Author Topic: Roll Over Roth into Traditional 403(b)?  (Read 2711 times)

VioletVixen

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Roll Over Roth into Traditional 403(b)?
« on: January 16, 2015, 09:22:13 PM »
Is there a way to move the money I put into a Roth 403(b) this year into a Traditional 403(b) before I file my taxes? In other words, is it too late to take advantage of the tax savings for 2014? If I can move from the Roth to the Traditional, how do I do it? Are there any fees involved? It is a Fidelity account.

Thank you!

Indexer

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #1 on: January 16, 2015, 10:15:26 PM »
Call Fidelity and ask. 

There is something called a recharacterization.  You can normally do it anytime before you file your taxes.

Whether there are fees is 100% dependant on Fidelity.

VioletVixen

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #2 on: January 19, 2015, 03:14:29 AM »
Okay, so IF I can transfer my Roth 403(b) contributions from this year (2014) into the Traditional 403(b), do you think I SHOULD? I mean, if Traditional can be converted to Roth later, is there really any use in putting money into a Roth 403(b)? Just want to make sure this is a smart decision as far as FIRE is concerned before I call Fidelity.


wtjbatman

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #3 on: January 19, 2015, 04:56:16 AM »
Okay, so IF I can transfer my Roth 403(b) contributions from this year (2014) into the Traditional 403(b), do you think I SHOULD? I mean, if Traditional can be converted to Roth later, is there really any use in putting money into a Roth 403(b)? Just want to make sure this is a smart decision as far as FIRE is concerned before I call Fidelity.

That entirely depends on your tax situation. Are you paying 25%+ in taxes? Then probably, yes. If you're in the 15% tax bracket, you could go either way.

TomTX

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #4 on: January 19, 2015, 05:08:44 AM »
Okay, so IF I can transfer my Roth 403(b) contributions from this year (2014) into the Traditional 403(b), do you think I SHOULD? I mean, if Traditional can be converted to Roth later, is there really any use in putting money into a Roth 403(b)? Just want to make sure this is a smart decision as far as FIRE is concerned before I call Fidelity.

That entirely depends on your tax situation. Are you paying 25%+ in taxes? Then probably, yes. If you're in the 15% tax bracket, you could go either way.

At 15%, I definitely prefer Roth due to the Social Security tax trap. At the very least, have a plan for Roth conversions later on to avoid the trap.

VioletVixen

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #5 on: January 19, 2015, 08:01:01 PM »
Okay, so IF I can transfer my Roth 403(b) contributions from this year (2014) into the Traditional 403(b), do you think I SHOULD? I mean, if Traditional can be converted to Roth later, is there really any use in putting money into a Roth 403(b)? Just want to make sure this is a smart decision as far as FIRE is concerned before I call Fidelity.

That entirely depends on your tax situation. Are you paying 25%+ in taxes? Then probably, yes. If you're in the 15% tax bracket, you could go either way.

At 15%, I definitely prefer Roth due to the Social Security tax trap. At the very least, have a plan for Roth conversions later on to avoid the trap.

This brings up more questions! I am not sure how to read my W-2, because I think I am in the 15% tax bracket (married filing jointly, spouse did not work last year/no extra income), but what I am seeing doesn't add up. Here is what it says on my W-2:

Box 1/3/5/16: 58,763.45 (Wages)
Box 2: 4864.70 (Federal income tax withheld)
Box 4: 3643.32 (SS tax withheld)
Box 6: 852.03 (Medicare tax withheld)
Box 12a (BB): 4125.00 (Designated Roth contributions under a section 403(b) plan)
Box17: 3540.21 (State income tax/Oregon)

If I am in the 15% tax bracket, then wouldn't I only have to pay 8814.51 (.15 x 58763.45)? If I add up the Federal/SS/Medicare tax, it amounts to 9360.05. How are the taxes withheld calculated?

If I AM in the 15% bracket, why could I go either way? Even if I am in the same tax bracket at retirement, doesn't the Traditional still come out on top if you do the Roth Conversion ladder explained by Mad FIentist: http://www.madfientist.com/traditional-ira-vs-roth-ira/ ?

What is the Social Security "tax trap"?

And why does it look like I'm paying more than 15% on my W-2?!

Is it ever a good idea to file as Married Filing Separately? When does one file as Head of Household?
« Last Edit: January 19, 2015, 08:15:59 PM by violetvixen »

Indexer

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #6 on: January 19, 2015, 08:37:48 PM »
Whether 15% is the cut off for trad VS Roth is a very subjective thing.  I personally would argue 25% is a better cut off, and if you are maxing out all of your retirement accounts there is actually a lot of math to back up doing the Roth even if you are in the 30%+ tax bracket.  Thats another story....

If you are in the 10-15% tax brackets a Roth is normally a good idea.  The probability that a Roth will do better than a Trad when you are in the 10-15% bracket is strong enough some people might still prefer the trad, but I doubt anyone would fault you for doing the Roth.

"What is the Social Security "tax trap"? "  Short answer:  If you make to much money in retirement SS starts getting taxed.  Money coming out of a traditional IRA/401k shows up like 'income' so it can bump you over the SS cut off for taxes, and it can even bump you into another tax bracket.  Roth distributions in retirement don't show up like income so it is less likely to cause a problem.

"And why does it look like I'm paying more than 15% on my W-2?! "  Well SS/Medicare aren't included in Federal taxes.  They are in addition to federal taxes.  If you are in the 15% tax bracket your actual fedreal taxes due would be less than 15% thanks to deductions.  I'm in the 25% but my actual tax rate normally ends up in the 17-19% range. 

"Is it ever a good idea to file as Married Filing Separately? When does one file as Head of Household?"  I can't say much for head of household.  MFS is normally a bad idea.  There are a TON of tax rules that are just horrible for MFS.  There are a couple small advantages so some people do it, but in the vast majority of situations I've heard about MFJ worked out better. 

For calculations on the taxes I would just google, "Tax estimator".

Here is a free link I found when I did it.   http://www.taxact.com/tools/tax-calculator.asp

teen persuasion

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Re: Roll Over Roth into Traditional 403(b)?
« Reply #7 on: January 20, 2015, 06:48:02 AM »
Your tax bracket isn't on your W2, it is determined on your tax return, based on your taxable income, so your AGI minus your deductions and exemptions.  Also, our tax system is progressive, which mean that a portion of your taxable income is taxed at 10 %, the next portion is at 15%, the next portion at 25%, etc, like layers.  This is why some talk about using traditional 401k or IRA when they are in the 25% bracket, to put the higher taxed layer of income above the bracket cutoff into a tax deferred account.

The withholdings on your W2 are calculated based on how you filled out your W4: MFJ or S, how many exemptions, any extra amounts to withhold.  You can tweak your W4 to fit your details.  My DH earns more than me, and we have kids and receive EITC and CTC and college credits, so we generally owe zero tax.  DH claims 14 exemptions on his W4 to get his withholdings to zero fed and state, but we don't get to claim 14 exemptions on our tax return!  Some people want more withheld if they have other circumstances that will make them owe more tax, a side gig or investment income or something else.

Head of household is generally for someone who is not married but has a dependent.