Lost Rollover IRA

[treehugger]

Well, this is embarrassing, but hoping y’all will be kind and give me some assistance…..

I left my previous job back in 2009 after being there for about 2 years, I took my then retirement and opened a fidelity rollover IRA and never looked at it again…..until today!

I have ~$12,000 in that account which has just been sitting there doing nothing all these years.

Question: What should I do with this today when I now want to be aggressive and see what happens over the next 10 years, knowing that I haven’t looked at this money in over a decade, so if I am aggressive and I lose it in the big picture it doesn’t really affect me? Should I stay with fidelity and open an aggressive investing account with them and pay 0.35% or $3 per month or any suggestions for aggressive options?

Thoughts?

[(former)FormerSanDiegan]

Don’t pay high fees…

Buy a stock index ETF with little or no commission and let it ride:
SPY or VTI

Further advice here:

Best Investment Companies for Investors in 2022

[barnaby33]

You know the site owner does that sort of thing for a living. You might ask him.
Josh

[barnaby33]

You know the site owner does that sort of thing for a living. You might ask him.
Josh

[Coronita]

If your current household income doesn’t allow you to contribute to a Roth IRA, I think you should roll it into your current employers 401k plan, if the plan isn’t that bad…so you can do a Backdoor Roth IRA…

So long as you have any IRA account including a rollover IRA, you won’t be able to do a backdoor Roth IRA. And you want to do this before the government decides to take away the ability to do Backdoor Roth IRA

Sounds like for you, since $12k is sitting there, it won’t matter that much for you to move it somewhere.

IRS treats 401k differently from IRA( including Rollover IRA). you can have unlimited amount of money in a 401k and that won’t affect your ability to do a backdoor Roth IRA. But the moment you have a rollover IRA, that will impact your ability to do a backdoor Roth IRA….because the IRS doesn’t treat IRA as separate accounts, it treats all your IRA accounts as 1 big account. so the Backdoor Roth IRA approach of depositing money into a Traditional IRA and immediately rolling it over into a Roth IRA won’t work since if you have any other Rollover IRA, it’s like taking a distribution weighted over all your IRA accounts in which case you’ll then owe some taxes when you do a Backdoor Roth IRA conversion defeating the purpose of it… Had I known, I wouldnt have rolled some of my Broadcom 401k out, since that plan was had a self directed option to invest a had all vanguard index funds. And my current employers 401k plan suck and not worth me rolling in all my money in rollover IRA in there. So I haven’t been able to contribute to a Roth IRA for some time now…..

Note: if you are a techie and looking for a new job, ask if your new employer is offering “mega backdoor IRA” contributions as part of their retirement plan…Zillow does as well as some.techbcompanies now…. If you don’t know what that is, Google for it.

Fidelity in general isn’t a bad brokerage , but don’t fall for their management fees. They are all trying to earn money this way now that all of them offer free trading and they have to figure out how to make.money elsewhere. They do auch better job handling overseas restricted stock then say *cough* Charles Schwab *cough*.

[treehugger]

My hubby and I both have retirement plans through our current jobs, I am a Federal Govt employee, so not going anywhere until I retire and i max out what I put in that account.

Trying to figure out how to deal with this rollover IRA….looked at the Fidelity website and I can’t figure out how to roll into anything else? I spoke with them on the phone and for $3/month or 0.35% they will “manage it”. I looked online and there are robo managers, which appear to be free, but I can’t figure out how to get this stagnant rollover changed unless I pay?

As noted above I can reach out to Rich from this site, but feel like I am small potatoes and have never used a financial planner…I know I should, but need one that is ok working with a small fry?

So I guess follow up question, admitting i am totally ignorant and proving it here, what are good questions to pose? and are there financial planners who cater to dumb people who are scared and don’t understand anything about investments?

I feel like we are finally flowing good financially and now we want to start really understanding our options: We own our house-owe less than $300,000 with a 2.6% mortgage and current value ~1.2 million-plus have a rental condo we owe $150,000 with a 3.5% mortgage otherwise no debt.

Trying to pick the brain trust on this site, since it has served me so well with my real estate options over the years!

