Roll over 401k or not?

[jim584672]

I am still in my 401k for the fixed fund. Waiting to see what happens if/when the Fed's "lift off" happens.

In my state both IRAs and 401ks are equally protected from creditors.

 

[hnzw_rui]

Since quitting back in early September, I've been assessed $5 every quarter, which I expected. But in looking at the transactions, I see that they redeem partial shares in order to withdraw the fees from my account.

I'm wondering if these transactions will have tax consequences for me at some point? I'm not receiving the proceeds of the redemptions but would the IRS consider these transactions as "illegal" redemptions since I'm years away from being able to withdraw from my 401k?

Also I'm getting dividends every month which are being re-invested. Do I need to worry about tracking cost basis for when I do redeem the shares? Hopefully Schwab is keeping a running tally of the cost basis but we're talking 25 years by the time I start redeeming shares.

Do you have any after-tax money in your 401k? If not, then I don't think there's any cost basis to speak of since when you withdraw. Tax deferred accounts such as traditional IRA and 401k are generally taxed as ordinary income. If you have post-tax contributions in the account, then that's your basis although I'm not exactly sure if you can choose which you want to withdraw (pre-tax or post-tax) or if distributions are pro-rated based on your contributions.

 

[explanade]

It's all pre-tax money.

Ok, makes sense, dividends reinvested will be taxed as ordinary income.

 

[Ticker]

I left the 401-k at VG. I have 100% of it in retirement savings trust, currently paying 1.9+%. the rate floats, and I don't expect the value to drop if interest rates increase. it is also very liquid.

I consider it part of my "bond" allocation.

 

[gauss]

I'm wondering if these transactions will have tax consequences for me at some point? I'm not receiving the proceeds of the redemptions but would the IRS consider these transactions as "illegal" redemptions since I'm years away from being able to withdraw from my 401k?

I believe that these transaction fees are not distributions and thus not taxable. This was the case when my fidelity 401k charged me a fee to express a check to me but the check fee, taken from shares, was not taxable. I asked about this when the transaction was being setup (answer was not taxable) and confirmed that it did not show up on the 1099-R for that year.

-gauss

 

[explanade]

Thanks, I'll look to see if I get a 1099-R.

 

[dvalley]

Good question and one I've been thinking about myself since I have the vanguard 2030 retirement fund it makes sense to move it to vanguard and not have to pay the $40 every quarter this 401k management firm is charging me. However, from what I recall 401k funds are protected under certain situations (vs. the IRA) so there're a few things to consider.

 

[pb4uski]

I believe that these transaction fees are not distributions and thus not taxable. This was the case when my fidelity 401k charged me a fee to express a check to me but the check fee, taken from shares, was not taxable. I asked about this when the transaction was being setup (answer was not taxable) and confirmed that it did not show up on the 1099-R for that year.

-gauss

+1 I know I have similar fees redeemed from my HSA and those are not reported. Also, I think that you might be able to pay the fee from other funds and have it not "come out" of your IRA so the effect, albeit minor, becomes similar to being able to make non-deductible IRA contributions. I say this because my HSA has an annual fee that I pay from my taxable accounts to avoid having my HSA reduced that in effect becomes a contribution.

 

[Rothman]

It's all pre-tax money.

Ok, makes sense, dividends reinvested will be taxed as ordinary income.

Thes dividends are not taxable events they are within the 401k and being reinvested in the 401k, just like if you sell shares and buy something else, there is no taxable event until you start withdraws from your account.


Sent from my iPad using Early Retirement Forum

 

[Winemaker]

Check your 401k rules for non-spouse beneficiaries. Spouse to spouse allows for "stretch" ira benefits, non-spouse beneficiaries usually not. Usually the non-spouse beneficiary must take a one time payment within five years of death, in which the 401k would be decimated by income taxes.

 

[DEC-1982]

Check your 401k rules for non-spouse beneficiaries. Spouse to spouse allows for "stretch" ira benefits, non-spouse beneficiaries usually not. Usually the non-spouse beneficiary must take a one time payment within five years of death, in which the 401k would be decimated by income taxes.

There are many things I don't know, so could you elaborate?

