IRA and old 401k investing

#1

Hi PFC! Jeremy directed me to this wonderful page for further insight from you all. I am a traveling nurse at the moment and in 2022 will likely begin my career as a nurse practitioner. I plan to max out my Roth IRA that I just opened for the current year. My question to you all is that I am presumably going to be a high income earner in 2022. I expect my income to be greater than 125k, I am not eligible for a 401k or HSA at this time. I don’t want to miss out on not contributing at all in 2022. Would you recommend me placing my money into a traditional Ira and then converting that amount and invest in index funds in my Roth IRA? Such as like a back door Ira? I appreciate all of the help! I am still a novice in the investing arena. 34 year old trying to catch up.

I also have old 401ks I was reading Jeremey’s prior posts on also rolling them into an IRA so that we can choose a better portfolio as well as have all of our investments in one place? Would this also be the Roth IRA? It would be coming from a traditional 401k! Thank you!

#2

Hi Tatum!
If you are over the income limit, yes, you should look into doing a backdoor Roth IRA! At least for 2021, if you make over $125K but less than $140K as a single filer, you can technically contribute to a Roth IRA but just not the full $6K. I’ve never done a backdoor Roth but hopefully others can share their experiences!

Assuming it’s a traditional 401k, you would roll it over to a “rollover IRA” which works very similar to a traditional IRA. The biggest difference is that you can roll over that money to a new 401k. Putting it in a Roth IRA would be complicated since taxes and penalties would be involved. HOWEVER, if you are doing a backdoor Roth, you might not want to do this rollover IRA, because of something called the pro rata rule. (Also the aggregation rule). You would probably be better off keeping the money in your old 401k OR rollover the money to a new 401k if possible.

It’s complicated, I know, but it’s because you have a high income, so it’s a good problem to have :slight_smile: