401K or IRA?

[Yipper]

My end date is fast approaching (yay!) and I’m wondering if there are any downsides to moving my 401K to an IRA after I retire.

My 401K is at Fidelity and I’ve been using the BrokerageLink feature exclusively for years so I can and have invested in pretty much whatever I want to so no IRA benefits there. However I’m wondering if a move to an IRA will “free up” my Roth as it’s “trapped” and can’t be allocated any differently than my tax-deferred account.

Any other considerations pro/con for leaving vs. moving the 401K?

 

[qwerty3656]

If you're under 59 1/2, One thing is there is the rule of 55 which is available to 401k's and not IRAs.

 

[latexman]

I assume your 401k has a tax-deferred and a Roth component. When I retire I am looking forward to moving the tax-deferred portion of the 401k to my tIRA, and the Roth portion to my RothIRA. 3 accounts reduced to 2. Is this what you mean by “free up” my Roth? It's definately simpler, which may be needed as I get older.

Is there a cost to this BrokerageLink?

Not every company allows employees to convert an existing 401(k) balance to a Roth 401(k), so moving to a tIRA and RothIRA may make Roth conversions possible, or, at least, easier.

 

[jazz4cash]

You’ll need to dig into the details of your 401k. I had two at Fidelity but no Broker Link option. When I retired one of the 401k plans started charging annual fees and withdrawal fees but the other plan made no distinction between active and retired participants wrt fees. I think one of my former employers would not pay the fees after retiring. I think Fido might’ve waived fees for the other employer because they were huge.

 

[Out-to-Lunch]

My 403(b) at Fido costs me fees of ~$150/yr. I recently turned 59.5, so I could save that by moving to an IRA.

However, I am leaving it in the 403(b) due to an odd edge case for me: I want to retain the ability to do an unlimited number of indirect transfers from one tax-deferred account to an IRA.

 

[Yipper]

If you're under 59 1/2, One thing is there is the rule of 55 which is available to 401k's and not IRAs.

Thanks - and I've been aware of that one for a while but I turn 59.5 about two weeks before I give notice so not really an issue any longer.

 

[Yipper]

I assume your 401k has a tax-deferred and a Roth component. When I retire I am looking forward to moving the tax-deferred portion of the 401k to my tIRA, and the Roth portion to my RothIRA. 3 accounts reduced to 2. Is this what you mean by “free up” my Roth? It's definately simpler, which may be needed as I get older.

Is there a cost to this BrokerageLink?

Not every company allows employees to convert an existing 401(k) balance to a Roth 401(k), so moving to a tIRA and RothIRA may make Roth conversions possible, or, at least, easier.

Thanks and exactly - my tax deferred 401K had an "backdoor Roth" option that enabled me to contribute after-tax money that would automatically convert to Roth. The downside is that it's allocated exactly the same as my tax-deferred investments and I'd like the flexibility to invest the Roth funds differently than the tax-deferred.

At least for my employer's 401K plan, there is no additional charge or costs to take advantage of BrokerageLink option. I can simply move 401K funds (in my case all of them) to the BrokerageLink account and invest in anything Fidelity offers. Even additional contributions and company match dollars can go into the BL account.

 

[Yipper]

You’ll need to dig into the details of your 401k. I had two at Fidelity but no Broker Link option. When I retired one of the 401k plans started charging annual fees and withdrawal fees but the other plan made no distinction between active and retired participants wrt fees. I think one of my former employers would not pay the fees after retiring. I think Fido might’ve waived fees for the other employer because they were huge.

Good point and thank you, I will need to review the plan documents and see if there's a service cost after leaving the company. At this point I'm not seeing any real benefit to staying in the 401K as Rule of 55 won't matter in about a month (and I have plenty of taxable that I plan to live mostly on for bridge years to SS at 77 anyway).

 

[Humbooster]

Something to keep in mind, most employer-sponsored retirement plans, such as a 401(k), fall under ERISA (Employee Retirement Income Security Act) guidelines and are protected from creditors. However, traditional and Roth IRAs these do not have the same level of creditor protection.

 

[Yipper]

Something to keep in mind, most employer-sponsored retirement plans, such as a 401(k), fall under ERISA (Employee Retirement Income Security Act) guidelines and are protected from creditors. However, traditional and Roth IRAs these do not have the same level of creditor protection.

Oh, interesting. I had thought all retirement funds were protected or at least those in tax-deferred plans like 401K, 403B and IRAs.

If that's the case, perhaps it might make sense for me to explore possibly moving just the Roth funds to a Roth IRA (small percentage of the total) so that I can invest it differently than the tax deferred.

 

[Montecfo]

Oh, interesting. I had thought all retirement funds were protected or at least those in tax-deferred plans like 401K, 403B and IRAs.



If that's the case, perhaps it might make sense for me to explore possibly moving just the Roth funds to a Roth IRA (small percentage of the total) so that I can invest it differently than the tax deferred.

It depends on state law.

 

[Yipper]

It depends on state law.

Looks like employer plans that are rolled into IRAs are safe from creditors in New Jersey which is my current state.

 

[Humbooster]

That is good news, not the case in my state. (RI)