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Rolling a 401k into another 401k 'OR' Roth IRA?
Old 06-29-2009, 02:23 AM   #1
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Rolling a 401k into another 401k 'OR' Roth IRA?

If you have a 401k through your current company and decide to leave, is it better to roll that 401k value into the 401k of your new company or into your personal Roth IRA?


Any disadvantages/advantages associated with the roll over?

Thanks in Advance for the Info!

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Old 06-29-2009, 09:06 AM   #2
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That depends on the investment options and costs. Some 401k's have great options and some stink to high heaven. What are the choices in both plans? Or, you can roll to a Traditional IRA. All things being equal it is nice to have a pot o money in the current employers IRA if you plan to exit in or after the year you turn 55 and can tap it if need be.
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Old 06-29-2009, 09:22 AM   #3
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If you have a traditional 401k, I think you can only move to another traditional 401k or to a traditional IRA. Once the money is in the traditional IRA, you can consider whether to convert to a Roth (and pay appropriate taxes to do so).

I would ALWAYS move to an IRA instead of the new 401k. You have more control and more options in an IRA. I think there are minor differences in withdrawal rules between ages of 55 and 59 that might favor the 401k, but they aren't significant enough to sway me. YMMV.
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Old 06-29-2009, 09:45 AM   #4
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It used to be that the 401k would have greater protection from creditors than the IRA. Now if the 401k is rolled into a rollover IRA it remains fully exempt. You can't borrow from the IRA, like you can from a 401k, but that might not matter to you. Withdrawal rules differ somewhat. If you retire in the year you are 55 or older, you can withdraw from that employer's 401k without penalty. In contrast, if you have an IRA you would have to do a substantially equal payments formulaic withdrawal if you are less than 59.5.

When I retired I rolled mine over for investment option reasons and cost reasons.
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Old 06-29-2009, 09:52 AM   #5
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Without any more info that OP presents I would recommend that you rollover the entire balance into a Vanguard IRA with the AA that fits your needs. You will be able to determine you fund choice, not the ex-employer and your expenses will be much lower than with the 401(k).
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Old 06-29-2009, 11:38 AM   #6
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Also I'd recommend rolling the 401(k) money over into a new tradtional IRA (which gets dubbed "rollover IRA"), not mixing it with any existing IRA you might have. The reason is that (I think) you can decide down the road to take any money in your rollover IRA and put it back into an employer's 401(k) plan, which may come in handy if you want to do some traditional-to-Roth IRA conversions down the road. And I don't think there's really any downside to keeping your rollover IRA money separate from your other IRA(s).
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Old 06-29-2009, 08:14 PM   #7
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The reason that I ask is because I recently rolled over my 401k from my previous company into my Roth IRA. I am now with a new company and am currently deciding how much I want to contribute to the 401k. In addition to deciding my contribution amount I am also trying to decide what to do with the 401k provided I leave the company.
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Old 06-29-2009, 08:30 PM   #8
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Also I rolled the 401k into my Roth IRA because with Roth IRA if I am not mistaken, I can withdraw against the principle with out any penalty as long as the earnings are not touched.

Some stipulation may be in place. I think for companies like T. Rowe Price to stop people from withdrawing money from their Roth IRA with out penalties they have to have the money in there for 5 years.


So if I have an original principle of $1000 and have made $50 since my contribution, I can withdraw the $1000 with out a penalty as long as the $50 stays.

I got this information from the following web site:
http://cashmoneylife.com/2008/02/06/traditional-ira-vs-roth-ira/

The information I am referring to is under the Roth IRA Withdraws section.
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Old 06-29-2009, 08:50 PM   #9
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Quote:
Originally Posted by growing_older View Post
I would ALWAYS move to an IRA instead of the new 401k. You have more control and more options in an IRA. I think there are minor differences in withdrawal rules between ages of 55 and 59 that might favor the 401k, but they aren't significant enough to sway me. YMMV.

What he said.
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Old 07-04-2009, 03:29 PM   #10
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You can't just roll a traditional 401k into a Roth IRA. You'll be paying taxes for the Roth conversion if you did that. A traditional IRA does not have that problem, and typically increases your investment choices.

You can withdraw Roth IRA contributions without penalty, I think. I'm not sure whether your rollover would be considered a contribution though. Maybe, since you paid taxes on it, it was a contribution and you'd be OK. On the other hand, that seems like too much of a loophole as a way to withdraw from your 401k/IRA early without paying a penalty to be true.

I'd be really careful and get some better advice before going too far with this.

If it's a Roth 401k you are talking about, "never mind!", though that may still complicate early withdrawals.
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Old 07-04-2009, 04:30 PM   #11
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If you rollover to an IRA, then you will not be able to use the money for a loan as Martha noted above.

If you can transfer it into your new employer's 401(k), then --- if you employer has loan provisions -- you might be able to use it for a loan in an extended emergency.

I had a colleague who had a short sale on his old house. He needed cash to cover the short sale. He had rolled over his old 401(k) to an IRA. So he had to cash in the IRA, pay the 10% penalty, pay the income taxes and generally get screwed on the whole deal. If he had rolled his old 401(k) in to his new 401(k), he would've been able to get a loan from the 401(k), cover the short sale, no penalties and no extra income taxes.

Sure, borrowing from your 401(k) is not a great idea, but when you are between a rock and a hard place, you gotta do what you gotta do. And cashing in an IRA was worse than borrowing from a 401(k).
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