Pros & Cons: Rolling over 401K/403B to an IRA ?

[cyber888]

Hi .. have you rolled over your 401K to an IRA ?
If you've done so, what are the advantages and disadvantages?
Do you think you made the right decision ?

I'm also planning to do a minimum distribution 72t (SEPP) in case I don't get a new job by next year (I'll be 53 yrs old).

I know that I'll have more investment choices managing my own IRA
vs. the limited choice of funds in my employer's 401K plan.
I'm thinking Vanguard, Schwab or Fidelity ? I know Vanguard have low fees.

Any help appreciated!

 

[donheff]

DW has two large 401Ks and plans to leave them with her employer's manager (low cost, lots of VG choices) primarily because she can start RMDs at 75 if she leaves them there. If she rolls into an IRA she has to start at 70.

 

[2017ish]

So far, we've rolled our 401k/403b accounts to IRA upon leaving jobs. (Not great investment choices with previous plans)

This next time, we will keep at least one of them with the employer account (probably mine, as DW's 401k investment expenses are wretched). We likely will be 56 and 57 at retirement and having the "age 55" access will be a backup funding source given our lopsided allocation to tax sheltered accounts.

In your case, however, if you are truly out of the workforce at 52 or 53, that option won't be available to you.

As for Vanguard/Schwab/Fidelity, you can get low cost investments at any of the three. You'll fall into them at Vanguard and just have to do a modicum of looking around at the other two.

 

[Senator]

I plan on rolling mine over to Fidelity.

Pros
It's easier to manage, all assets in one place
Better investment options
Only one signature to make changes, mine. An employer cannot take it.

Cons
I need to do a Roth conversion of my previous Rollover IRA before the assets are co-mingled. My 8606 for shows ~30% after tax contributions, if I rollover my current 401K it will be less than 5%.

 

[Whisper66]

Retired last yr at 55. Don't plan to roll over for several years.

Current 401k allows limited withdrawals without penalty even before 59 yrs old. IRA would not allow this now without a 72t plan.

Current tax laws allow limited ability to withdraw company stock and pay taxes on only original purchase value (instead of value at withdrawal) when I close out 401k. If rolled everything into IRA, don't have this choice.

My 401k plan has very low costs and enough investment choices to meet my needs so no strong reason to rollover.

I think 401k in some states has added protection from creditors than an IRA.


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[Scubamax]

I am of similar age and have elected to keep the 401 K in place. Here are my reasons:

1) Reasonable Fees (for me)

2) Access to funds (institutional) that otherwise are off-limits

3) A good balance of reasonable choice of funds, but limits me from temptation of purchasing individual stocks, (and associated volatility), hence the 401-K in this respect I avoid temptation to speculate.

4) In terms of being "bullet proof" in terms of being protected from creditors, the 401-K is seen as being the best option. The assets are protected by federal law in the event of personal bankruptcy. IRA assets are not protected in a similar manner, (its up to the individual state law(s). Even though my state law seems to be well positioned for IRA assets in BK situation, I may move to another state or the law may change or be challenged, so that is another advantage to the 401K.

5) In terms of RMD, its for most folks the same at 70.5, for IRA vs 401K assuming you are not working. Age 75 for RMD as a previous poster indicates, based on my understanding, not the standard, but an exception you can go to IRS.GOV for the details).

6) As wlth all things you read on the internet, "trust but verify". Good Luck

 

[Ronstar]

I've been retired for a little more than 2 years and still have my 401k. I'm looking into a rollover in the near future as a means to go partially into a Roth.

But I'm evaluating this in respect to possible better creditor protection in the 401 and the fact that my current 401 portfolio gains more than my projected IRA portfolio with the same AA.

 

[RE2Boys]

DW has two large 401Ks and plans to leave them with her employer's manager (low cost, lots of VG choices) primarily because she can start RMDs at 75 if she leaves them there. If she rolls into an IRA she has to start at 70.

Per the IRS, she can only defer taking the RMD past 70 and a half if she continues to work for that company and the plan allows the deferral. If she retires before 75, she will be required to begin RMDs at that time, but not before the usual 70.5 year old rule.

