After having just finished reading
The Simple Path to Wealth, I decided to sit down and take stock of my accounts and see if I am doing the right things and where I can improve. One area that I have noted to improve is with regard to non-deductible, or after-tax investments. I am maxing my 401(k) but am unable to make deductible tIRA contributions or Roth contributions due to our MAGI, therefore per my understanding that leaves me only with non-deductible options (oh, I am also maximizing my HSA so that is the only other tax deferred option I believe I have).
I have read about the back door Roth conversions in the past, but always skipped by considering them because I have an old tIRA with Vanguard. It has a balance of about $45,000. In another post here on the forums, I saw someone mention it might be possible to roll that into a 401(k) and then the back door Roth conversion is more attractive as there is no balance impacting the tax aspect. Well, unfortunately my 401(k) does not seem to allow that but I also have an old Simple IRA with Vanguard and it dawned on me that I might be able to roll into that and then pursue the back door Roth.
However, in looking closer I see there is a drawback there as well--the Simple IRA is limited to Investor shares and I am at an ER of 0.15% with a balance of about $100,000. The tIRA on the other hand is invested in Admiral shares and an ER of 0.04%.
So, with all of that considered, even if the tIRA > Simple IRA rollover is possible, I am left wondering if:
- Should I roll the tIRA into the Simple and pay a higher ER on that account to take advantage of the back door Roth?
- Or should I roll the Simple over to the tIRA to get Admiral shares, and then just invest in a standard taxable account?
I am leaning towards the 2nd option, as the way I am thinking about it right now, this after-tax money is for long term savings so I don't plan on selling but will have dividends reinvested. With the taxable account, when I do sell the taxes will be at long-term capital gains tax rates. If I go with the first option to take advantage of the Roth, I believe that I would have to leave that account alone until after age 59.5 else face being taxed as normal income. I might be confusing the tax aspects here because as I type this out it doesn't seem quite right, so I think I need to do some more reading.
Thanks for any feedback; I am likely over-thinking this and should just do either one as both are better than doing nothing.