Pros/Cons on keeping 401k with Employer or move to an IRA

[whatnot]

DH retired 1 1/2 years ago and has left 401k in the employer sponsored Plan at Fidelity. We have low cost index funds available via the Plan. He has approximately 1.5 mill..
We met with a Fidelity advisor when we retired to discuss our retirement plan. This was our 1st time meeting a Fidelity advisor. He recommended us rolling 401k To an IRA, The argument was we would have more options to invest in. We are happy with the funds available in the 401k so not an issue.
We were hesitant because it is my understanding that investments held in a 401k have more protections than those held in an IRA. We are in the state of Georgia.
Our Fidelity advisor calls regularly to meet with us, and I know it is to try and have us move funds to an IRA.
He also was recommending us to use some funds to buy an Annuity. I told him we don’t need an annuity because DH gets approximately $50k in a pension and we will both have SS in a few years.
So I am a little skeptical of his advice.
So basically, I am looking for guidance on the Pros or Cons in leaving DH investments in the Employer Plan at Fidelity vs rolling it to an IRA. Thank you in advance!

 

[nvestysly]

I don't see that you mentioned DH's age but there is a benefit of leaving the money in a 401-k if DH was 55 years or older when he left the company. It's my understanding that if separation occurred at 55, and if the 401-k allows it, money can be withdrawn without penalty prior to age 59-1/2. I left megacorp at age 52 so I was not able to utilize this benefit.

I think the above is correct but it's always best to consult with an expert to ensure this applies to your situation.

If the above does not apply, or is otherwise no value to your situation, I like the idea of rolling the funds over to an IRA. It's much easier to deal with IRA money because it's just you (DH) and Fidelity. Otherwise, megacorp HR & benefits can muddy the picture if money remains in the 401-k

I believe there are rules/laws that provide more safety for 401-k vs. IRA. For instance, I think a 401-k is untouchable by lawsuits/liability judgements and an IRA may not have that protection. Hopefully a more well informed E-R member will chime in here.

We rolled our accounts into Fidelity IRA's and haven't looked back. Our $ are easy to oversee, rebalance, etc. without being encumbered with a additional layer of corporate reporting and rules.

Each situation is different but it sounds like you don't need (or want) an annuity. We politely told the Fidelity rep that we didn't want their "management" services. I think they finally put a note in our account not to call us with solicitations. No phone calls for several years now.

 

[Katsmeow]

I left my money in my Fidelity 401k when I retired. It had good low cost index funds and I did like the greater legal protections of a 401k. That said, this can vary from state to state and I don't know Georgia's rules. There is of course always the possibility one could move to another state of course. I just had no reason to convert. The major downside is that once I was retired I could not withdraw any money from the 401k because of how my employer set it up. Well, I could withdraw but only if I withdrew or rolled over 100% of the money. At the time I didn't really need it so I figured I would just leave the 401k there until I needed it.

However, I did roll over to a Fidelity IRA a couple of weeks ago. My former employer terminated the 401k so I was required to roll it over. I didn't have to roll it over to Fidelity but I decided to do that.

I will say that the web site for the IRA is so much better than the Net Benefits website and I do have lots more options of funds and I do have a lot more data available on the page and have more options. So, from that standpoint, the IRA is better. They did try to persuade me to meet with a local Fidelity adviser at the office that isn't too far away. But, I just emailed them that I thought I had everything in hand and would call them if I needed them.

 

[kaneohe]

My impression is that generally creditor protection of the 401K is better than IRA protection which depends on your state law
https://www.thetaxadviser.com/content/dam/tta/issues/2014/jan/stateirachart.pdf

401K creditor protection in my mind is like a battleship.....works almost always, in bankruptcy or not, except against the IRS and QDRO (divorce rules).
The IRA protection, like in the linked table, I believe , is for bankruptcy situations. GA appears to have protection like CA which is regarded as fairly weak , although I believe that if you can show that the IRA came from a retirement plan w/ ERISA protection like a 401K, creditor protection is like the ERISA protection (but only in bankruptcy?).

