Mandatory SRNA Money Move Before December 31st

December 31st quickly approaches. SRNAs out there, PLEASE make this financial move before the end of the year if it applies to you. Straight to the point with it – Roth conversion. I completely missed this during my time in school and now it would cost me about $10,000 of my $30,000 401(k) from my nursing gig. My focus gravitated towards investing and wealth building, which left much to learn about retirement and exit strategies. Don’t say you didn’t get anything out of this blog. SRNAs, tell your classmates. CRNAs, tell your students. You can all look like heroes, but it needs to be done before December 31st. I wouldn’t complain about a name drop.

Here we go. Most of us have/had retirement contributions during our time as an RN in the form of a 401(k) or 403(b). These are pre-tax dollars meaning taxes are pushed down the road until you withdraw from the account at or after age 59.5 when your income is expected to be lower. The tax code allows for the conversion of these pre-tax accounts to a Roth IRA (post-tax account) during any given year. What’s the catch? Well, you need to pay the taxes on this money. Plus side of being an SRNA, no income. LOL. The program I attended started in the fall, so I had income as an RN that January through August – don’t convert. Similarly, we graduated in May and I would have CRNA income that July through December– don’t convert. There were two tax years in which I was, for all intents and purposes, in school and without income. I should have used this opportunity to move my 401(k) money into a Roth IRA because my tax burden would have been extremely low.

So, how do I convert this money? Call the company who manages your 401(k) and ask for specifics. They will walk you through the process. They will tell you:

1.      Open a traditional IRA and transfer the money to this account

2.      Perform a Roth conversion of the traditional IRA

3.      Decide if you want to pay the taxes out of pocket or with the money in the account

Lets use my mistake as the example and I will add some nuances to the situation. I first look up information about the Roth conversion on The Financial Cocktail to educate myself. ;) Next, I call Principal because they manage my 401(k) from my time as an RN. I say, “hey, I want to convert my $25,000 traditional 401(k) to a Roth IRA at Vanguard where I have some other accounts. From what I read from some obscure CRNA financial blog, I need to do X, Y, and Z. What am I missing?”

His name might have been Mike, says, “what a good time for this conversion. Your $0 in taxable income means you can take full advantage of the $12,950 standard deduction and pay 0% taxes on that amount. The next $10,275 would be taxed at 10%. As you said, it is best to pay the taxes out-of-pocket because that would maximize the amount of money in the Roth IRA allowing more money to grow tax free after the conversion. You should be able to transfer all of the money into your Vanguard account (half in year 1 and half in year 2) and pay little in taxes.”

I just want to say it was Mike, who offered to convert the money into a Roth prior to transferring the money to Vanguard, so I wouldn’t need to worry about the conversion on my end. It would then be a Roth 401(k) transferring into my Roth IRA with Vanguard.

To summarize: When you transfer retirement accounts, have the money sent directly. If sent to you via check, it may be viewed as a withdrawal and subject to penalty even if you deposit the money into a retirement account. A direct transfer makes it easy. Convert pre-tax dollars while your tax bracket is the lowest it will ever be. Roth IRAs grow tax free, so you only pay taxes on the principle and not the gains over the decades to come. The account can be accessed without penalty after just 5 years unlike other retirement accounts. This 5-year waiting period still applies if you convert money after age 59.5. You can transfer the money anywhere (or maybe leave it with the same institution), but I like self-managing my accounts and Vanguard is who I use. Bias, yes; Sponsored or endorsed, no. Just an intuitive platform with a great value for boring old people with lots of money. That’s not me, but you know who you are. There are no income limits for a Roth conversion, nor a limit to how much can be converted. So CRNA community, you can convert, but mind that tax bill. The only advantage to converting as a CRNA is if you feel this conversion will not be around in the years to come. Yay politics!

If you have any earned income as an SRNA, consider placing up to $6,000 into a Roth IRA directly. After you start working as a CRNA, you will be over the max income limit for a Roth IRA. I get it, loans and such, but it’s worth a mention.

I suspect too many powerful people who contribute to politicians use the conversion that it won’t disappear. The government gets their tax dollars now instead of when you start withdrawing your retirement funds. And the pension is nearly extinct, so this is one of the many incentives to progress towards other retirement vehicles. Remember, there are no tax loopholes, just direction from congress located in the almighty 26th Title of the US Code also known as the Internal Revenue Code. If you feel using any of my financial suggestions short the government out of much needed revenue, you can mail a check to your nearest Department of the Treasury.