If my spouse has died before me, and then I go, could my kids (non-spouse beneficiaries) not roll it over into IRAs at the appropriate time (without taxes)?

 

[Winemaker]

Check the rules of your 401k, mine does not allow my kids to roll it over into an ira. It is a BIG tax situation. I have to either have to 1) not die 2) die before my wife 3) roll a large portion into an ira. I have to leave some in my 401k so I can receive distributions before I am 59 1/2. My 401k allows distributions after a break in service after 55 with no 10% penalty.

 

[hnzw_rui]

Check the rules of your 401k, mine does not allow my kids to roll it over into an ira. It is a BIG tax situation. I have to either have to 1) not die 2) die before my wife 3) roll a large portion into an ira. I have to leave some in my 401k so I can receive distributions before I am 59 1/2. My 401k allows distributions after a break in service after 55 with no 10% penalty.

I know only the spouse can rollover to their own IRA/401k but does your plan not even allow rollovers to an inherited IRA?

 

[DEC-1982]

Check the rules of your 401k, mine does not allow my kids to roll it over into an ira. It is a BIG tax situation. I have to either have to 1) not die 2) die before my wife 3) roll a large portion into an ira. I have to leave some in my 401k so I can receive distributions before I am 59 1/2. My 401k allows distributions after a break in service after 55 with no 10% penalty.

Thank you for sharing this Winemaker; I will check it out with my 401 k administrator.

 

[Winemaker]

roll over 401k or not?

I know only the spouse can rollover to their own IRA/401k but does your plan not even allow rollovers to an inherited IRA?

No. It is not stated as such.

"A beneficiary (other than a surviving spouse) must take the money in a single payment within five 5 years after your death. "

I am awaiting further clarifications; IRS rules allow a distribution to a stretch ira, plan wording is quoted above however vague. Many estate planning books/research suggest that I rollover to ensure the stretch ira, my attorney wants to see my written plan to make a final determination.

 

[hnzw_rui]

No. It is not stated as such.

"A beneficiary (other than a surviving spouse) must take the money in a single payment within five 5 years after your death. "

I am awaiting further clarifications; IRS rules allow a distribution to a stretch ira, plan wording is quoted above however vague. Many estate planning books/research suggest that I rollover to ensure the stretch ira, my attorney wants to see my written plan to make a final determination.

Technically, a full lump sum rollover to an inherited IRA satisfies that requirement.

Try to see if you can find a document 402(f) Notice of Special Tax Rules on Distributions for your plan.

 

[DEC-1982]

Talked to my 401 k (Fidelity) administrator today.

First question :
I want to withdraw about $20K in 2016,. What is the process?

Answer:
For withdrawals after termination or retirement, you can:
a) get a lump sum payable in cash
b) direct rollover to IRA
c) partial rollover to IRA and rest in cash

I do see this is stated in the fine print on page 52 of one of my many 401 k documents; well there was one more option but it's not meaningful to me.

I didn't ask any more questions because this answer is a problem for me.

This appears to be a major issue with my 401 k plan. I had thought to withdraw 2-3% from the 401 k as needed for several years/decades. Apparently this is not possible. Correction: unless I wait till 70 1/2 and go with the MRD/RMD distributions.

This pretty much forces me to rollover the 401 k when I start needing the money.

The rep told me this policy is common for many or most 401 k plans.

I wonder what else I don't know.

 

[Animorph]

DW's plan only allows withdrawals 90 days apart. Not something I was expecting. I guess this is something everyone needs to look at.

 

[DEC-1982]

DW's plan only allows withdrawals 90 days apart. Not something I was expecting. I guess this is something everyone needs to look at.

I would be very happy with a withdrawal permitted every 90 days; actually once a year withdrawal from the 401 k would be fine.

I took a much closer look at costs yesterday, 401 k, Vanguard and Fidelity. For my current portfolio, 401 k investment expenses are 0.09%, and the equivalent Fidelity investment expenses are 0.22%. It's not a huge percentage difference, until I multiply it by the portfolio value and then multiply by 40 years.

The Vanguard investment expenses are comparable to the 401 k expenses.

The 401 k has management costs of $34 per year. Fidelity IRA has no annual fee. Vanguard IRA has no annual fee (assuming large investments in any fund).