As pointed out previously , some plans are all or nothing re: withdrawals.
You cannot take piece-wise withdrawals unless they are RMDs . If you need the funds to live on before RMD time, you may have to move them to an IRA. If you have ever rolled funds from outside the 401K into the 401K, it is possible that you may be allowed to take that part out separately so that at least part is available for use.

As you point out the supposed pro of having more investment choices may not be relevant if you have a simple index fund portfolio and you have a low cost institutional index fund in your 401K. Also if you have a high yield stable value fund in your 401K, it may be better than anything you can find for an IRA.

Companies like Fidelity like to have you move funds from 401K to IRAs which suggests to me that they make more money that way. You may want to grill them on the creditor protection issue and see what they say particularly on whether you need to file for bankruptcy successfully to get the protection .

 

[whatnot]

In response to a question in the 1st response, DH is 62.
We made our 1st withdrawal this year with no issues.
Appreciate the comments so far.

 

[Senator]

When you leave it in an employers 401K plan, it can be embezzled, loans and withdrawals delayed, and more cumbercumb all around. Fees can also be excessive. Investment options are more limited.

Put it in an IRA account, so all you have is your own signature to get it out.

DH retired 1 1/2 years ago and has left 401k in the employer sponsored Plan at Fidelity.

Don't kid yourself by thinking that an employer plan at Fidelity is the same as an IRA at fidelity. The employer makes the rules, and sets the fees.

 

[upupandaway]

You beat me to it I was going to ask about fees. If I compare the performance of vanguard funds on my 401k(Voya) site and directly at vanguard the 401k site reports the performance roughly .50% under their actual performance during the same time period. I always attributed this to the fees that were being taken by Voya. This was one of the primary reasons I will be moving it directly to Vanguard on my exit.

 

[USGrant1962]

In my case I have kept my 401(k) for three reasons:

• A decent selection of index funds and the fees are very low - they match Vanguard (e.g., 0.03% for S&P500 index). My Megacorp was a private company and the family and partner owners are VERY good at nickels and dimes (especially the CFO).
  
• Rule of 55 - I retired the week I turned 55 so have Rule of 55 withdrawals as an option. Make sure you plan allows for them. Drawing from an IRA in ER is doable but more complicated under Rule 72(t).
  
• Financial institution diversity - about half my portfolio is my 401(k) and half is with Vanguard. If one or the other gets hacked and shut down for a month I can draw from the other.

 

[rk911]

don't see a con. pros,...you're in control and likely will have a much larger universe of funds from which to choose. no brainer IMO.

 

[atmsmshr]

NUA Capital Gains

For my circumstance of retiring at 58, am keeping the 401k until the year I turn 60, and then doing a rollover IRA with Fidelity. Reasons:

1) The NextEra Netbenefits program with Fidelity has a decent amount of low cost funds to select.
2) Wide variety of options for withdrawals during the year.
3) No penalty for early withdrawals (after 55 and before 59.5)
4) I have a good chunk of highly appreciated company matching stock that I want to realize capital gains on for tax savings.

IRS indicates there are 2 instances that I can harvest capital gains through Net Unrealized Appreciation. Death or the first withdrawal after age 59.5. Naturally I am choosing the latter instance.

I will take my needed distributions next year at 59, and no other distributions after 59.5 for the tax year of 2020. In the new tax year of 2021, my first distribution after 59.5 will be a rollover IRA with full tax on the NEE cost basis. After that distribution I will take capital gains tax advantage on appreciated NEE as needed.

YMMV

 

[Dtail]

Does your 401k have a Stable Value type of fund? This could be a reason for leaving some monies there.
I have 50% of our bond allocation in a Stable Value fund with a 3.83% yield after fees. There are also low cost Vanguard Index funds to switch to if the rates go south in a comparable sense.

 

[jazz4cash]

I kept my 401k funds at Fido because my employer offered a good selection of low cost funds and a stable value fund. I transferred some funds to a Fido IRA to use for things I could not get in the 401k like CDs and individual bonds. I also have a Roth at Fido. When I login all the accounts are listed as well as my Fido Visa.

