Changing employers - What to do with 403(b) and IRS rules??

[YoungStache]

Hello Mustachians :)

So I am leaving my current employer to go to a different one. With my current employer, I have a 403(b) and an after-tax retirement account.

1. What is the best way to roll-over the accounts while avoiding penalties/taxes. Is there a time frame from when I leave the job to when I have to roll over the accounts? Would I be able to do a back-door roth from my accounts at this point?

2. I am currently contributing to the 403(b) at my current employer. Once I go to my new employer, can I contribute to the 401(k) what's remaining of the 18,000 annual limit? Or are there stipulations/penalties I need to be aware of?

[NoStacheOhio]

You can roll the account over (or not) pretty much any time. Check with your 403b administrator to see if they charge an extra fee for former employees. I don't know about back-door Rothing, but you can roll it into a tIRA with no penalties or taxes (assuming you follow the rollover rules).

The limit is per person/per year, irrespective of individual accounts. As long as you're under $18k in individual contributions (employer contributions don't count), you're good.

[seattlecyclone]

Hello Mustachians :)

So I am leaving my current employer to go to a different one. With my current employer, I have a 403(b) and an after-tax retirement account.

1. What is the best way to roll-over the accounts while avoiding penalties/taxes?

You'll probably want to roll your 403(b) to your new 401(k) or a traditional IRA. The IRA is generally a better option because you (not your new employer) get to choose what funds to invest in. The two exceptions are if your income is high enough that you want to preserve the ability to make backdoor Roth IRA contributions, or if your new 401(k) plan has "institutional" index funds with lower expense ratios than you can get as an individual.

Is there a time frame from when I leave the job to when I have to roll over the accounts?

Generally no. If your balance is very low the employer can sometimes force you out of the plan, otherwise you can usually stay in there indefinitely if you want.

Would I be able to do a back-door roth from my accounts at this point?

The backdoor Roth IRA depends on having zero pre-tax IRA balance. Pre-tax balances in your 401(k) or 403(b) do not affect your ability to do this.

2. I am currently contributing to the 403(b) at my current employer. Once I go to my new employer, can I contribute to the 401(k) what's remaining of the 18,000 annual limit?

Yes.

Or are there stipulations/penalties I need to be aware of?

Nope. Just make sure you don't go over the $18k limit. Ask your new employer whether their payroll system can be set up to take your prior contributions into account when cutting you off. If not, you may have to end up a bit short.

[YoungStache]

Right now my current employer's 403(b) is in Lincoln Financial. If I roll it over to an IRA, what financial company should I use? Does it matter?

And is the back-door roth only eligible for people who are above the income limits for a regular roth contribution?

What do you mean by zero pre-tax IRA balance? Since one of my employer's account's is an after-tax contribution account with employer match, am I supposed to convert this to a roth since it is already taxed (other than the match)?

[NoStacheOhio]

Right now my current employer's 403(b) is in Lincoln Financial. If I roll it over to an IRA, what financial company should I use? Does it matter?

And is the back-door roth only eligible for people who are above the income limits for a regular roth contribution?

What do you mean by zero pre-tax IRA balance? Since one of my employer's account's is an after-tax contribution account with employer match, am I supposed to convert this to a roth since it is already taxed (other than the match)?

It matters a little bit. Vanguard, Fidelity and Schwab would be my first three stops.

[YoungStache]

I have an account with Vanguard for my after-tax investments and roth IRA.

Do Fidelity and Schwab offer the Vanguard funds at the same expense ratio?

[NoStacheOhio]

I have an account with Vanguard for my after-tax investments and roth IRA.

Do Fidelity and Schwab offer the Vanguard funds at the same expense ratio?

Not Vanguard funds, but their have their own equivalents. Schwab's broad market ETF (SCHB) is actually the cheapest thing around outside of institutional plus shares. Fidelity has iShares ETFs and Spartan mutual funds with competitive ERs. All are free to trade at their respective brokerage (no transaction fees). If you already have a Vanguard account, that's marginally less paperwork to do the rollover.

You really can't go wrong with any of them.

[seattlecyclone]

Right now my current employer's 403(b) is in Lincoln Financial. If I roll it over to an IRA, what financial company should I use? Does it matter?

Find somewhere that lets you invest in low-cost index funds with no transaction fees. Vanguard and Fidelity are great options. Others are fine too.

And is the back-door roth only eligible for people who are above the income limits for a regular roth contribution?

Yes. Technically anyone can do it, but if your income is low enough to make direct contributions you might as well do it that way because it's easier.

What do you mean by zero pre-tax IRA balance?

The backdoor Roth IRA is a two-step maneuver. First, contribute after-tax dollars to a traditional IRA. Second, convert your traditional IRA to Roth.

On the second step there's a pro-rata rule that says that when you convert your traditional IRA to Roth, the conversion will be split proportionally between pre-tax and after-tax balances. You'll then have to pay tax on the pre-tax part, which you probably didn't want to do. The way around this is to avoid having any pre-tax money in an IRA at all, by instead leaving it in a workplace retirement account such as a 403(b) or 401(k).

Since one of my employer's account's is an after-tax contribution account with employer match, am I supposed to convert this to a roth since it is already taxed (other than the match)?

Converting after-tax traditional balances to Roth is often a good idea, because you'll be taxed on the gains if you leave them in a traditional account, but once it moves to a Roth account there are no more taxes on gains going forward.