Author Topic: Converting 30k non-tax advantaged to RIRA  (Read 438 times)

x02947

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Converting 30k non-tax advantaged to RIRA
« on: December 02, 2019, 08:11:12 AM »
Hi everyone,

Bottom line up front:  Do I convert non-tax advantaged mutual funds into our RIRAs all at once and miss out on dollar cost averaging, or spread it out but pay more in processing fees?

I’m still in my “clean up from when I had no clue what I was doing while investing” stage.  The short of it is I have about 30k in a “regular” non-tax advantaged account.  I am not yet maxing out my RIRA/TSP (401k) space yet, so I figure it would make sense to convert that 30k into a tax advantaged account up to the max per year.

I think I should fill up the RIRAs all at once, at the beginning of the year.  I figure the advantages of having earnings grow untaxed would mask any DCA, particularly since the money is already technically in the market.  It will also minimize transaction costs ($20 per transaction, and can liquidate up to an entire fund in one transaction, with 8 funds in the account). 

With kids, I’m at a super low effective tax rate right now so a TIRA just doesn’t make sense. 

Just trying to get a quick sanity check here- thanks!

terran

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Re: Converting 30k non-tax advantaged to RIRA
« Reply #1 on: December 02, 2019, 09:18:07 AM »
Dollar cost averaging is suboptimal anyway. Get it moved into Roth as fast as you can given contribution limits and considering tax consequences of selling the taxable investments. You can contribute to an IRA until your tax filing deadline, so if you're married, as of January you can each contribute $6k for each 2019 and 2020 for a total of $24k. If you're not maxing your TSP I would then set it so you'll contribute $6k over what you'd normally be able to afford and supplement your income with the remaining $6k in taxable until it's gone.

EvenSteven

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Re: Converting 30k non-tax advantaged to RIRA
« Reply #2 on: December 02, 2019, 09:30:11 AM »
In addition to what terran said, I would move away form your current brokerage that has those high transaction fees all at once and move it all to the brokerage that you are going to use for your IRA (Vanguard? Fidelity? Schwab?). Contribute up to the limits on your IRAs (note that it is a contribution and not a conversion) and put the rest in a brokerage account in funds that don't have high fees.

x02947

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Re: Converting 30k non-tax advantaged to RIRA
« Reply #3 on: December 02, 2019, 10:40:23 AM »
Thanks y'all.  The whole "dump everything in at once" just felt like it needed a second pair of eyes.

[...] If you're not maxing your TSP I would then set it so you'll contribute $6k over what you'd normally be able to afford and supplement your income with the remaining $6k in taxable until it's gone.

That is my plan exactly.  By doing this I will be able to max out everything :) 

In addition to what terran said, I would move away form your current brokerage that has those high transaction fees all at once and move it all to the brokerage that you are going to use for your IRA (Vanguard? Fidelity? Schwab?). Contribute up to the limits on your IRAs (note that it is a contribution and not a conversion) and put the rest in a brokerage account in funds that don't have high fees.

I have moved everything to Vanguard and will be doing the VTSAX/VBTLX approach.  I think I'm being charged to sell because I just had everything moved over in-kind from the financial advisor, so they are non-vanguard funds. 

MDM

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Re: Converting 30k non-tax advantaged to RIRA
« Reply #4 on: December 02, 2019, 01:25:55 PM »
With kids, I’m at a super low effective tax rate right now so a TIRA just doesn’t make sense. 
One thing: your effective rate is irrelevant to the traditional vs. Roth choice.  It's your marginal rate, both at contribution and withdrawal, that matters.