Should I roll my retirement plan to a tIRA?

[Chrissy]

My retirement plan says I may roll it to a tIRA once I've been out of work for 6 months.  Thanks to Covid, I'm about 6 weeks away from the mark.  For context:

I'm a married mother of two, age 43, and husband and I should be able to retire in 10 years.  My other investments are in a ROTH and just a splash in a SEP.  I don't control the investments in the plan, which is all employer contributions. The plan has $71k in it:  50% in stocks, 50% in bonds.  This kills me, because, while right for the currently retired, it's really not the right allocation for me at all.

So, what say you?  Am I going to screw up my ability to do ROTH conversions somehow?

[Paul der Krake]

You're maybe screwing your ability to do backdoor Roth contributions later, should your household income ever get into that territory.

You also lose some legal protections that are specific to ERISA plans like 401(k)s.

But that's about it.

[MDM]

Relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans | Internal Revenue Service describes that it's OK as far as the IRS is concerned for you to move it all now. 

What Roth conversions are you concerned about screwing up?

[Chrissy]

Thanks, @Paul der Krake .  Yeah, maybe I'm just thinking about the backdoor.  My SEP kinda messes that up for me anyway, though my husband is free and clear to complete the maneuver.  With our deductions, we have a lot of room before we have to worry about it.

Thanks, @MDM .  Seems weird that I can have employer money and investment growth, roll it over to a ROTH [edit] tIRA, then convert to a ROTH once we're retired, and never pay tax on it, or very little tax.  My brain keeps saying, "No, that's can't be right.  You're missing something."

[MDM]

Seems weird that I can have employer money and investment growth, roll it over to a ROTH, and never pay tax on it, or very little tax.  My brain keeps saying, "No, that's can't be right.  You're missing something."

Umm, you mentioned rolling into a tIRA in your original post.

Converting to a Roth makes the entire pre-tax amount converted subject to tax.

[Chrissy]

Seems weird that I can have employer money and investment growth, roll it over to a ROTH, and never pay tax on it, or very little tax.  My brain keeps saying, "No, that's can't be right.  You're missing something."

Umm, you mentioned rolling into a tIRA in your original post.

Converting to a Roth makes the entire pre-tax amount converted subject to tax.

Oh, right!  I meant someday converting to a ROTH, once we're retired.  I know it's considered income at that point, but if we keep it low enough, we might pay nothing, or pay very little.

[MDM]

Oh, right!  I meant someday converting to a ROTH, once we're retired.  I know it's considered income at that point, but if we keep it low enough, we might pay nothing, or pay very little.

That could work!

See at least the first three sections of Traditional versus Roth - Bogleheads for more details.

[slappy]

If your'e not happy with the investment strategy, you should be able to change it within the employer plan if you want to. 

[ericbonabike]

If you don’t like the plan I’d move the money ASAP.

My plan recently decided to add a 0.22% AUM annual fee tack on fee in addition to the fees built in to the various index funds.  I ran a bunch of projections and this small fee can have a huge impact on your wealth.  Like hundreds of thousands of dollars if you worked at that company for 30 or 40 years. 

I’m kinda stuck working there for a bit and I have zero options for moving my money out.  But in your case, with 50% in bonds , I’d be scrambling to get it out. 


The only possible impact, as others have said, is a backdoor Roth.  But even that’s not impossible, because it’s possible to roll from a traditional rollover IRA back to a 401k.  Which would restore ability to do a backdoor.

[Chrissy]

Wow, @ericbonabike that's very helpful!  I hadn't thought about transferring a tIRA to a 401k, just the other way around.

@slappy This is the former pension plan.  I don't know what's different between it and the newer "retirement plan," but you can't choose anything.  You don't enroll, it's all done for you.  There's no online presence, and we get a statement mailed to us once a year detailing the investment gains, contributions, and fees. 

We also have a 403(b), in which I participate, with Vanguard.  No employer match, since that all goes into the retirement plan. 

[Paul der Krake]

FYI, not all employer 401(k)s allow incoming IRA rollovers. It’s stupid, but I have personally encountered them. One workaround is to rollover to a solo 401(k) first, then the employer 401(k), but that adds complexity.