[ucodegen]

[quote=Coronita]
So long as you have any IRA account including a rollover IRA, you won’t be able to do a backdoor Roth IRA. And you want to do this before the government decides to take away the ability to do Backdoor Roth IRA
[/quote]
That is not my understanding. Checked around, and it looks like you can do the Backdoor Roth when you already have IRAs and Rollover IRAs. You can also do a backdoor Roth in steps. There is no limit on the number of backdoor conversions you do, however there must be a 12 month period between any Backdoor rollover. The tax rules are the same whether you do a Backdoor Roth from IRA accounts or 401k accounts, form 8606 applies. Taxes are required to be paid on any Backdoor Roth conversion because you are converting pre-tax to after-tax dollars. There is an interesting ‘Backdoor Roth’ option, if your employer offers it. If they allow post tax contributions to the 401k, you can put up to $40,500 of post tax dollars in 2022 into the 401k and then roll it over into a Roth. From what I can see, it gets around the contributions income limit on Roth IRA/401k contributions. Its being called a ‘Mega Backdoor Roth’.

As for the original question as to where to put the $12k, I would not put it in the hands of ‘advisors’. Several years back, Warren Buffet put out a challenge to hedge fund money managers that he could beat their returns using just index funds using a buy and hold strategy. While some of the money managers were initially ahead, the end result in about 8 years was that Warren Buffet had convincingly won.
https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp

[plm]

For the backdoor ROTH, I think the reference is to putting in 6 or 7K into a ROTH IRA by first putting it into a normal IRA and then converting (conversion has no income limits versus adding to a ROTH IRA does). And the problem is that having an existing rollover IRA makes it part of the conversion. Been doing it every year but then I never rolled over my 401k into an IRA. If I do roll over my 401k, it probably would not be possible for me to do the backdoor Roth IRA each year.

But I think this is off topic because conversion to a rollover IRA already happened so the question is really how to invest it given that with an IRA you have full control over it.

[Coronita]

[quote=ucodegen][quote=Coronita]
So long as you have any IRA account including a rollover IRA, you won’t be able to do a backdoor Roth IRA. And you want to do this before the government decides to take away the ability to do Backdoor Roth IRA
[/quote]
That is not my understanding. Checked around, and it looks like you can do the Backdoor Roth when you already have IRAs and Rollover IRAs. You can also do a backdoor Roth in steps. There is no limit on the number of backdoor conversions you do, however there must be a 12 month period between any Backdoor rollover. The tax rules are the same whether you do a Backdoor Roth from IRA accounts or 401k accounts, form 8606 applies. Taxes are required to be paid on any Backdoor Roth conversion because you are converting pre-tax to after-tax dollars. There is an interesting ‘Backdoor Roth’ option, if your employer offers it. If they allow post tax contributions to the 401k, you can put up to $40,500 of post tax dollars in 2022 into the 401k and then roll it over into a Roth. From what I can see, it gets around the contributions income limit on Roth IRA/401k contributions. Its being called a ‘Mega Backdoor Roth’.

As for the original question as to where to put the $12k, I would not put it in the hands of ‘advisors’. Several years back, Warren Buffet put out a challenge to hedge fund money managers that he could beat their returns using just index funds using a buy and hold strategy. While some of the money managers were initially ahead, the end result in about 8 years was that Warren Buffet had convincingly won.
https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp%5B/quote%5D

That doesn’t sound correct…
Google “Backdoor IRA Pro-Rata Rule”

This article does a pretty decent job explaining it

https://smartasset.com/retirement/a-guide-to-the-pro-rata-rule-and-roth-iras

There is an sample tax calculation provided, reposted here:.

[quote]
Let’s say you have $100,000 in a Traditional IRA, $7,000 of which came from non-deductible contributions. Because you’ve already paid taxes on $7,000, the IRS will not require you to pay taxes on that amount twice. Some retirement savers believe that, since they’ve already paid taxes on that amount, they can then convert $7,000 to a Roth IRA without paying taxes again. By law, though, you cannot dictate that your Roth conversion will only use those after-tax funds.

If you’d like to convert $7,000 to a Roth IRA, you will need to calculate how much of your IRA funds are actually taxable. The IRS requires you to include the value of all your non-Roth IRAs as the basis. The formula for tax purposes looks like this:

(non-deductible amount) / (total of all non-Roth IRA balances) = non-taxable percentage
(amount to be converted to Roth IRA) x (non-taxable percentage) = amount of after-tax funds converted to Roth IRA
In other words, 7% of the $100,000 is non-taxable since you already paid taxes on those $7,000. But if you want to convert $7,000 to a Roth IRA, in reality, the converted amount comes from 93% pre-tax funds and only 7% after-tax funds. You’ll have to pay taxes on 93%, or $6,510, of the converted amount. By the same token, that means $6,510 of the original non-deductible $7,000 is still in the Traditional IRA, and any future after-tax contributions to your non-Roth IRAs will further complicate your Pro-Rata percentage, making future withdrawals messier than you might assume.
[/quote]

[Coronita]

[quote=plm]For the backdoor ROTH, I think the reference is to putting in 6 or 7K into a ROTH IRA by first putting it into a normal IRA and then converting (conversion has no income limits versus adding to a ROTH IRA does). And the problem is that having an existing rollover IRA makes it part of the conversion. Been doing it every year but then I never rolled over my 401k into an IRA. If I do roll over my 401k, it probably would not be possible for me to do the backdoor Roth IRA each year.

But I think this is off topic because conversion to a rollover IRA already happened so the question is really how to invest it given that with an IRA you have full control over it.[/quote]

My point was the easiest thing to do is to take what was rolled out into a Rollover IRA from an old employer, and roll that amount back into an existing 401k or in the case of the OP, the Federal employee’s version of the 401k (TSP?)…especially if she already has a sizable account balance on her existing TSP retirment account and doesn’t want to or know what to do with the extra $12k from a previous employer…. It’s the “easiest” thing to do. The expense ratio on the TSP plans I think are less than 0.055% It’s not a bad plan…And there’s like $700+billion invested by roughly 6 million people .

[Coronita]

[quote=treehugger]My hubby and I both have retirement plans through our current jobs, I am a Federal Govt employee, so not going anywhere until I retire and i max out what I put in that account.

Trying to figure out how to deal with this rollover IRA….looked at the Fidelity website and I can’t figure out how to roll into anything else? I spoke with them on the phone and for $3/month or 0.35% they will “manage it”. I looked online and there are robo managers, which appear to be free, but I can’t figure out how to get this stagnant rollover changed unless I pay?

As noted above I can reach out to Rich from this site, but feel like I am small potatoes and have never used a financial planner…I know I should, but need one that is ok working with a small fry?

So I guess follow up question, admitting i am totally ignorant and proving it here, what are good questions to pose? and are there financial planners who cater to dumb people who are scared and don’t understand anything about investments?

I feel like we are finally flowing good financially and now we want to start really understanding our options: We own our house-owe less than $300,000 with a 2.6% mortgage and current value ~1.2 million-plus have a rental condo we owe $150,000 with a 3.5% mortgage otherwise no debt.

Trying to pick the brain trust on this site, since it has served me so well with my real estate options over the years![/quote]

Ok, now with more information that you are a Fed Government employee..What I was trying to say was….

Do you have a TSP Retirement Plan (Fed Government employee equivalent of a 401k at for those of us in the private sector)?

If so, have you considered just taking this $12k amount and rolling it over into your TSP account?

That seems like it would be the easiest thing to do. And from what I can tell with a TSP retirement plan,you can pick “target retirement” date fund and then just set it and forget about it….

https://www.tsp.gov/tsp-basics/move-money-into-tsp

(Forget what I said about a Backdoor IRA….It’s probably not something else you wanted to do. It was just an added benefit that you could do)

[ucodegen]

Coronita, I am going to repeat what you wrote;

So long as you have any IRA account including a rollover IRA, you won’t be able to do a backdoor Roth IRA. And you want to do this before the government decides to take away the ability to do Backdoor Roth IRA

My primary point is; Nothing in the Pro-Rata rule prevents you from doing a Backdoor Roth IRA if you already have an IRA. What the Pro-Rata rule affects is the taxation if you are rolling over an IRA or 401k and have mixed pre-tax,post-tax monies in the account. It makes the transfer more complicated (potentially much more). I am going to need to check some claims that an aggregation approach is on all accounts simultaneously is used because that runs afoul of rules for reporting pre-tax and post-tax contribs within IRAs and taxing of such distributions (went through IRS rules, and what I have stated agrees with their statements – screw any CFP that says otherwise)..