Details at: https://www.irs.gov/Retirement-Plan...-Topics-Required-Minimum-Distributions-(RMDs)

 

[jjquantz]

I rolled my 401K over into my IRA. As others mentioned, the reasons were the poor investment choices in the 401K and keeping the number of accounts to a minimum.

 

[athena53]

I've always moved mine; in the last 20 years of my career I left 5 employers and had one acquired, which also triggered a rollover opportunity. Some plans were genuinely crappy and I was glad to get out of them; I also never liked the idea of leaving money with the plan of a company where I no longer worked, but that's partly emotional. Finally, I just preferred to have everything in two brokerage accounts to keep life simple. Larger accounts also get more attention and more services for lower fees, too. Right now I'm enjoying the benefit of Fidelity's research and their 2% cash-back Visa and Amex cards.

 

[scrabbler1]

I was required to empty my 401k when I left my old company because one of the plan's rules stated that if I used the NUA (Net Unrealized Appreciation) option with the company stock in the plan, I had to liquidate the entire plan. My original first choice was to roll the 401k into an IRA with the same Plan administrator (Principal Financial Group). But because one of the funds in the 401k was not available as part of an IRA (it was a specially designed fund when my company first took on PFG as the Plan administrator), and I did not like the lack of choices PFG had, I elected to do a Rollover IRA into Fidelity which had far better choices including a fund which was reasonably similar to the special fund I had in the 401k. I was already a Fidelity client with most of my non-retirement investments, so with the help of my current Fidelity Account Executive I did the Rollover IRA with them.

 

[kaneohe]

I am of similar age and have elected to keep the 401 K in place. Here are my reasons:

............................

4) In terms of being "bullet proof" in terms of being protected from creditors, the 401-K is seen as being the best option. The assets are protected by federal law in the event of personal bankruptcy. IRA assets are not protected in a similar manner, (its up to the individual state law(s). Even though my state law seems to be well positioned for IRA assets in BK situation, I may move to another state or the law may change or be challenged, so that is another advantage to the 401K.

................................

My impression is that the 401K assets are protected period............bankruptcy
or no bankruptcy (except against US govt and ex-spouses QDRO).
IRAs Could Be Fair Game in Lawsuits - LA Times

.....and my impression is that state protections for IRAs are in bankruptcy situations , not non-bankruptcy.

 

[RE2Boys]

I plan on rolling mine over to Fidelity.

I need to do a Roth conversion of my previous Rollover IRA before the assets are co-mingled. My 8606 for shows ~30% after tax contributions, if I rollover my current 401K it will be less than 5%.

And this is the most important reason I did not co-mingle 401k money with T-IRA money. I can work down the basis in the IRA much faster if sum of T-IRA is small. Applies only if you have a basis in the T-IRA and wish to do Roth conversions.

 

[MrLoco]

I plan on rolling mine over to Fidelity.

Pros
It's easier to manage, all assets in one place
Better investment options
Only one signature to make changes, mine. An employer cannot take it.

Cons
I need to do a Roth conversion of my previous Rollover IRA before the assets are co-mingled. My 8606 for shows ~30% after tax contributions, if I rollover my current 401K it will be less than 5%.

When I rolled over my 401k to an IRA, the brokerage did not comingle the assets. My Trad IRA stayed as is and the rollover was titled "RolloverIRA."
The company I left also sent documentation on how much of the rollover consisted of post tax money and pre tax. So when I do my annual Roth conversions, my CPA can easily manage Form 8606.

Also, I discovered that if I left my 401k at my former employer, I would be hit with annual processing/record keeping fees because I was now a former employee. I decided to do the rollover.

 

[jazz4cash]

I left most of my retirement funds in the 401k managed by Fidelity:

• Gives me access to a variety of Fidelity resources.
• Good selection of low cost funds including a stable value fund.
• I used the age 55 exception for withdrawals w/o penalty.
• I still have a 401k "loan" provision which is part of my emergency backup plan.
• The plan is very flexible and permits unlimited rollovers and/or systematic withdrawals.

