Retirement and what the best option to do with 401K

[B-Guy]

My DW has a 401K, and when she retired and she is being offered three options.

Keeping it in her former employers retirement plan
Rolling it over into a IRA
Cashing out her 401K

Cashing out her 401K would be a poor choice.

It really boils down to keeping it in her former employers retirement plan, or rolling it into a IRA.

Can someone more knowledgeable in regards to retirement than myself point out the benefits or drawback of either option?

 

[tfudtuckerpucker]

My DW has a 401K, and when she retired and she is being offered three options.

Keeping it in her former employers retirement plan
Rolling it over into a IRA
Cashing out her 401K

Cashing out her 401K would be a poor choice.

It really boils down to keeping it in her former employers retirement plan, or rolling it into a IRA.

Can someone more knowledgeable in regards to retirement than myself point out the benefits or drawback of either option?

I just did the "roll over". You will likely have better investment choices, once it's in an IRA. Also, fees can be higher in a 401K, once you left your employer. You can check your company's 401k fees here: https://www.nerdwallet.com/blog/investing/analyze-your-401k-fees/

Investopedia has a good discussion here
https://www.investopedia.com/articles/personal-finance/071715/8-reasons-roll-over-your-401k-ira.asp

 

[2017ish]

There are, in many states, more protections from creditors in keeping it at employer--but if you roll it into IRA and keep it distinct from individual contributory IRA, you still have unlimited protection if you have/choose to file bankruptcy. So not a substantive difference to me. (And we have a big umbrella in any event)

Otherwise, look at the expenses and investment choices. For both of us, rolling to IRA was an easy call for that reason. Some large employers, however, may have plans that are competitive with Fidelity/vanguard/Schwab index investing?

 

[pb4uski]

One key difference is that some 401ks offer a stable value investment option and you can't get that in a tIRA... so if her 401k offers a stable value option that pays a decent rate of interest then that would suggest keeping it.

Another factor would be if she is leaving after 55 but before 59 1/2 you can do penalty free withdrawals in a 401k but not in a tIRA.

 

[old medic]

Just retired and faced the same question. My 401K is with a stable company, but has limited choices, but decent fees and free financial advisor I can Email anytime and she gets back to me fairly quick.
tIRA gives me the opportunity for more choices, Plus I can continue to add to it.
So My plan is to roll half into a tRIA with the same company as my Roth, so I can add more, and easier to do roth conversions

 

[MRG]

I'd roll it out. But I am still mourning the losss of a six figure amount due to a mismanaged managed fund in the 401k I left behind.

There's two reasons to stay: stable value fund, and rule of 55 to enable 55-59.5 penalty free withdrawal.

 

[pb4uski]

I'd roll it out. But I am still mourning the losss of a six figure amount due to a mismanaged managed fund in the 401k I left behind.

There's two reasons to stay: stable value fund, and rule of 55 to enable 55-59.5 penalty free withdrawal.

But couldn't you have bought the same mismanaged managed fund in a tIRA?

I had one of those once... it was the Evergreen Core Bond Fund... and I had a lot in it in my 401k. When the SHTF in 2008 it went down a lot more than Vanguard Total Bond so I dug into why... turns out that the managers had made a big bet on mortgage-backed securities with my money that didn't work out... ugh!

 

[OldShooter]

Investment options and a very careful look at fees should dominate the decision.

 

[corn18]

I'd roll it out. But I am still mourning the losss of a six figure amount due to a mismanaged managed fund in the 401k I left behind.

There's two reasons to stay: stable value fund, and rule of 55 to enable 55-59.5 penalty free withdrawal.

I left mine in my 401k when I retired last year for these two reasons.

1. The stable value fund has been yielding 1.63% over the past year. Higher lately. my 401k is 100% in this fund and represents 100% of my fixed income right now.

2. I retired in the year I turned 55. I now have full access to my 401k without penalty. My plan is very good and allows withdrawals at any time in any amount. Not all 401k plans offer this flexibility.

