Univ California, MBR, rolled a gain

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Clever_Username
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Univ California, MBR, rolled a gain

Post by Clever_Username »

Hi all,

If it's relevant to the conversation, this relates to the University of California plan, with the DCP post-tax contribution version of a mega-backdoor Roth.

I got my paycheck a few days ago and my expected post-tax contribution to the DCP of $X happened. Cool. So I call Fidelity on Tuesday (I am writing this Thursday morning) to do a rollover, as I've done for the past several months since I started doing this.

I guess by the time they sold the position on Tuesday, it had a gain, and this morning I see approx. $X+60 in my Roth IRA at Fidelity (the target of the rollover). In the past, they roll any gain into the 403(b), and I seem to recall there's some reason to want to keep any gains it incurs in the DCP in the pre-tax bucket.

I can't seem to find the post/thread where I read that this is the case. Is my concern making sense to anyone? Is it a problem that $60 of gain got rolled over with a contribution? The gain makes sense as the gain of that portion of the investment, given recent stock market performances and when the contribution hit my DCP.

Should I call and get something changed or is this okay the way it is?

Also, when the rollover hits my Roth IRA, I have it show up in money market, which I then trade to an appropriate fund for my asset allocation. Should I trade $X of it or the full amount that showed up?


Thanks in advance everyone.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
terran
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Re: Univ California, MBR, rolled a gain

Post by terran »

If we assume that you're in a higher tax bracket now than you'll be when you retire then yes, rolling the gains over into pre-tax and the basis into Roth is the ideal way to do it for the same reason that you should be contributing to traditional before Roth. You're essentially deciding between "contributing" $60 to Roth or traditional and paying tax on that contribution. However, tax on $60 of gains isn't that big a problem, and certainly pales in comparison to the benefit of getting a bunch of extra money into Roth through the mega-backdoor. If you have a choice then get them to roll the gains into the pre-tax 403(b) going forward (sounds like you might have to remind them each time you call), but if they mess up once in awhile or the plan doesn't allow it then don't worry about it too much. Don't let the perfect be the enemy of the good.
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Re: Univ California, MBR, rolled a gain

Post by Clever_Username »

terran wrote: Thu Feb 04, 2021 12:52 pm If we assume that you're in a higher tax bracket now than you'll be when you retire then yes, rolling the gains over into pre-tax and the basis into Roth is the ideal way to do it for the same reason that you should be contributing to traditional before Roth. You're essentially deciding between "contributing" $60 to Roth or traditional and paying tax on that contribution. However, tax on $60 of gains isn't that big a problem, and certainly pales in comparison to the benefit of getting a bunch of extra money into Roth through the mega-backdoor. If you have a choice then get them to roll the gains into the pre-tax 403(b) going forward (sounds like you might have to remind them each time you call), but if they mess up once in awhile or the plan doesn't allow it then don't worry about it too much. Don't let the perfect be the enemy of the good.
Thank you. Yes, that last part was my worry -- if mixing the money was going to be a problem. Okay, an occasional mess up doesn't seem a disaster, and that helps me a lot. Thank you!

I do believe I'll be in a lower tax bracket when I retire, and I do max out traditional (403(b) and 457 each get the max each year as well), so that's handled (thank you for the reminder though).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
terran
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Re: Univ California, MBR, rolled a gain

Post by terran »

The only issue mixing might cause is if you withdraw within 5 years. Then the taxable amount will incur a penalty, but again that's not that big a deal as it's only 10% of the taxable amount. Have them roll it over to pre-tax if they can, but don't beat yourself up about it, and I wouldn't bother trying to get it reversed.
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Re: Univ California, MBR, rolled a gain

Post by Clever_Username »

terran wrote: Thu Feb 04, 2021 1:07 pm The only issue mixing might cause is if you withdraw within 5 years. Then the taxable amount will incur a penalty, but again that's not that big a deal as it's only 10% of the taxable amount. Have them roll it over to pre-tax if they can, but don't beat yourself up about it, and I wouldn't bother trying to get it reversed.
Yeah, I am almost certainly not going to withdraw within five years, certainly not the whole thing. Within my emergency plan, "pull contributions from the Roth IRA" is under about four years' worth of expenses at current valuations, most of which are bonds or cash, and even then, it's $60 of it.

Thanks for all the help, I really do appreciate it!
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
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celia
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Re: Univ California, MBR, rolled a gain

Post by celia »

Clever_Username wrote: Thu Feb 04, 2021 12:42 pm If it's relevant to the conversation, this relates to the University of California plan, with the DCP post-tax contribution version of a mega-backdoor Roth.

I got my paycheck a few days ago and my expected post-tax contribution to the DCP of $X happened. Cool. So I call Fidelity on Tuesday (I am writing this Thursday morning) to do a rollover, as I've done for the past several months since I started doing this.
This looks like there is some confusion as to whether you are participating in a ROTH plan or an AFTER-TAX plan. These are two different plans. In both cases, you make a post-tax contribution, but in the Roth plan, all the gains are Roth (tax-free growth), while in the After-Tax plan, the growth is part of tax-deferred.

If my understanding is correct, you need to find out which plan you are in and be clear in your terminology going forward.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Doctor Rhythm
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Re: Univ California, MBR, rolled a gain

Post by Doctor Rhythm »

celia wrote: Thu Feb 04, 2021 4:31 pm
Clever_Username wrote: Thu Feb 04, 2021 12:42 pm If it's relevant to the conversation, this relates to the University of California plan, with the DCP post-tax contribution version of a mega-backdoor Roth.

