If you can get money out of high-expense funds and into lower-expense funds, that is a good idea, whether you roll it from a 403(b) to a traditional IRA or convert it to a Roth.
And if you do roll to a traditional IRA, it is probably better to convert some of that to a Roth IRA rather than convert an equal amount in your employer plan into a Roth 403(b), because Roth IRA withdrawals are more flexible.
Once you have decided which accounts to convert to Roth, it is slightly better to keep bonds in the traditional accounts and stocks in the Roth accounts.
The reason for only "slightly" is the need to tax-adjust for risk as well as returns. If you will retire in a 22% tax bracket, then $10,000 in a traditional account and $7800 in a Roth account are equivalent, with the same after-tax value if invested the same way, so it doesn't matter which one is in stock. However, having stock in a traditional account creates an asymmetric risk, as the IRS may take 24% of some of your gains if the stock market booms, but give back only 12% of some of your losses if the stock market crashes.
And if you do roll to a traditional IRA, it is probably better to convert some of that to a Roth IRA rather than convert an equal amount in your employer plan into a Roth 403(b), because Roth IRA withdrawals are more flexible.
Once you have decided which accounts to convert to Roth, it is slightly better to keep bonds in the traditional accounts and stocks in the Roth accounts.
The reason for only "slightly" is the need to tax-adjust for risk as well as returns. If you will retire in a 22% tax bracket, then $10,000 in a traditional account and $7800 in a Roth account are equivalent, with the same after-tax value if invested the same way, so it doesn't matter which one is in stock. However, having stock in a traditional account creates an asymmetric risk, as the IRS may take 24% of some of your gains if the stock market booms, but give back only 12% of some of your losses if the stock market crashes.
Statistics: Posted by grabiner — Fri Aug 30, 2024 10:05 pm — Replies 1 — Views 177