio
20% Mid-cap value fund - 0.81% expense ratio
15% International growth fund - 0.5% expense ratio
10% company stock (been doing better than almost everything else for most of the last decade I've had it - but near all-time highs)
10% international developing markets - 1.07% expense ratio
10% Large-cap growth fund - 0.66% expense ratio
5% Blended stock/bond fund - 0.88% expense ratio

Average expense ratios are about 0.75% and most of the funds seem to be performing in-line with the underlying indices. Some outperforming a bit, but not really enough to justify the fees.

I'm looking to stay close to 100% in equities. I'm only 33 so I've got plenty of time to ride out the market. In addition to this 401k I've got a second one (TSP) through the military with about $5k in it and if all goes well a pension when I hit 60 from that which should pay around $10-15k annually, though that's highly dependent on how many more years I serve.

So, looking to invest mostly in VTSAX but maybe allocate a portion to mid-cap and/or international funds to be a bit more aggressive. Any recommendations? Might not be able to get into Admiral shares at first unless I put a fair amount in those other funds. Also, anyone rolled over a mixed regular/Roth 401k and have any advice to share?

seattlecyclone

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Re: Rolling over 401k to Vanguard - Mixed Tax-Deffered and Roth
« Reply #1 on: March 21, 2018, 12:27:36 PM »
So I think I'd have to roll that $40k into a Roth IRA and the other $10k into a traditional IRA. On the other hand my tax rate is low (12% for 2018) and we'll be getting back a few thousand dollars from lots of child tax credits so I would be fine paying the $1,200 or so in taxes now (in early 2018) to just convert the rest to Roth. Not sure about the mechanics of that though.

The mechanics are pretty simple: you tell Vanguard and Fidelity that you want to roll the entire amount into a Roth IRA. When you file your taxes next year you'll report the $10k as income and pay taxes accordingly. If you expect this to make your taxes higher than last year, make sure you're having enough money withheld from your paychecks to hit the safe harbor (at least 100% of last year's taxes withheld, or 110% if your income is above some threshold >$100k that I can't be bothered to look up at the moment).

Quote
Current asset allocation:
30% S&P 500 index fund - 0.015% expense ratio
20% Mid-cap value fund - 0.81% expense ratio
15% International growth fund - 0.5% expense ratio
10% company stock (been doing better than almost everything else for most of the last decade I've had it - but near all-time highs)
10% international developing markets - 1.07% expense ratio
10% Large-cap growth fund - 0.66% expense ratio
5% Blended stock/bond fund - 0.88% expense ratio

That's a lot of different funds. I recommend trying to simplify in the new account. Putting the bulk of it into VTSAX sounds good, you'll qualify for Admiral shares for sure. Maybe a total international fund to go along with it.