Rollover vs backdoor contributions to Roth IRA

[Juan Solo]

Hi team,

I have done some reading on my own on this topic but there still are a few questions unanswered that I has hoping to get some clarity to.

1. Rollover 401k/403b/457:
I am with an academic university and we have mandatory pre-tax contributions to these accounts. However, next summer I will be moving to a different hospital/employer. My plan for when I leave my current employer is to roll the pre-tax amount (pay taxes on it) and roll it over to my Roth IRA at Vanguard.

My questions are these. How much can I rollover to my Roth IRA when I leave my current employer? Say it's 4K then does this amount count against the annual Roth IRA contribution limit (ie 5500/yr - my 4K rollover = only 1.5K remaining to be able to contribute)? And once my rollover to my Roth IRA is processed is it considered a contribution and follows the same penalty-free withdrawal rules that regular contributions have?

2. Backdoor to Roth IRA:
Is there limit to how much you can backdoor to Roth IRA per year (ie 5500/yr contribution limit)? Or can people backdoor more than that (10K or 15K) year? Also can you backdoor to Roth IRA if you are under the wage limitation (say you make $70K/year and max out 5500/contribution to Roth IRA but also want to backdoor 10K/year)?

Thanks!

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[mvenus929]

I can't answer the first question.

My understanding for the second is that you first contribute to a traditional IRA--for which there are contribution limits of $5500 per year, and then you convert that to a Roth. Your total IRA contributions (traditional + Roth) cannot exceed $5500 per year (unless you're over 50, then you can contribute an extra 1K or something).

 

[goodoldalky]

Hi team,

I have done some reading on my own on this topic but there still are a few questions unanswered that I has hoping to get some clarity to.

1. Rollover 401k/403b/457:
I am with an academic university and we have mandatory pre-tax contributions to these accounts. However, next summer I will be moving to a different hospital/employer. My plan for when I leave my current employer is to roll the pre-tax amount (pay taxes on it) and roll it over to my Roth IRA at Vanguard.

My questions are these. How much can I rollover to my Roth IRA when I leave my current employer? Say it's 4K then does this amount count against the annual Roth IRA contribution limit (ie 5500/yr - my 4K rollover = only 1.5K remaining to be able to contribute)? And once my rollover to my Roth IRA is processed is it considered a contribution and follows the same penalty-free withdrawal rules that regular contributions have?

2. Backdoor to Roth IRA:
Is there limit to how much you can backdoor to Roth IRA per year (ie 5500/yr contribution limit)? Or can people backdoor more than that (10K or 15K) year? Also can you backdoor to Roth IRA if you are under the wage limitation (say you make $70K/year and max out 5500/contribution to Roth IRA but also want to backdoor 10K/year)?

Thanks!

1. You are correct, 5500 per year is the limit regardless of source. In your example you can do 4 and then 1.5k.

2. 5,500 per year limit total regardless of income.

You may consider rolling your 401k into your new 401k so you do not have to pay taxes on it and then making a fresh 5500 contribution to a backdoor Roth.

 

[Stroganoff]

1. Rollover 401k/403b/457:
I am with an academic university and we have mandatory pre-tax contributions to these accounts. However, next summer I will be moving to a different hospital/employer. My plan for when I leave my current employer is to roll the pre-tax amount (pay taxes on it) and roll it over to my Roth IRA at Vanguard.

My questions are these. How much can I rollover to my Roth IRA when I leave my current employer? Say it's 4K then does this amount count against the annual Roth IRA contribution limit (ie 5500/yr - my 4K rollover = only 1.5K remaining to be able to contribute)? And once my rollover to my Roth IRA is processed is it considered a contribution and follows the same penalty-free withdrawal rules that regular contributions have?

Money transferred from a 401k/403b/457/etc plan does not count as an IRA contribution. The $5500 limit is separate and only applies to new money contributions directly to an IRA. So in your example of transferring $4000 from your 403b to your Roth IRA, you will still be able to contribute the $5500 separately.

Also, depending on your tax and income situation, there's no requirement to transfer 100% of your 401k/403b to your Roth IRA in one year. You can spread it out over multiple years.

2. Backdoor to Roth IRA:
Is there limit to how much you can backdoor to Roth IRA per year (ie 5500/yr contribution limit)? Or can people backdoor more than that (10K or 15K) year?

All a backdoor Roth IRA is is a non-deductible contribution to a traditional IRA followed quickly by a Roth IRA conversion and is subject to the same $5500 contribution limit.

Also can you backdoor to Roth IRA if you are under the wage limitation (say you make $70K/year and max out 5500/contribution to Roth IRA but also want to backdoor 10K/year)?

$5500 contribution limit into your "IRA house" regardless of which door the money takes to enter, period. If an auditorium has a 5500 person capacity limit because of fire code, we can't have 5500 people go in the front door and have more come in via any other doors and still be under the limit. It's still the same auditorium.

There's something known as the "mega backdoor Roth IRA" where you take post-tax contributions to a 401k and transfer and convert them to a Roth IRA, but this is dependent on if post-tax contributions are allowed in your 401k plan.

 

[ThoracicGuy]

Hi team,

I have done some reading on my own on this topic but there still are a few questions unanswered that I has hoping to get some clarity to.

1. Rollover 401k/403b/457:
I am with an academic university and we have mandatory pre-tax contributions to these accounts. However, next summer I will be moving to a different hospital/employer. My plan for when I leave my current employer is to roll the pre-tax amount (pay taxes on it) and roll it over to my Roth IRA at Vanguard.

My questions are these. How much can I rollover to my Roth IRA when I leave my current employer? Say it's 4K then does this amount count against the annual Roth IRA contribution limit (ie 5500/yr - my 4K rollover = only 1.5K remaining to be able to contribute)? And once my rollover to my Roth IRA is processed is it considered a contribution and follows the same penalty-free withdrawal rules that regular contributions have?

2. Backdoor to Roth IRA:
Is there limit to how much you can backdoor to Roth IRA per year (ie 5500/yr contribution limit)? Or can people backdoor more than that (10K or 15K) year? Also can you backdoor to Roth IRA if you are under the wage limitation (say you make $70K/year and max out 5500/contribution to Roth IRA but also want to backdoor 10K/year)?

Thanks!

Why pay a penalty to move the 401k money to a Roth? If you have access to a 401k at the new job, why not move it there? If you have 1099 money, you can set up a solo 401k and move it there. You can have the option of leaving it at the prior employer account if you wish too.

As @Stroganoff said, the $4k rollover is separate from an IRA contribution. You can backdoor $5.5k per year for yourself and $5.5k for a spouse. If you have access to a 401k that has the ability to do so, you could potentially do the Mega Backdoor Roth. This is unusual, though.

If you fall under the limits for contributions, then you can just directly contribute to a Roth if you'd like. You can't add more than the 5.5k limit to your IRA each year as it currently stands.

 

[Juan Solo]

Thanks for clarifying! This helps a lot. My plan is to move as much assets as possible to my ROTH IRA.
Thanks again!