 

[pb4uski]

Does your 401k have a Stable Value type of fund? This could be a reason for leaving some monies there.
I have 50% of our bond allocation in a Stable Value fund with a 3.83% yield after fees. There are also low cost Vanguard Index funds to switch to if the rates go south in a comparable sense.

+1 access to a stable value fund is a great reason to stay with a 401k.

Dtail is lucky to have access to a stable value fund that pays a very handsome rate... I'm jealous.

 

[jazz4cash]

Did a post get deleted from this thread?

 

[SumDay]

My former employer's 401(k) requires you to move your money out of the 401(k) when you hit 70. Guess they don't want to jack with RMD's. I went ahead and did it when I retired last year because who knows what my mental capacity would be in another 8 years.

 

[rai-zero]

Our company changed ownership and as a result we had to change 401k plans.

I had the opportunity to keep in place old plan, roll into new plan or roll into IRA the last of which which is what I ended up doing.

We were with Merrill Lynch and I just rolled it into Merrill Edge (same company). I was able to negotiate $2500 roll over bonus. The point being if I switched to TD Ameritrade or other company they would give me a sign on bonus because was over $1M so that was $2500. I asked the Merrill Edge people to give me the same money to keep me and they did. That’s one thing to shop around worth asking for.

The only issue (cause of worry)... we signed the papers and the money had to be converted to cash apparently was not able to transfer in kind. *** there was a period of several days *** where the funds were not showing anywhere. The money was not in my old 401k and not in my IRA. I was freaking out a bit that the money was in limbo. I wish it was more instantaneous.

Additionally being out of the market for several days in cash and or in limbo could have been consequential if there was a great crash or rise in the market in those several days.

If you do go with Merrill Edge you can get free trades as well if you have a Bank Of America bank account with a minimum balance which I opened just for that reason.

 

[pb4uski]

Did a post get deleted from this thread?

Yes, I think so. After I responded to joylesshusband's post badgering the OP the subject post was nowhere to be seen.... apparently the mods had the same reaction that I had.

 

[Al18]

You could ask your Fidelity Advisor if you can keep your 401K investments if your roll-over to an IRA. Fidelity should be able to provide a list of investments and fees for those investments you intend keep in your IRA and those they would need to exchange for a similar Fidelity fund.

 

[MichaelB]

Yoda would say “To the thread topic why don’t we just stick. Hmmm”

 

[whatnot]

Thank you to all for the responses. There are a few issues we are going to review based on comments. The comments were very helpful.

 

[gwraigty]

My impression is that generally creditor protection of the 401K is better than IRA protection which depends on your state law
https://www.thetaxadviser.com/content/dam/tta/issues/2014/jan/stateirachart.pdf

401K creditor protection in my mind is like a battleship.....works almost always, in bankruptcy or not, except against the IRS and QDRO (divorce rules).
The IRA protection, like in the linked table, I believe , is for bankruptcy situations. GA appears to have protection like CA which is regarded as fairly weak , although I believe that if you can show that the IRA came from a retirement plan w/ ERISA protection like a 401K, creditor protection is like the ERISA protection (but only in bankruptcy?).

The protection in the chart isn't necessarily limited to just bankruptcy protections. In my state, IRAs are fully protected, regardless. I agree that Georgia offers weak protection. Who wants to haggle over what amount is necessary for support? That's the biggest con to rolling over to an IRA, under the circumstances. I'm not advising against it. Just be aware of the risk.

If you do decide to roll over to an IRA, Fidelity is an excellent choice. Also note yesterday's announcement by Charles Schwab about eliminating commissions on stocks and ETFs, effective next Monday.

 

[pb4uski]

IMO creditor protection is so far down on the list of things to be considered as to be negligible.

 

[iloveyoga]

You have more flexibility with federal tax withholding with the IRA. 20% withholding is mandatory for 401(k) retirement/termination withdrawals.

 

[gwraigty]

P.S. Thanks to another topic here, I just learned that TD Ameritrade has matched Schwab's new no commission policy, with TDA's policy starting tomorrow. It may be prudent for anyone considering rolling over to an IRA to wait for the dust to settle on these rapid changes before choosing a firm.

 

[Alan]

OP might also look up how the company 401k ranks among its peers.

https://www.brightscope.com/ratings/