Recently started a new job and looking for input on a 401k rollover. I rolled over my 401k into my Fidelity accounts with the post-tax portion going straight to my Roth IRA and 37k of trad 401k going to a rollover IRA. My question is given that my new job puts me in a higher tax bracket, is it still worth paying taxes on the 37k to get it in my Roth IRA (as well as 10% penalty).

Before: 100k + 10k bonus (received the bonus in March)
New: 160k + 30k signing (received 15k of that this year)

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Another option may be to see if you can roll the rollover IRA into your Trad 401k. That will allow you to still do the backdoor without pro-rata impacts

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Continued -
I switched jobs in June so for simplicity assuming 6 months each.

50k + 10k + 80k + 15k with some capital gains putting me very close to the 32% bracket (~165k).

Would you still transfer the 37k to Roth, why or why not?

If you have this rollover traditional funds, that means you can't do a backdoor Roth IRA?

That is what I did. Rolled my tIRA into my 401k.

I wish I had just paid the taxes as it was less than $5k I believe, but I was dealing with undergrad, grad, car loans and a new mortgage. If I knew my financial situation would be 1-2 years later, would have just paid the taxes.

How old are you? If you are young you may still want to get that money into a Roth but I don’t think I’d do it at the cost of pushing into a higher tax bracket.

You can potentially spread it over a year or two though increasing income may be a problem there. Also, remember to figure out your AGI. Without looking at the tax tables myself, you may not be as close as you think if you are maxing out a traditional 401k.

There is no penalty for a Roth conversion. I wouldn’t say it’s a no brainer at 24%. Depends on your target FIRE age, expected retirement income, and how you think tax brackets may change in the future.

I’m going for a bigger FIRE number than many so I’ll be working a bit longer and would likely do it. My wife’s company nixed their pension a few years back and we took the tax hit from moving the payout into a Roth. If you are looking to FIRE young and keep expenses super low, you may not come out ahead.

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