Disadvantages of 401k rollover

[kaneohe]

Quote:

Originally Posted by FIRE'd@51 A possible disadvantage to retaining the 401k is that there is a mandatory Federal tax withholding of 20% on distributions. With an IRA there is no mandatory withholding for taxes, although you may elect to have an arbitrary withholding if you choose.

This is a good point to remember. Wouldn't think it should be a determining factor though since you could compensate by cutting back on estimated taxes.....in fact, some folks like to take the RMDs from IRA/qualified plans late in the year and withhold most/all of it for taxes since it counts as being w/h evenly throughout the yr.

[veremchuka]

Since you are under age 55 you can't take any 401k distributions prior to 59 1/2 without incurring the 10% penalty. If you retire at 55 or older you can take 401k distributions w/o the penalty prior to 59 1/2. Since you say you won't take any distributions prior to RMD this may not be an issue but one never knows. I kept some of my 401k intact in case I needed money which I did not.

Another advantage of having some of your money in the 401k is if you have a stable value fund you will be getting a better yield than on similar (short term bond funds) safe holding and won't suffer nav loss when interest rates rise. My 401k stable value fund has a 3.5% yield and no nav loss over the years I have tracked it since 1998.

Since it's 2 am and I want to go to bed some of this may have been said.

[photoguy]

Quote:

Originally Posted by Packman What are the disadvantages?

While you do the rollover, your money may be out of the market for as much as a month. If you did a rollover last september, this would have been as much as an 8% loss.

[haha]

Quote:

Originally Posted by Brat I kept our rollover IRAs in separate accounts from other IRAs, merged them only after we were long retired and facing MRDs.

What was the reason for keeping them separate? You might have said it earlier but I missed it.

Ha

[kaneohe]

Quote:

Originally Posted by veremchuka Since you are under age 55 you can't take any 401k distributions prior to 59 1/2 without incurring the 10% penalty. If you retire at 55 or older you can take 401k distributions w/o the penalty prior to 59 1/2.

a problem in the 1st sentence? either you meant an IRA /59.5 or 401K/55?

[Brat]

Because if you go to work for another employer with a 401k that account has clean provenance and is more likely to be accepted into their 401k.

I found it was frankly a waste of paper as rarely will a third party administrator of a 401k accept another account.

[veremchuka]

Quote:

Originally Posted by kaneohe a problem in the 1st sentence? either you meant an IRA /59.5 or 401K/55?

Sorry I was referring to the 401k having the ability to take distributions from age 55 to 59.5 IF you separated (retired, laid off, quit for new job), I'm pretty sure this is a federal rule not just company specific. The rollover IRA 59.5 age restriction is in effect regardless of anything. This is why I left money in my 401k as I was 56 at retirement. I have left it there now for the reason of the stable value yield and the steady nav vs a st bond fund which will suffer nav loss when rates begin to rise tho I wish I could get the 401k money into my rollover IRA at Vanguard just so everything is in one place. Hope this is clear.

[rayvt]

Quote:

Originally Posted by Alan My rollover 401k in VG, and DW's rollover 401k in Fidelity are also kept seperate and labeled as Rollover-IRA. This is useful to segregate them from the existing T-IRA's which have non-deductible contributions to keep track of.

But this doesn't help anything. When you make a withdrawal you have to use the total balances of all your IRAs when making the non-deductible contributions calculation. I couldn't find anywhere that the IRS says "except for IRA amounts that were rolled over from a 401k".

[Beryl]

I regret rolling over my Fidelity 401K because I miss the Stable Value fund. I don't need to touch it for many years but I wish I'd kept half in that fund.

[X501]

On the side of potential benefits of 401Ks
Some megacorp 401Ks benefit from lower cost in index funds than those available in IRAs, even lower than Vanguard. But unfortunately in many cases it is the opposite.
Henry Hebeler in "getting started in anfinanially secure retirement" also mentions, as noted in earlier posts, that some 401Ks have guaranteed income funds that may be more attractive than bond funds.
On the potential downside of 401Ks, they may not be a friendly from an estate point of view, although some now allow contingent benificiaries to be defined.