3. My 401k has no fees. Well, I did just get charged $5 for the annual maintenance fee. So very low fees.

4. If I need to, my 401k has great funds to invest in. Very low cost index funds and target date funds. It also has brokerage link if I ever wanted to move to something my fund does not offer.

If my 401k had high fees, poor funds and a poor rule of 55, I would roll it out to an IRA.

 

[Exchme]

If your wife made any after-tax contributions to her IRA, then I would not roll the 401K into the IRA. The ability to do Roth conversions in that case was going to be banned in the BBB bill. Though that bill now seems dead, once a tax provision is on politicians' radar, some form of it has a tendency to become law eventually. (if you are unsure if this applies, look at your tax return, you would have had to report the after tax contribution in your IRA on form 8606).

I had a few thousand after-tax $ in my IRA and then rolled my much, much larger 401K into that when I retired. This caused wailing and gnashing of teeth in our household when the BBB bill was going to give us a six figure liftetime tax penalty (by banning Roth conversions for us) for doing a small, perfectly legal and even encouraged after-tax contribution to my IRA years ago.

 

[MRG]

But couldn't you have bought the same mismanaged managed fund in a tIRA?



I had one of those once... it was the Evergreen Core Bond Fund... and I had a lot in it in my 401k. When the SHTF in 2008 it went down a lot more than Vanguard Total Bond so I dug into why... turns out that the managers had made a big bet on mortgage-backed securities with my money that didn't work out... ugh!

No!
The base fund was OK but they allowed Megacorp(actually any retirement plan) to have certain tilts in the allocation. For many years Megacorp's original CEO was a great stock picker and he'd added extra juice to the returns with good picks. His replacement, while looking great in a suit, was an incompetent person in most regards. His incompetence cost thousands of people large sums of money, some lost most of their lifetime savings.

 

[CRLLS]

If all the 401K contributions were pre-tax dollars, do not exclude to option of rolling the 401K into a separate "Rollover IRA". Assuming the BBB Act becomes law, it would allow full rolling over of "Rollover IRA" assets to a Roth in the future, thus eliminating that one possible reason for keeping the 401K

 

[Bamaman]

My company's 401K program was with Fidelity, however the full slate of Fidelity accounts were not available. They offered some good funds, some medium risk funds and some very conservative funds. But the company was paying all the service charges.

At retirement time, we were required to move all our 401K funds elsewhere. I simply moved all the funds into a Rollover IRA account where I had all of my self funded non-401K IRA's. And with the entire Fidelity funds, I had far better returns than in the company's 401K. I assume the company no longer wanted to pay all of the service charges on my funds.

I would do a rollover and put all of the funds into one place--where you can better manage the account.

 

[pb4uski]

No!
The base fund was OK but they allowed Megacorp(actually any retirement plan) to have certain tilts in the allocation. For many years Megacorp's original CEO was a great stock picker and he'd added extra juice to the returns with good picks. His replacement, while looking great in a suit, was an incompetent person in most regards. His incompetence cost thousands of people large sums of money, some lost most of their lifetime savings.

Never heard of anything like that. Our choices were all choices that you could get something the same or very similar in a tIRA. (We didn't have a stable value fund).

 

[OldShooter]

No! ... The base fund was OK but they allowed Megacorp(actually any retirement plan) to have certain tilts in the allocation. For many years Megacorp's original CEO was a great stock picker and he'd added extra juice to the returns with good picks. His replacement, while looking great in a suit, was an incompetent person in most regards. His incompetence cost thousands of people large sums of money, some lost most of their lifetime savings.

That is called "breach of fiduciary duty." Slam dunk lawsuit. How long ago did this happen? I suggest contacting a litigator for a "free conference." If there is good potential then I'd start shopping the company's home office town for securities law litigation experts. A good start would be the company's SEC filings if they are public. Who has successfully sued them?

 

[MRG]

That is called "breach of fiduciary duty." Slam dunk lawsuit. How long ago did this happen? I suggest contacting a litigator for a "free conference." If there is good potential then I'd start shopping the company's home office town for securities law litigation experts. A good start would be the company's SEC filings if they are public. Who has successfully sued them?

+1
My and 10 thousand of my former peers are engaged in a suit. Sadly many of them are going to be pushed into a class action suit that will yield nothing much. Me and 400 others have collected 10k apiece after attorney fees from the fund company and are pursuing individual arbitrations against Megacorp. Several of my friends have been awarded monies that made them whole but Megacorp is still fighting payment.

 

[target2019]

My DW has a 401K, and when she retired and she is being offered three options.

Keeping it in her former employers retirement plan
Rolling it over into a IRA
Cashing out her 401K

Cashing out her 401K would be a poor choice.

It really boils down to keeping it in her former employers retirement plan, or rolling it into a IRA.

Can someone more knowledgeable in regards to retirement than myself point out the benefits or drawback of either option?

You can leave the 401(k) as is, and roll it over in the future. For example, I left mine alone for about 10 years as I was contributing to another. Then after retirement I rolled them into a Rollover IRA.

If you determine the fees are too high currently, then you can identify a better institution and roll over. You may have to liquidate the current funds and traansfer a check.

 

[Scubamax]

Quit mega corp in 2014 and kept it in 401k. As mentioned earlier the most bulletproof in a bankruptcy situation plus it has good choices ( including stable value) and low fees. Plus keeping it at a bit of arms length keeps me out of trouble. YMMV.

 

[B-Guy]

Some good info you all have shared. To answer some questions brought up in this thread.

My wife just turned 61 and I’ll turn 60 this year. We currently have other Fidelity IRA’s that we rolled over from 401K’s from previous employers that we manage, and have for 10+ years. Her 401K is currently in Balanced/Assets, US Equity just a bit in International Equity.

We have never added any after-tax contributions to her IRA so it doesn't sound like that will be an issue. We like having more options than with our current 401K’s. We also like having access online to change our investments anytime we desire. Her previous employer is stable, the fees are roughly 1.25%.

 

[target2019]

Our fees across total portoflio are .15.

Investment fees over .50 send me elsewhere, as soon as I can do it. She can cut the fees by 90% I would guess.

 

[B-Guy]

I'm leaning towards rolling it over into a IRA. I haven't found or heard any compelling reasons to go a different direction yet.

 

[Sunset]

Some good info you all have shared. To answer some questions brought up in this thread.

My wife just turned 61 and I’ll turn 60 this year. We currently have other Fidelity IRA’s that we rolled over from 401K’s from previous employers that we manage, and have for 10+ years. Her 401K is currently in Balanced/Assets, US Equity just a bit in International Equity.

We have never added any after-tax contributions to her IRA so it doesn't sound like that will be an issue. We like having more options than with our current 401K’s. We also like having access online to change our investments anytime we desire. Her previous employer is stable, the fees are roughly 1.25%.

The fees would have me roll it over on Monday.

 

[NW-Bound]

Several posters mentioned the stable value fund in their 401k.

My wife rolled out her most of her 401k but kept some money in the stable value fund. It returned 5.3% for 2021. I don't know how they did it, but that's one heck of a good deal. That's my wife's fixed income AA, as she has no bond fund.

 

[Koolau]

Several posters mentioned the stable value fund in their 401k.

My wife rolled out her most of her 401k but kept some money in the stable value fund. It returned 5.3% for 2021. I don't know how they did it, but that's one heck of a good deal. That's my wife's fixed income AA, as she has no bond fund.

Yeah, stable value fund may be the best reason I stayed in 401(k). Having said that, I did transfer about half to tIRAs and eventually converted every one of them to a ROTH. That is my suggestion to consider, but YMMV.

 

[B-Guy]

From what I'm hearing on here the fees are a bit high on her 401K, but 2021 the Rate of Return was 14.09%. I get a little nervous when they perform well. We are being far more constrictive with our investments and even more so in the last few years.