A week back I made a thread asking about the MBR (mega backdoor roth) and learned quite a bit. Now that I think I understand the MBR I have a completely new set of questions.
For my 401k plan I am only able to do an in-service distribution three times a year. My question is what fund to put the money into before making the distribution. From what I remember I have access to stable value, bond, total stock, and international stock funds that are all low expense reasonable funds. If I could set up automatic distributions I would use a stable value fund for the few days the money sits. But when it comes to the money having to sit for a few months due to only having three opportunities to make a distribution, I don't know that is the right thing to do.
My gut instinct and attempts at researching the topic have told me that I should put the money in whatever is the closest to the funds I plan to hold in the IRA (a mix of total stock and total int'l stock). If the money grows while in the 401k that should be a good thing, despite the tax of the earnings. If I see a loss, it does not seem to be any worse than a loss in any other retirement account. A loss in the 401k would mean that the Roth Conversion is reduced, and so I would have less money that I could take out with a "Roth Ladder" pre-retirement age. I don't see this as being something with much practical impact. What I see as a bigger concern is time out of market betwen making the distribution and being able to reinvest within the IRA. I would expect that this would present a minor but very real drag/loss on contribution/gains. I would also expect this to generally be made up for by the longer time window where the money will be sitting, invested, within the 401k.
The rep I talked to about the 401k mentioned something about the basis. It was too much for me to fully understand but I think the idea is that the plan would track the basis and so any losses could in some way offset future gains. Which would seem to be another reason to be less concerned over fluctuations in the value - but again, this went above my ability to understand in its entirety. I could also intentionally not convert until the account value nears the contribution value, but I expect this to be way too much effort to be a reasonable course of action.
I could also go for the middle of the road approach and use whatever is closest to a short term bond fund (I know bond funds are available in my plan, but I'd have to check what kind of durations are available). This would represent an option with minimal, but expected, gains, while having significantly lower volatility.
Stable value is just going to sit there and do nothing, which seems wrong to me.
I am probably being overly concerned with something minor, but I would feel better making a decision after knowing what others think.
For my 401k plan I am only able to do an in-service distribution three times a year. My question is what fund to put the money into before making the distribution. From what I remember I have access to stable value, bond, total stock, and international stock funds that are all low expense reasonable funds. If I could set up automatic distributions I would use a stable value fund for the few days the money sits. But when it comes to the money having to sit for a few months due to only having three opportunities to make a distribution, I don't know that is the right thing to do.
My gut instinct and attempts at researching the topic have told me that I should put the money in whatever is the closest to the funds I plan to hold in the IRA (a mix of total stock and total int'l stock). If the money grows while in the 401k that should be a good thing, despite the tax of the earnings. If I see a loss, it does not seem to be any worse than a loss in any other retirement account. A loss in the 401k would mean that the Roth Conversion is reduced, and so I would have less money that I could take out with a "Roth Ladder" pre-retirement age. I don't see this as being something with much practical impact. What I see as a bigger concern is time out of market betwen making the distribution and being able to reinvest within the IRA. I would expect that this would present a minor but very real drag/loss on contribution/gains. I would also expect this to generally be made up for by the longer time window where the money will be sitting, invested, within the 401k.
The rep I talked to about the 401k mentioned something about the basis. It was too much for me to fully understand but I think the idea is that the plan would track the basis and so any losses could in some way offset future gains. Which would seem to be another reason to be less concerned over fluctuations in the value - but again, this went above my ability to understand in its entirety. I could also intentionally not convert until the account value nears the contribution value, but I expect this to be way too much effort to be a reasonable course of action.
I could also go for the middle of the road approach and use whatever is closest to a short term bond fund (I know bond funds are available in my plan, but I'd have to check what kind of durations are available). This would represent an option with minimal, but expected, gains, while having significantly lower volatility.
Stable value is just going to sit there and do nothing, which seems wrong to me.
I am probably being overly concerned with something minor, but I would feel better making a decision after knowing what others think.
Statistics: Posted by horadricCube — Thu Feb 22, 2024 7:34 pm — Replies 1 — Views 202
