New Expat - Saving/Retirement Considerations
Jan 8th 2020, 12:47 am
#16
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Joined: Mar 2015
Location: NC, USA (ex Yorkshire)
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Re: New Expat - Saving/Retirement Considerations
None of the 401ks for which I know the details have any additional fees or reduced investments for former employees. There are still plenty of really bad 401k plans out there, but many of them are small business plans from high-cost providers. Most big businesses have the negotiating power and these days have the knowledge and awareness of their fiduciary responsibilities to choose low-cost plans from Vanguard / Fidelity / Schwab etc., or at least to negotiate a decent plan from a higher-cost provider. I think it's much better advice to check your 401k's fees after you leave and move the funds if needed. "You should move it to an IRA" is not good general advice, especially since it complicates use of a backdoor Roth IRA or 401k.
Complicating the use of a backdoor Roth is a non issue. You can roll the traditional 401k to a traditional IRA and then do a Roth conversion on that money. You're then all set up for a potential backdoor Roth strategy.
I think you're over complicating this entire concept. Analysis paralysis?
Jan 8th 2020, 9:47 pm
#17
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Location: Anchorage, AK, USA
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Re: New Expat - Saving/Retirement Considerations
Complicating the use of a backdoor Roth is a non issue. You can roll the traditional 401k to a traditional IRA and then do a Roth conversion on that money. You're then all set up for a potential backdoor Roth strategy.
Jan 8th 2020, 10:47 pm
#18
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Location: NC, USA (ex Yorkshire)
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Re: New Expat - Saving/Retirement Considerations
I recommend for your 2019 taxes that you seek a competent accountant, because it's clear you don't know enough to do your own.
Jan 9th 2020, 1:18 am
#19
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Location: Anchorage, AK, USA
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Re: New Expat - Saving/Retirement Considerations
If I decided to transfer all of my pre-tax 401k to a traditional IRA this year, the IRS's pro-rata rule means I could not then contribute to a backdoor Roth IRA without either converting my traditional IRA to Roth (and again paying $100k), or leaving almost all of my new contributions as non-Roth after-tax contributions (which defeats the point). 401ks are not subject to the pro-rata rule. Here's an explanation: https://www.nerdwallet.com/blog/inve...-how-to-guide/
The pro-rata rule. The IRS requires rollovers from traditional IRAs to Roth IRAs to be done pro rata. Here’s how it works: When determining your tax bill on a conversion from a traditional IRA to a Roth IRA, the IRS is going to look at all of your traditional IRA accounts combined. If all of your traditional IRAs combined consist of, say, 70% pre-tax money and 30% after-tax money, that ratio determines what percentage of the money you convert to a Roth is going to be taxable. In this example, no matter how much money you convert or which IRA account you pull the money from, 70% of the amount you convert to the Roth will be taxable. You can’t choose to convert only after-tax money; the IRS won’t allow it. And a word about timing: the IRS applies the pro-rata rule to your total IRA balance at year-end, not at the time of conversion.
I recommend for your 2019 taxes that you seek a competent accountant, because it's clear you don't know enough to do your own.
Jan 9th 2020, 1:57 am
#20
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Location: NC, USA (ex Yorkshire)
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Re: New Expat - Saving/Retirement Considerations
If I decided to convert all of my pre-tax 401k to a Roth IRA this year, I'd have to pay income taxes on that conversion at my marginal rate. Assuming $300k at 32%, that's about $100k in taxes. I don't want to pay that, when I can instead wait until my marginal rate is much lower in retirement.
If I decided to transfer all of my pre-tax 401k to a traditional IRA this year, the IRS's pro-rata rule means I could not then contribute to a backdoor Roth IRA without either converting my traditional IRA to Roth (and again paying $100k), or leaving almost all of my new contributions as non-Roth after-tax contributions (which defeats the point). 401ks are not subject to the pro-rata rule. Here's an explanation: https://www.nerdwallet.com/blog/inve...-how-to-guide/
It's worth noting to folks that happen to read this that a backdoor Roth is a strategy for higher income earners. For majority of America it's not worth troubling with.
Jan 9th 2020, 3:42 am
#21
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Joined: Jan 2014
Location: Anchorage, AK, USA
Posts: 1,347
Re: New Expat - Saving/Retirement Considerations
I know. That's what I said in #16, albeit not in as much detail.
It's worth noting to folks that happen to read this that a backdoor Roth is a strategy for higher income earners. For majority of America it's not worth troubling with.
