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Roll over 401k or not?
Old 07-27-2014, 02:27 PM   #1
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Roll over 401k or not?

Getting closer to pulling the trigger, sometime in the early fall, so that it would be in time for ACA enrollments for next year.

I've converted all my tIRA to ROTH so my retirement accounts consist of my 401k and ROTH IRA, though I haven't made the IRA contribution for this year yet so I could do it to a tIRA and then convert next year to ROTH.

I've heard some suggestion here it may not necessarily be advantageous to roll over the 401k right away.

The 401k consists entirely of a institutional VG bond fund. It plugs away, but nothing spectacular.

My taxable accounts includes a lot of admiral shares of VG funds so I could probably roll over to something comparable in my VG account.

What would be the advantage of not rolling over? Would rolling over later, say a couple of years after retirement, trigger any special tax events?
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Old 07-27-2014, 02:35 PM   #2
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How old are you? If you are 55+, keeping the 401K might make it easier to take money out penalty-free.

Also, the 401K might offer better creditor protection than a tIRA.
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Old 07-27-2014, 02:42 PM   #3
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I will be 54 in October.

I guess I'll have to check if company will let me keep the 401k account instead of rolling over.
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Old 07-27-2014, 02:51 PM   #4
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Originally Posted by FIREd View Post
How old are you? If you are 55+, keeping the 401K might make it easier to take money out penalty-free.

Also, the 401K might offer better creditor protection than a tIRA.
+1

Exactly. Unless you have poor 401k with bad investment choices do not roll.

Each time I touch 401k account with previous employer they call me from Fidelity or somewhere else to roll over. Why? Because its good for them but maybe not for me.
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Old 07-27-2014, 03:15 PM   #5
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+1

Exactly. Unless you have poor 401k with bad investment choices do not roll.

Each time I touch 401k account with previous employer they call me from Fidelity or somewhere else to roll over. Why? Because its good for them but maybe not for me.
Read an article a few weeks ago about how lucrative IRAs are to the investment company as oppose to a 401K. IIRC the IRA yields around 20% for them while the 401K yields 5%.

I retired 5 weeks ago but decided to keep my 401K due to the administrative fees paid by my former employer, good selection of index funds and to get the maximum liability protection afforded by the 401K.

I will revisit this decision if things change in the future.
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Old 07-28-2014, 01:11 PM   #6
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You still have taxable accounts. Can you do partial Roth conversions from your 401k?
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Old 07-28-2014, 03:47 PM   #7
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You still have taxable accounts. Can you do partial Roth conversions from your 401k?
I'm not sure. If you redeem part of a 401k instead of roll all of it over, isn't that a taxable event, not to mention probably a penalty before you're 59?

I know there are loans allowed but.

If I did it, I would choose the last shares bought to have minimal cap gains taxes to pay?
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Roll over 401k or not?
Old 07-28-2014, 04:06 PM   #8
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Roll over 401k or not?

As others have said. It's liability protection as the biggest benefit to staying put in a 401k. As long as fund options are reasonable and low cost admin fees, I see no big reason to roll over. That liability protection definitely is with something ...




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Old 07-28-2014, 04:23 PM   #9
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I can't comment on other states but if you live in Maryland, 401(k) distributions qualify under the pension exemption clause for state income taxes. IRA withdrawals do not -- even if the money came originally from a 401(k). So in my state there is an incentive to not roll qualified plans to IRAs.
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Old 07-28-2014, 04:35 PM   #10
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Originally Posted by explanade View Post
Getting closer to pulling the trigger, sometime in the early fall, so that it would be in time for ACA enrollments for next year.

I've converted all my tIRA to ROTH so my retirement accounts consist of my 401k and ROTH IRA, though I haven't made the IRA contribution for this year yet so I could do it to a tIRA and then convert next year to ROTH.

I've heard some suggestion here it may not necessarily be advantageous to roll over the 401k right away.

The 401k consists entirely of a institutional VG bond fund. It plugs away, but nothing spectacular.

My taxable accounts includes a lot of admiral shares of VG funds so I could probably roll over to something comparable in my VG account.

What would be the advantage of not rolling over? Would rolling over later, say a couple of years after retirement, trigger any special tax events?
You might want to review this current thread - The rule of 55? on the advantages of keeping your 401K vs. a rollover IRA

If you'll be 54 upon separation - you won't qualify for the 401k penalty free withdrawal option. You'd need to check with your plan administrator to see if your plan allows this option.

Doing a rollover IRA would allow you to pull penalty free withdrawals using the 72T rule (5 years minimum of withdrawals and 59.5 age when you stop (see my post in the attached "55 Rule" link referenced).

You should verify your plans expenses to you after you leave. Vanguard bond fund expenses are pretty cheap.

You Rollover IRA and Roth funds are protected by most state laws - see my post in this thread also Move 401K from Company to Vanguard.
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Old 07-28-2014, 04:48 PM   #11
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You may want to review this thread for ideas on 401(k) rollover also.

401(k) rollover decision to be made
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Old 07-28-2014, 09:05 PM   #12
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I agree with others that if your 401k has some good fund choices then I would be indifferent. I'm less persuaded by the liability protection since that varies a lot by state (it is the same for 401k and IRAs in my state), I have a big umbrella and have never been sued and hope not to be.

If the 401k has a good stable value option that pays a decent rate of interest, that would be a good reason to stay in the 401k and avoid the interest rate risk associated with bond funds.
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Old 07-28-2014, 09:16 PM   #13
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I was reading Ed Slott's IRA book today and he has an entire chapter on the 401(k) thing. The book edition was older, so I am not sure if this is still true, but he said that one needs to consider what would happen if one dies and still has an old 401(k) plan with a former company. The book said that many 401(k) plans will then require the beneficiary to withdraw the money fairly soon and that a 401(k) cannot be "stretched" by heirs like an inherited IRA. I am not sure that an inherited 401(k) can be rolled over to an IRA. I always though so, so I was puzzled by this topic in the book.
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Old 07-28-2014, 10:02 PM   #14
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I'm not sure. If you redeem part of a 401k instead of roll all of it over, isn't that a taxable event, not to mention probably a penalty before you're 59?

I know there are loans allowed but.

If I did it, I would choose the last shares bought to have minimal cap gains taxes to pay?
A Roth conversion would involve paying taxes anyway, but you don't want to do it like a regular withdrawal. It might be easier to do a partial rollover to a traditional IRA and then Roth convert that. I did rollover my entire 401k into a tIRA. That's a nontaxable event, no penalties. From there you can Roth convert to your heart's content, paying taxes but no penalties. Age is not an issue for rollovers.

Yes, most likely you would want to minimize your capital gains taxes. Selecting your highest cost shares does that. They may not be your most recent shares, and indeed you should have bought them more than a year ago to avoid paying income tax rates instead of capital gains rates.

In general you will want to use your taxable funds first during retirement. But it may also be to your benefit to withdraw, or probably Roth convert, what you can within the lowest tax brackets. This allows as much growth as possible in your tax advantaged accounts, and withdraws some for expenses (or moves to Roth) at a very low tax rate.
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Old 07-28-2014, 10:21 PM   #15
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Originally Posted by explanade View Post
I'm not sure. If you redeem part of a 401k instead of roll all of it over, isn't that a taxable event, not to mention probably a penalty before you're 59?

I know there are loans allowed but.

If I did it, I would choose the last shares bought to have minimal cap gains taxes to pay?

In a taxable account, you have the freedom to pick/choose which shares you sell for minimal tax consequences. I don't believe you normally have that luxury when withdrawing from a 401K plan since typically the distribution is simply ordinary income (not cap gains).
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Old 07-28-2014, 11:10 PM   #16
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If you have good funds in the 401k with low expenses, why not wait until 2015 to retire (the year you turn 55) and you might be able to take distributions from the 401k penalty free. Review your plan summary to verify.
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Old 07-28-2014, 11:20 PM   #17
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I would roll it over. Better investment choices, faster withdrawals, lower fees.

If you are worried about creditors, but an umbrella policy.
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Old 07-29-2014, 08:37 AM   #18
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A Roth conversion would involve paying taxes anyway, but you don't want to do it like a regular withdrawal. It might be easier to do a partial rollover to a traditional IRA and then Roth convert that. I did rollover my entire 401k into a tIRA. That's a nontaxable event, no penalties. From there you can Roth convert to your heart's content, paying taxes but no penalties. Age is not an issue for rollovers.

Yes, most likely you would want to minimize your capital gains taxes. Selecting your highest cost shares does that. They may not be your most recent shares, and indeed you should have bought them more than a year ago to avoid paying income tax rates instead of capital gains rates.

In general you will want to use your taxable funds first during retirement. But it may also be to your benefit to withdraw, or probably Roth convert, what you can within the lowest tax brackets. This allows as much growth as possible in your tax advantaged accounts, and withdraws some for expenses (or moves to Roth) at a very low tax rate.
We also rolled our 401Ks over to Vanguard - best options for us. We lived on dividends from our regular taxable account savings along with some special set aside savings until reaching 59.5. We then lived on dividends from our IRAs and regular taxable savings until I reached 62 and started drawing SS (wife's w/b next year). Now just draw dividends from our regular taxable savings and Roth accounts for income as we have the issue of qualifying for the Affordable Care Act subsidies and have to manage our retirement income to keep ourselves within the limits. Roth conversions won't be an option until wife reaches 65 (Medicare). Lots of tax and healthcare subsidy obstacles on our early retirement path. Where we take our retirement income from affects our state and federal taxes as well as our ACA subsidy. I don't qualify for any ACA subsidy as a Veteran even though I need to carry coverage from the ACA website. The VA won't commit to covering emergency care in a non-VA facility and I can't see gambling with having to pay for emergency care (i.e. heart attack) while traveling on the road.
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Old 11-19-2014, 03:10 PM   #19
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I'd like to revive this thread with a slightly different question, re: pension.

DW's company has disbanded and formed into a new, smaller company. In essence, the old company is gone and formed into a new legal entity...she no longer works for the old company.

She has about a $50K cash balance and is over 55 y.o.

While the new employer is offering to roll her existing pension into a new plan, isn't she able to withdraw the pension and roll it into her IRA instead?
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Old 11-19-2014, 03:46 PM   #20
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I'd like to revive this thread with a slightly different question, re: pension.

DW's company has disbanded and formed into a new, smaller company. In essence, the old company is gone and formed into a new legal entity...she no longer works for the old company.

She has about a $50K cash balance and is over 55 y.o.

While the new employer is offering to roll her existing pension into a new plan, isn't she able to withdraw the pension and roll it into her IRA instead?
Yes, you can rollover the old 401k into a self-directed IRA. Key is rollover, not cash out then reinvest.
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