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Maureen W

Old 403b Account

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After years of neglect, we’ve made decent strides (aka catch up) in our financial future in the past few years but how to handle my old 403b and PSERS has stumped me.  I was thrilled to hear about this resource on the Bigger Pockets podcast for 403b’s.

The issue:  I taught in PA before moving to MN 8 years ago (I haven’t taught since the move).  The 403B only has about $10k in it and is with a small company in PA.  We have the majority of our other investment accounts at Vanguard.  The 403b company said we could roll the $10k into a traditional IRA at vanguard.  The problem is we keep our Traditinal IRA’s empty for the occasional year we exceed the income limits on a ROTH so we can do a ROTH conversion (“back door Roth”).  I’ve been told adding funds to that account creates a tax headache during the conversion.  

Know if I can transfer my 403b to a different lower fee 403b company if I no longer teach?  
 

Also- I was told my PSERS (PA retirement) just has to sit until retirement.  It’s not growing at all. Anyone know of a similar resource to this page where I can get answers on that account?

Thanks in advance!!

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Maureen W, welcome to the forum! I think the solution to your 403b is to roll it into your Roth IRA account. I would get the transfer form from the 403b's vendor. You can probably roll it directly into your Roth IRA, but if not, roll it to the traditional IRA, and then convert it to a Roth IRA by the end of the year. For the backdoor Roth, what counts is the tIRA balance on Dec 31 of the year of the conversion. I would consider doing the same thing with the PSERS, maybe done in a different year than the 403b roll over?

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Maureen W,

You failed to mention whether or not you are vested with PSERS.  If you are not vested (or don't plan to vest) then you should probably get the funds into a retirement account.....probably a traditional IRA with Fidelity would work and not interfere with your Vanguard accounts. This should be easy. PSERS has a lot of info on the website. Bob

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A traditional IRA with Fidelity or with Vanguard will interfere with the backdoor Roth process. The IRS considers ALL traditional, rollover and SIMPLE IRAs to be all one traditional IRA. You can't hide them at different vendors.

Even if Maureen W is vested, she should consider that the benefits of a small pension whose purchasing power has decreased due to inflation may not be worth waiting for. She might be better off rolling it into an IRA and investing it. 

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Krow, 

I suggested Fidelity because Maureen wanted to keep her Vanguard account empty....for a reason that I don't understand. I know that the backdoor Roth requires IRS forms and extra bookkeeping so I don't understand the empty account. Also, I didn't understand why these accounts "interfere" with the backdoor Roth. Thanks for the clarity...I always enjoy your comments. Bob

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Bob, if you google "backdoor Roth IRA"  you will find lots of information on how it works. If there is any balance in any traditional IRA account on Dec 31 of the year of the conversion from a non-deductible tIRA to a Roth IRA, that balance in taxed in what's called a pro-rata way. The result is that contributing to a non-deductible tIRA and then converting to a Roth IRA results in a tax bill on a portion of the tax-deferred tIRA balance. A frequent solution is to roll any tIRA funds into an employer retirement account (401k, 403b, 457b). Roth IRAs are not part of the pro rata calculation. All this is necessary because there is an income limit for making a direct contribution to a Roth IRA. You can google that also.

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Krow36- Thank you.  Who would I call find out if I can go directly to Roth?  The 403B company made it sound like I had to go traditional Ira but I don’t understand why.  If I could get it straight to my Roth that would be a amazing.  Also- I read Vanguard has a 403B option?  Could/should I move it to that?

Shirley- yes, I was vested.  
 

I only have $44k in my PSERS.  If I’m allowed to roll it into my Roth, can it be done in 1 transaction?  Or only in $6k increments bc of the yearly contribution limit?  And who would I call to find options for my PSERS?

Thank you all so much.  I have come a long way in terms of better understanding investments but I’m really struggling to wrap my head around these for some reason.  

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Also-this was the response I got from PSERS when I asked.  Sound right?  I really think when I’ve check my balance the amount was exactly the same.  I’ll double check with them.  If it’s growing 4% a year and is a solid reliable safe investment, think I should just leave it as a way to diversify our portfolio?

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Maureen W, I have no knowledge of your PA pension, and you should rely on information from the pension. It certainly deserves thorough study. A 4% interest on your contributions sounds to me like it at least covers current inflation. The pension probably has a handbook or other publications that explains how the pension is calculated. I'd find out if the state contributed to the pension while you were contributing, and if so, will that be included if you take out your balance. Does the pension have a COLA? Does the pension include a health insurance benefit? I don't see any harm in asking for the Request for Retirement Estimate. Also I'd check out the instructional video for creating your own estimates. I think you need some numbers in order to understand the pros and cons. 

I guess you realize that if you roll the 44k into a Roth IRA, that will add 44k to your taxable income? If you look at their Authorization for Direct Rollover, you will see if there's an option to roll to a Roth IRA, or only to a traditional IRA. If you rolled it into a traditional IRA, it would remain tax-deferred. If you then converted the tIRA to a Roth IRA, that would add 44k to taxable income. The conversion could be spread over several years. This process isn't related to the annual contribution, either direct or indirect using the backdoor. There's no annual limit to how much you can convert from a tax-deferred account to a Roth IRA. 

No, you can't roll it to a 403b unless you have current employer who has a 403b that accepts rollovers.  

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