I got my paycheck a few days ago and my expected post-tax contribution to the DCP of $X happened. Cool. So I call Fidelity on Tuesday (I am writing this Thursday morning) to do a rollover, as I've done for the past several months since I started doing this.
This looks like there is some confusion as to whether you are participating in a ROTH plan or an AFTER-TAX plan. These are two different plans. In both cases, you make a post-tax contribution, but in the Roth plan, all the gains are Roth (tax-free growth), while in the After-Tax plan, the growth is part of tax-deferred.

If my understanding is correct, you need to find out which plan you are in and be clear in your terminology going forward.
I believe OP makes monthly after-tax contributions to the University of California 401a (DCP) plan and then immediately rolls this contribution over to a Roth IRA. This monthly rollover can't be automated, so it requires a phone call to Fidelity (the custodian), and there may be a small capital gain by the time the rollover occurs. This gain can be rolled over separately to a tax deferred account (usually the 403b) or just included in the rollover to the Roth, which would be a (small) taxable event. If you roll it into the Roth, it will show up in your annual 1099-R and you'll pay income tax on it. Probably ideal to roll it into a tax-deferred account, but in my case, the amount is so small that I don't care much. Once it's in your Roth, OP, you should invest it like any other money there.
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Re: Univ California, MBR, rolled a gain

Post by Clever_Username »

Doctor Rhythm wrote: Thu Feb 04, 2021 7:59 pm
celia wrote: Thu Feb 04, 2021 4:31 pm
Clever_Username wrote: Thu Feb 04, 2021 12:42 pm If it's relevant to the conversation, this relates to the University of California plan, with the DCP post-tax contribution version of a mega-backdoor Roth.

I got my paycheck a few days ago and my expected post-tax contribution to the DCP of $X happened. Cool. So I call Fidelity on Tuesday (I am writing this Thursday morning) to do a rollover, as I've done for the past several months since I started doing this.
This looks like there is some confusion as to whether you are participating in a ROTH plan or an AFTER-TAX plan. These are two different plans. In both cases, you make a post-tax contribution, but in the Roth plan, all the gains are Roth (tax-free growth), while in the After-Tax plan, the growth is part of tax-deferred.

If my understanding is correct, you need to find out which plan you are in and be clear in your terminology going forward.
I believe OP makes monthly after-tax contributions to the University of California 401a (DCP) plan and then immediately rolls this contribution over to a Roth IRA. This monthly rollover can't be automated, so it requires a phone call to Fidelity (the custodian), and there may be a small capital gain by the time the rollover occurs. This gain can be rolled over separately to a tax deferred account (usually the 403b) or just included in the rollover to the Roth, which would be a (small) taxable event. If you roll it into the Roth, it will show up in your annual 1099-R and you'll pay income tax on it. Probably ideal to roll it into a tax-deferred account, but in my case, the amount is so small that I don't care much. Once it's in your Roth, OP, you should invest it like any other money there.
That's an accurate summary, yes. I contribute post-tax, but it's not a Roth account, and I have to call to get it rolled over. I ask them to put the gains into the 403b but I guess they didn't this time, which doesn't seem to be the disaster I was worried it'd be.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.
manatee2005
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Re: Univ California, MBR, rolled a gain

Post by manatee2005 »

Clever_Username wrote: Fri Feb 05, 2021 12:45 am
Doctor Rhythm wrote: Thu Feb 04, 2021 7:59 pm
celia wrote: Thu Feb 04, 2021 4:31 pm
Clever_Username wrote: Thu Feb 04, 2021 12:42 pm If it's relevant to the conversation, this relates to the University of California plan, with the DCP post-tax contribution version of a mega-backdoor Roth.

I got my paycheck a few days ago and my expected post-tax contribution to the DCP of $X happened. Cool. So I call Fidelity on Tuesday (I am writing this Thursday morning) to do a rollover, as I've done for the past several months since I started doing this.
This looks like there is some confusion as to whether you are participating in a ROTH plan or an AFTER-TAX plan. These are two different plans. In both cases, you make a post-tax contribution, but in the Roth plan, all the gains are Roth (tax-free growth), while in the After-Tax plan, the growth is part of tax-deferred.

If my understanding is correct, you need to find out which plan you are in and be clear in your terminology going forward.
I believe OP makes monthly after-tax contributions to the University of California 401a (DCP) plan and then immediately rolls this contribution over to a Roth IRA. This monthly rollover can't be automated, so it requires a phone call to Fidelity (the custodian), and there may be a small capital gain by the time the rollover occurs. This gain can be rolled over separately to a tax deferred account (usually the 403b) or just included in the rollover to the Roth, which would be a (small) taxable event. If you roll it into the Roth, it will show up in your annual 1099-R and you'll pay income tax on it. Probably ideal to roll it into a tax-deferred account, but in my case, the amount is so small that I don't care much. Once it's in your Roth, OP, you should invest it like any other money there.
That's an accurate summary, yes. I contribute post-tax, but it's not a Roth account, and I have to call to get it rolled over. I ask them to put the gains into the 403b but I guess they didn't this time, which doesn't seem to be the disaster I was worried it'd be.
No biggie, you’ll just get a form next year and pay tax on the $60
juro
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Re: Univ California, MBR, rolled a gain

Post by juro »

I also work at UC and do this as well. I find that the agent you speak with makes a difference. They don't always ask you if you want to roll any gains into the 403(b) so I would just make a habit of mentioning that is what you would prefer each time you call.
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