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Should I convert my two 403(b) accounts into a Roth IRA?

I'm a a single, 38-year-old woman with no kids. I have two 403(b) accounts from previous employers and a friend mentioned it would be good to consolidate them into my existing Roth IRA in order to get maximum growth out of them. Should I follow this advice, or would there be value in keeping these other accounts open?

Retirement, IRAs, Retirement Plans, Women & Money
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August 2018

I'm going to answer your last question first. There is no value to keeping these separate accounts open. In fact, there is a distinct disadvantage to managing two accounts that could easily be combined into one. However, I suspect that neither is really being managed since they remain somewhat abandoned at previous employers. I always advise to roll over retirement accounts upon leaving an employer. Why would you want to leave your money with an organization from which you are separated? Verify that both 403(b) accounts are pre-tax, which is most likely, or after-tax. For the sake of this discussion, let's assume they are both pre-tax. That would mean that moving this money into a Roth IRA would require you to pay taxes on it when you move it. You don't say how much money is involved, but any tax needs serious considertion.

One way to go about this would be to rollover both accounts, if they are pre-tax, into a traditional IRA. That would get them more under your control. If you do this with the assistance of a financial advisor, they could suggest appropriate investments. After that, you need to strategize on timing a possible series of partial conversions to a Roth IRA so as to minimize taxes. This will depend upon your other income and where you fall on the tax rate brackets after all deductions. You can convert only whatever amount each year that allows you to stay at the lowest possible tax rates rather than do one fast total conversion that could push you into higher tax bracket(s) and result in higher overall taxes on this money.

Your comment about "maximum growth" being associated with a Roth IRA is disturbing. The growth you get from any account is subject to the performance of the investments in it, not necessarily the definition of the account which holds those investments. The 403(b), or IRA, or Roth IRA is simply like a basket, or a container, that holds investments. The same investments can be in any one of the three and provide the same growth. That said, the "baskets" have different tax treatments. The 403(b) and IRA are tax deferred, meaning you are paying no taxes on the money in them, nor on the growth, at this time and for all the years until such time that you begin to withdraw funds. Upon withdrawal, taxes will be due on all those funds. On the other hand, any money in a Roth IRA will require that you pay taxes on it now in exchange for no additional taxes on the growth, ever. 

August 2018
August 2018
August 2018
August 2018