I'm in my early 30's and after 11 years at my previous job will be starting my new job no Monday! I had a great run. I have 2.5 years left to go on my mortgage. A biggy size 401K. An OK size Roth IRA and a discretionary investing account too. I'm wondering what to do with my 401K. Is something like the Vanguard VFORX too conservative of a move? It will be nice to have the freedom of being outside a company 401K plan, but I don't want to shoot myself in the foot either. I'm comfortable with my regular stock trading in my Roth and regular trading accounts. I guess I'm saying I want to be a little more conservative with this money and account than the other two accounts. 80% VFORX and the other 20% try to beat the market? Thoughts?
Rolling over my company 401K - What to do with the money?
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RunningBum
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Seems safe. Remember that you can always move it elsewhere later to another VG fund, or I pretty certain you can set up a brokerage account in Vanguard in your IRA to buy other funds and stocks.
Another thought, if you have bonds in your taxable account, you might want to move the bonds to your IRA instead to defer the income. But VFORX may have all the bonds you need. But more importantly, if you plan on doing some short term trading and think you'll make short-term capital gains, and IRA is the right place for that. OTOH, if you take losses, those are of no benefit in an IRA!
Another thought, if you have bonds in your taxable account, you might want to move the bonds to your IRA instead to defer the income. But VFORX may have all the bonds you need. But more importantly, if you plan on doing some short term trading and think you'll make short-term capital gains, and IRA is the right place for that. OTOH, if you take losses, those are of no benefit in an IRA!
Htown Harry
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RunningBum is correct on this.
zinger1457
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At your age I would look into rolling over the 401K to a ROTH IRA. Not sure if you'll have time but there are special ROTH conversion rules that are in place for 2010 conversions. If you do the conversion in 2010 then you can spread out the taxes you would have to pay, 50% in 2011 and 50% in 2012. If you wait until 2011 to do the ROTH conversion you would have to pay the taxes in full that year.
Onward
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There's something to consider about 401k rollovers that you almost never hear about in the press. It's that in many/most states 401k's are better protected from legal claims than all kinds of IRA's are. Just something to factor into your decision. I've chosen not to roll over one 401k, just to diversify my exposure to unforseen legal seizure of assets.
Disclaimer: I'm not an attorney, go seek your own advice, etc.
Disclaimer: I'm not an attorney, go seek your own advice, etc.
BigMoneyJim
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If you're planning on retiring before age 59½ you might compare early withdrawal options between the 401(k) and an IRA. It's been a while since I've reviewed the specifics, but you can start taking money out of your last 401(k) at 55 if you're retired. With an IRA you can start taking money with the 72(t) exemption, which in short means you take substantially equal periodic payments at least until 59½, but there are penalties for running out of money or changing payments.
IRAs have mandatory minimum distributions after age 70½, but I don't recall if a 401(k) has any such requirement. I may be wrong here, but I think Roth IRAs have the same RMDs, but it's not generally a concern since the money is already taxed, where withdrawals from a traditional IRA is a taxable event.
Last I checked you could roll a 401(k) into a new company's 401(k) or to/from a rollover IRA (but the money has to move direct from institution to institution, not through you else they'll withhold 20%).
Two or three time's I've rolled a 401(k) into a Vanguard rollover IRA. I feel like I have more options and control. Two of my rollovers were from a Vanguard 401(k), so assets were moved "in-kind" meaning no assets had to be sold or bought.
And I may have missed the point of your original post, but if so it won't have been the first time. Within my rollover IRAs I can buy and sell Vanguard funds, and if I wanted to I could open a brokerage account and trade individual securities inside the IRA. Since my 401(k) was with Vanguard there was no change in my AA or even fund investments when moving to an IRA.
IRAs have mandatory minimum distributions after age 70½, but I don't recall if a 401(k) has any such requirement. I may be wrong here, but I think Roth IRAs have the same RMDs, but it's not generally a concern since the money is already taxed, where withdrawals from a traditional IRA is a taxable event.
Last I checked you could roll a 401(k) into a new company's 401(k) or to/from a rollover IRA (but the money has to move direct from institution to institution, not through you else they'll withhold 20%).
Two or three time's I've rolled a 401(k) into a Vanguard rollover IRA. I feel like I have more options and control. Two of my rollovers were from a Vanguard 401(k), so assets were moved "in-kind" meaning no assets had to be sold or bought.
And I may have missed the point of your original post, but if so it won't have been the first time. Within my rollover IRAs I can buy and sell Vanguard funds, and if I wanted to I could open a brokerage account and trade individual securities inside the IRA. Since my 401(k) was with Vanguard there was no change in my AA or even fund investments when moving to an IRA.
Pete
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Just remember you can only move it (between different companies or banks) once per year or face being taxed.
Roughly 50% VFORX, 38% individual stocks, 7% cash, and 5% gold.
My individual stocks % has been going down and my cash up as I've been locking in some recent gains.
