Partial 401K Surrender/Rollover

[stephenson]

I am considering a partial surrender (the portions that are allowed without IRS penalty) .. amounts to about 35% of the total in my 401K.

Background on company's offerings: The company created various funds with management teams from major investment companies, and these have relatively low expenses- ex: US Equity fund is managed by Blackrock with expenses of 0.10%; US Small Caps managed by State Street Global with expenses of 0.11%, and State Street Global, Wellington and GMO with expenses of 0.54%. So, these aren't world class funds, but I do have the ability to buy/sell ETFs through a company sponsored brokerage account at Schwab.

I'm pretty well, but not perfectly balanced across the various tax deferred and traditional non-deferred components of my savings, etc.

No kids at home. No college expenses. One mortgage. Age 58. No job threats, etc. Potential to remain stable and employed for 5-10 more years.

I pre-emptively completed all the paperwork with Vanguard to do a partial - just haven't executed it, yet.

Questions I would appeciate some help with:
1. Should I roll that 35% to get it clear of the company?
2. If I roll, should i just rebalance a bit with ETFs as the basis?
3. Better options than Vanguard for management?

Thanks for your thoughts!

George

 

[stephenson]

Yikes!

144 took a look and no responses ... did I post wrong forum or is topic weird somehow?

I really would appreciate some advice ...!!

Thanks!

 

[Animorph]

I'm not familiar with a "surrender" of a portion of a 401k, so not much help there. Sounds like a withdrawal or rollover of post-tax contributions? If it is post-tax money in a 401k then it might be nice to get it into a taxable/Roth account where at least some gains will be taxed at capital gains rates instead of as income. On the other hand, if your retirement tax rate will be very low, that might be better than having capital gains.

We can't really say much about your 401k investment options. They're all specific to your plan. Most seem pretty low cost, so if performance is comparable or better than Vanguard funds you like, there doesn't seem to be much need to get out. The main reason would be access to market segments like emerging markets or real estate that are not available inside your 401k and you don't have enough taxable/IRA funds to reach your desired AA.

ETF's versus MF's is kind of the same problem. Depends on how you are going to use them, the costs of using them, and availability. Kind of a wash in general, but specific cases might favor one or the other.

So, for the most part it's just whatever you would prefer. If your AA or tax situation can be improved by a no cost move, then great.

 

[LOL!]

I don't understand the point of this partial rollover. Why would you even want to do this?

And why is this even allowed? Apparently,
1. You are still working at this place.
2. You have excellent choices for your 401(k) funds
3. You are not 59.5, so an "in-service rollover" does not appear to be allowed.

Also, "get it clear of the company" is weird. If this is a 401(k), then your company does not have it anyways. Your assets are held by the plan sponsor and not by your company.

Or is there something I am missing?

 

[Masquernom]

You're probably not getting responses, because nobody can understand what you're talking about.

And you can include me in that group.....

 

[pb4uski]

stephenson, is this 35% after-tax money in your 401k and that is why it is not subject to penalty? If so, this is rare so that may be why you are not getting very many responses. If so, then I would move it to taxable account with VG and invest it consistent with the equity portion of your AA.

 

[LOL!]

stephenson, is this 35% after-tax money in your 401k and that is why it is not subject to penalty? If so, this is rare so that may be why you are not getting very many responses. If so, then I would move it to taxable account with VG and invest it consistent with the equity portion of your AA.

If it is after-tax money, then you can probably rollover to a Roth IRA. DO NOT move it to a taxable account.

 

[pb4uski]

If it is after-tax money, then you can probably rollover to a Roth IRA. DO NOT move it to a taxable account.

Wish I had known that 6 months ago

Luckily, the amount was small.

 

[Katsmeow]

I also don't understand what you mean? Are you talking about an in-service withdrawal? Some companies allow people who are still employed to take an in-service withdrawal. Often you can take an in-service withdrawal of the contributions you made but not the contributions made by your employer, for example.

The important thing to know about an in-service withdrawal is that if you don't move it into an IRA, then you will be paying income tax on it and, if you are under 59 1/2, you will be paying a 10% penalty in addition (plus any penalty your state may impose). At least that was how it was when my DH took an in-service withdrawal a few years ago. He was certainly able to roll into an IRA and the payment was, I believe, sent direct to the custodian of the IRA.

If you aren't talking about an in-service withdrawal I think that no one is understanding what you mean by a "surrender" of your 401k. Surrender usually means to give something up but it doesn't sound like you are doing that....

 

[stephenson]

Hi All, and Thanks ... had taken a couple days off without suitable connectivity - I also did some more research in the Plan (SPD) - apologize I created harder problem than what it really is.

Yes - it is referred to as an in-service withdrawal by some financial planners - my company (NGC) calls it a "Partial Withdrawal." The Plan says, "Partial withdrawals of Roth 401(k), after-tax, rollover, and company matching contributions" as a category of withdrawals - the list goes on to show age 59 1/2, age 70 1/2, hardship, etc types of withdrawals.

The specific order is shown as: (1) non-Roth 401(k) after-tax contributions and their earnings (I have been contributing after-tax), non-Roth(k) rollover contributions and their earnings, (3) company contributions and their earnings, (4) Roth 401(k rollovers and their earnings, (5) all tax-deferred contributions and their earnings, (6) Roth 401(k) contributions and their earnings.

So, I have funds in categories (1) and (3) that make up about 30% of my total 401(k) amount - apparently this is can be rolled over prior to 59 1/2 without tax consequences if it rolls into an IRA account. Once 59 1/2 (not quite there, yet) I can roll everything. (I don't have any Roth holdings)

Good point on "getting it clear" - I recognize it is a company plan, but company doesn't have the funds - at least in the usual 401(k) plan - they do hold funds that are in "non-qualified" plans. What I wanted to do was to get more choices. (since the fees are pretty low it doesn't make sense to move just for lower Vanguard or ETF fees - most of the funds are index types ... just not many choices).

This all looks pretty standard - I am probably just having hard time deciding what to do ...

 

[Rustward]

...
(1) non-Roth 401(k) after-tax contributions and their earnings (I have been contributing after-tax)...

I have been in plans with two different employers that allowed after-tax contributions, and those plans called it an employee savings plan.

 

[Animorph]

Watch out to preserve your backdoor Roth possibilities, if that applies to you. If you create an IRA that contains pre-tax money and you are above the Roth contribution income limit, it could make the backdoor Roth contribution infeasible. This is where you contribute after-tax to a regular IRA and then convert it to a Roth IRA. Any pre-tax money in a regular IRA will create tax problems for this process. 401k money does not have that impact. And there is no problem if your income stays below the limit.