Author Topic: Roth IRA vs TIRA for rollover?  (Read 921 times)

Paper Chaser

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Roth IRA vs TIRA for rollover?
« on: January 03, 2020, 05:40:27 PM »
Hello all! Long time lurker, first time poster. I know this topic is covered a lot of other places, but was hoping to get a multitude of viewpoints in a single spot, and this seems like a great place for an educated discussion.

I've decided to get a bit more organized with my finances in 2020, and the first step in that process is rolling over an old 401k with a balance of roughly 45k. I'm leaning towards converting to a Roth IRA and taking the tax hit but thought I'd get some other eyes on the situation before pulling the trigger.

Details:
Me- 34, income roughly 80k, 401k balance with current employer is $125k, $25k in a pension, HSA balance is $25k
Spouse- 34, income roughly 70k, 401k balance with current employer is $80k, Roth IRA is $25k

We live in a LCOLA and have no debt other than a mortgage @3.99%. Incomes vary a little with bonuses and overtime but aren't likely to see massive changes in the next few years relative to inflation.

I like the flexibility and lack of RMDs of the Roth, but is there any merit to rolling the entire 45k into a TIRA since my spouse already has a Roth?

MDM

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Re: Roth IRA vs TIRA for rollover?
« Reply #1 on: January 03, 2020, 07:14:28 PM »
Depends on what you think about your marginal tax rate for this year vs. what it might be in the future.

See Traditional versus Roth - Bogleheads for more.

Also check the Backdoor Roth process in case you might have use for that, and how pre-tax tIRA accounts may interfere.

Paper Chaser

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Re: Roth IRA vs TIRA for rollover?
« Reply #2 on: January 04, 2020, 06:35:05 PM »
Thank you for the links. There's some helpful info and worksheets there.

I don't think a backdoor Roth is in the cards for us. I just don't see our incomes climbing that much. However, a Roth ladder will likely be necessary should we decide to retire early. When doing a Roth ladder, is there any advantage to both spouses having a Roth IRA compared to one TIRA and one Roth?

Anyone have an opinion on the value of tax diversification that would come with having both types of IRAs?


MDM

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Re: Roth IRA vs TIRA for rollover?
« Reply #3 on: January 04, 2020, 07:47:19 PM »
When doing a Roth ladder, is there any advantage to both spouses having a Roth IRA compared to one TIRA and one Roth?
This may not affect what you are asking, but just in case: one cannot do a conversion from one person's tIRA to another person's Roth IRA.

Quote
Anyone have an opinion on the value of tax diversification that would come with having both types of IRAs?
If you go 50/50, then you can't be more than half wrong. ;)

Take your best guess for this year based on what you know now.  You can either keep the same choice next year, or change, depending on what happens with you personally and the economy and tax law in general.

Paper Chaser

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Re: Roth IRA vs TIRA for rollover?
« Reply #4 on: January 06, 2020, 12:39:55 PM »
Understood. I wasn't talking about transferring from one spouse's accounts to another. Just thinking that it may be a little advantageous to alternate years when doing a Roth ladder in a situation where each spouse has Roth accounts, so that one spouse does the rollover in years 1, 3, 5 and the other does it in years 2 and 4, etc. The spouse with the larger 401k could take years 1, 3, and 5 so that the smaller account has more time to grow before being drawn down and may see fewer total withdrawals depending on retirement date.

I also am concerned about building/preserving some wealth for my kids and future generations. My parents mostly squandered their terrific opportunities and I want to make sure that I don't do the same. We have no intentions of being mega wealthy but with wealth disparity growing, I kind of see my situation and opportunities as what could be the last chance for some of my heirs to have a comfortable, "middle class" kind of life. So, the lack of RMDs in a Roth is appealing in that regard. Maybe legislation will change and drive costs of health care and higher education down, but that's not certain.

So I guess I'm still on the fence. I need to go through the linked worksheets a bit more (thanks again). Taxes mean the TIRA is likely the right choice, but the Roth is so much more flexible...and might make the Roth ladder much easier. If I'm going to convert, might as well do it before the account grows any more.