- posted 10 years ago
I have a traditional IRA with $33K in it. Of that, $23K is from a rollover from an old 401k and $10K is from non-deductible contributions. I made those non-deductible contributions with the intention of converting them to a Roth IRA in 2010. However, in order to do that, I must also convert the $23K of pre-tax dollars (or do some pro-rata share). Of course, this isn't the end of the world - that money will still be tax-advantaged, just in a different way. But it got me thinking...
If I HADN'T rolled over that 401k in to an IRA, I wouldn't be facing this situation. I could have just left my old 401k alone, or perhaps rolled it in to my new employer's plan. Then my IRA would only contain the $10K of non-deductible contributions and I could do the Roth conversion without being forced to convert the $23K from old 401k. I'm not saying leaving the $23K alone is necessarily a better outcome, but at least I would have had the choice.
Conventional wisdom has been that it's usually better to roll your old 401k in to an IRA. Fees are typically lower. You have the full range of investment choices. And it's just simpler to have fewer accounts. But with the new rules regarding Roth conversion, I'm starting to question the conventional wisdom. Maybe it's better keep your 401k money in your 401k and use your traditional IRA as a... back door method to make Roth contributions.
Just a thought.