My understanding is the aggregation rule applies within the account, not across multiple accounts – which would match how post vs pre-tax contribs are handled within an IRA as well as how distributions are taxed. If an account comprises pre-tax and post-tax monies, it is treated as an aggregate – just like in taking a distribution from that IRA. It is not possible to take a distribution from taxible or pre-tax monies selectively from within an IRA. NOTE: If you have post-tax money in an IRA, you have to do the form 8606, every year… (or should be reporting them). Pre-tax portion of an IRA is withdrawn tax free – but the total IRA is considered an aggregate, so tax is calc’d as a percentage of total funds that have not been taxed. Any growth is considered non-taxed within an IRA even though initial contributions may have been post-tax. (Exception being a Roth).

NOT: https://www08.wellsfargomedia.com/assets/pdf/personal/investing/retirement/taxes-and-retirement/pro-rata-rule.pdf

NOTE: The people claiming the funds of all IRA funds are considered as an aggregate may be mixing up a rule instituted 1/1/2015 that stated for doing rollovers, all the funds are considered as one for the sake of counting the frequency of rollovers – ie: you can rollover from any IRA/401k once in 12 month period, but you can’t rollover from IRA#1 and IRA#2 within a 12 month period, but could rollover IRA#1 and 12 months later rollover from IRA#2.

https://www.irs.gov/irb/2014-16_IRB#ANN-2014-15
https://www.irs.gov/irb/2014-48_IRB#ANN-2014-32

BTW; ran across Roth IRA contrib rules… something brutal for married filing separately.
https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023

[michaelm]

These guys are all talking about how to best shield any earnings from tax gains. Once you figure out which account to place what’s currently cash, the next step is what to invest it in.

I keep my money in a fund called “FFNOX”, which is a simple 85% equity 15% bonds fund that’s well diversified. Fidelity also has “target date funds” that rebalance differently according when you plan to retire–they target 2040, 2045, etc, and slowly shift the allocation to bonds from equities to lower risk at target date. Finding one with a low expense ratio (amount you pay per year per dollar for their management) would be the simplest way to go. Since you’re with Fidelity, their Freedom target date funds seem cheap enough.

[phaster]

[quote=michaelm]These guys are all talking about how to best shield any earnings from tax gains. Once you figure out which account to place what’s currently cash, the next step is what to invest it in.[/quote]

powerball ticket?!

https://www.usatoday.com/story/news/nation/2022/11/02/powerball-jackpot-winning-numbers-drawn/8252852001/

[(former)FormerSanDiegan]

[quote=ucodegen]

NOTE: The people claiming the funds of all IRA funds are considered as an aggregate may be mixing up a rule instituted 1/1/2015 that stated for doing rollovers, all the funds are considered as one for the sake of counting the frequency of rollovers – ie: you can rollover from any IRA/401k once in 12 month period, but you can’t rollover from IRA#1 and IRA#2 within a 12 month period, but could rollover IRA#1 and 12 months later rollover from IRA#2.
[/quote]

ucodegen-

Every time I’ve looked into this issue, competent sources all point to the fact that all IRAs are considered in terms do what is taxable when rolling over traditional IRA to Roth IRA.

Example below from Forbes (Forbes always looks for tax avoidance angles)..

https://www.forbes.com/sites/jamiehopkins/2021/12/16/converting-to-a-roth-dont-fall-into-these-traps/?sh=3892232a6817

“The backdoor Roth works well when an individual doesn’t have any other tax-deferred money in any other IRA – including traditional, SEP and SIMPLE IRAs. However, if you have other assets that are tax deferred in that IRA or another, then you could run into a potential tax blunder if you aren’t careful. When you convert an IRA to a Roth IRA, you’re converting a proportional share of the conversion amount as non-deductible and deductible contributions across all of your IRAs. So, in essence, you need to account for all of your IRA assets when doing a conversion to make sure you’re paying the right amount of taxes. “

On the other hand, If the money is rolled from a 401k to Roth IRA I believe there is a way to select the after-tax only portion for rollover.

[Author]

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