Sam Taube
👤 SpeakerAppearances Over Time
Podcast Appearances
Well, there is one rule that we have to talk about here that I kind of only half understand, if I'm being honest, so I'm going to tag in Sean Piles, our CFP.
It seems like what Doug is describing could trigger the pro-rata rule.
from what i gather if you have a traditional retirement account like 401k or an ira that contains a mixture of pre-tax and after-tax contributions and then you want to roll some of it over into a roth ira they don't let you just roll over the after-tax portion so
Say the account is 50% pre-tax contributions and 50% after-tax contributions.
The IRS says that each rollover amount has to consist of 50-50 pre- and post-tax contributions.
They make you maintain that ratio with any money that comes out of the account.
And if you're rolling over pre-tax contributions, then you have to pay income tax on the contributions themselves, not just on the investment earnings.
So to really minimize your tax liability doing something like this,
You need to make exclusively after-tax contributions from the get-go, I think.
Do I have that right, Sean?
Well, I guess that consolidating accounts could boost returns a little bit if it reduces fees.
The managed account with Benjamin Edwards in particular probably has higher fees than the funds in the self-directed Fidelity account.
But mainly I'd say that consolidating here would just be a quality of life improvement rather than something that's going to increase gains.
It's just kind of annoying, as we talked about before, to have to keep track of a bunch of different logins and add your balances together manually to see how you're doing overall.
The nice thing about a managed account, whether it's human managed or robo advisor managed, is that you don't have to touch it.
You don't have to rebalance it.
It does all that for you automatically.
But as we discussed earlier, target date funds also have that same hands off appeal.
And also, as we discussed earlier, a major con of managed accounts is that they generally come with an extra fee.
Yes, we do.