I use IRA rollovers to purchase CD's when the credit union has good rates to boost the return on my the fixed income allocation.

 

[Cobra9777]

I rolled my 401K to an IRA for same reasons others have stated: (1) wanted access to more (and lower cost) investment choices, and (2) to eliminate account maintenance fees. Both accounts were within Fidelity, so it was an extremely smooth process. I think I sold and bought on the same day. My one regret is that the 401K had access to a very good stable value fund, which I might have used for a portion of my fixed income allocation.

 

[ziggy29]

An IRA probably has lower fee investments available and you have more control over your specific investments. On the other hand, a 401K can be tapped with retirement at age 55 compared to 59 1/2 with an IRA (unless you take SEPP through 72t). And a 401K often has greater asset protection than an IRA, depending on your state, because unlike an IRA a 401K or 403B plan is treated as a pension plan under federal law.

So in the end it depends on your situation and your priorities. I still have a Fidelity 401K plan from my last Megacorp with over $400K in it. I've been considering whether to roll it over into my existing Schwab IRA, roll it over into a new Fidelity or Vanguard IRA (multiple IRAs give more flexible options if you want to use 72t at some point), roll it over into my TSP or leave it be (this 401K does have a lot of good, low-cost options). Facing the "paralysis of analysis" of this situation myself!

 

[Sunset]

I've always moved mine; in the last 20 years of my career I left 5 employers and had one acquired, which also triggered a rollover opportunity. Some plans were genuinely crappy and I was glad to get out of them; I also never liked the idea of leaving money with the plan of a company where I no longer worked, but that's partly emotional. Finally, I just preferred to have everything in two brokerage accounts to keep life simple. .....

Same here, and to your point, I had one employer remove $500 from a 401K about a year after I left as they said their auditing showed overpayment.
I always wonder if I had rolled it over, what would they have done other than ask me to send them a check.
I rolled it over right away from then onwards.

 

[growing_older]

I have always rolled my 401k into an IRA when changing employers. The 401k accounts all had high fees and poor investment choices that forced me to select the least worse options. After rolling to an IRA I was free to choose the best options for my investments.

 

[DEC-1982]

I rolled over my 401-k to Vanguard IRA when I found out I couldn't make multiple withdrawals over the years as I had envisioned. All I was allowed was a one-time withdrawal. Now most of the retirement money is in one place, and that makes it easier to view and manage. The annual expenses for Admiral funds of 0.05% (Total Stock Index) and 0.06% (Total Bond Index) are quite good, although expenses for large 401-k plans can be a mite lesser.

 

[athena53]

After rolling to an IRA I was free to choose the best options for my investments.

You can also move it to another firm; I've done that a couple of times.

 

[Senator]

And this is the most important reason I did not co-mingle 401k money with T-IRA money. I can work down the basis in the IRA much faster if sum of T-IRA is small. Applies only if you have a basis in the T-IRA and wish to do Roth conversions.

I do not think it matters if you have separate IRA accounts, or even different brokerage accounts at different investment companies, for each IRA. All IRAs are treated as a single amount.

Basis. Your basis in traditional IRAs is the total of all your nondeductible contributions and nontaxable amounts included in rollovers made to traditional IRAs minus the total of all your nontaxable distributions, adjusted if necessary.
https://www.irs.gov/pub/irs-pdf/i8606.pdf

 

[Big_Hitter]

401k plans also have "forfeitures" that are used to reduce fees

 

[RetireAge50]

I have both an IRA and a 401k. Keeping them separate so I can do Roth conversions in the IRA and a 72t in the 401k.

 

[Slow But Steady]

I rolled my 401K to an IRA for same reasons others have stated: (1) wanted access to more (and lower cost) investment choices, and (2) to eliminate account maintenance fees. Both accounts were within Fidelity, so it was an extremely smooth process. I think I sold and bought on the same day. My one regret is that the 401K had access to a very good stable value fund, which I might have used for a portion of my fixed income allocation.

I agree with Cobra that the stable value fund is a good option if your 401K has it.

In that case, would it be possible to roll over part, and leave part in the 401K?