How do I manage my previous retirement fund? I'm clueless!

#1

Brief background: Divorced, 43F, investment newbie, really don’t know much and don’t have any real savings and no investments besides my retirements fund(s).
-late start on retirement fund, didn’t have one until early 30s
-playing catchup as best I can, putting I think 17 or 18% into my retirement fund each paycheck? (about 3k/month)
-just started a new job about 6-8 months ago, I now have a 403b with Fidelity through my current employer plus a 401k through my per diem employer, also with Fidelity

My question is: for most of my 30s I worked for the same organization and MOST of my retirement savings is with TransAmerica (I actually don’t know if it’s a 401k or 403b, tried to find that info in my TA account but it isn’t there). Hope that doesn’t sway your answers too much. I kept a per diem job with that organization until a couple weeks ago, and was still contributing to that account. I just let that job go, so now I need to decide whether to:

  • roll the funds into my main Fidelity 403b, OR
  • start a Roth IRA and pay Uncle Sam thousands now, but have a second retirement account that will build tax-free separate from my 403b which obviously I will pay taxes on when I withdraw that money someday

I feel like the Roth IRA makes sense, but it kills me to lose tens of thousands to taxes, of what little I have saved for retirement, by converting to a Roth at this point. Here’s what I have in each of my accounts:
Current 403b through the new job: ~20k
Current per diem 401k: ~43k
Old 401k or 403b: ~87K (with 19k loan drawn off retirement fund that will be paid in Dec 2024, so the balance is actually higher once paid off)–> this is the account that I would be rolling over or converting

Any advice is appreciated. I also believe that if I go the Roth IRA route, I have to open a Roth first, then move the money over, but as a single person my income excludes me from having a Roth so I’m not sure how that works … but I really don’t want to pay someone thousands for this nonsense either.

Someone adult for me!

#2

Thank you for the question and for providing all of the details! The questions you asked are personal decisions and there are no any right or wrong answers. You have to do what you are most comfortable with. It’s likely a good idea to consult with a CPA to better understand all the tax implications. From my perspective, here are three things to consider when making your decisions!

  • It sounds like you just left the employer with the TransAmerica account. If you haven’t already, I would double check that you are still able to pay your loan back over the next couple of years. Most plans allow you to set up an ACH so you can pay the loan balance directly from your checking account over the remaining term of the loan. But, it’s worth double checking and setting that up if you haven’t already!

  • Deciding on when to convert to a Roth IRA depends on a number of different factors, such as your tax rate now vs. your future expected tax rate. If you do want to convert, but don’t like the large tax bill, you could consider converting a portion each year or you can wait to convert in a year where your income is lower. Those are just some factors to consider when making your decision!

  • If you do a rollover and conversion to a Roth IRA, it’s important to do it very carefully to avoid any unexpected penalties/taxes. Having income above the Roth IRA limits, won’t prevent you from converting to a Roth.

I hope this is helpful. Please let us know if there are any other questions!