401K Roll-over

[RetireBy90]

Hi all, I retired last Friday and plan to roll over my 401K to my IRAs (TIRA and Roth IRA). So both are with Fidelity, any gotchas I need to watch out for? Should be a non-taxable transfer, and I’ll never have control of the finds while they are transferred. Fido has a department to do this so I’m not expecting any issues, just wondered if anyone has experienced any problems or issues with such transfers. Thanks in advance. (Oh, also gets me closer to the 500 posts I need for dryer sheets or a star or something like that )

 

[Red Badger]

I went from a Fido 401K to Fido IRA. Flawless. Fido FA was helpful - only spoke of annuities once.

BTW, congrats!

 

[travelover]

I did the same - no problems. Now would be a good time to review your asset allocation to see if it needs tweaking.

 

[Dtail]

Hi all, I retired last Friday and plan to roll over my 401K to my IRAs (TIRA and Roth IRA). So both are with Fidelity, any gotchas I need to watch out for? Should be a non-taxable transfer, and I’ll never have control of the finds while they are transferred. Fido has a department to do this so I’m not expecting any issues, just wondered if anyone has experienced any problems or issues with such transfers. Thanks in advance. (Oh, also gets me closer to the 500 posts I need for dryer sheets or a star or something like that )

On a related note, do you have a good stable value in your 401k account? If you do, you would lose this option as part of a non stock allocation.
P.S. Yes you get a 5th star for your 500th post.

 

[Souschef]

Someone please check me on this. I thought if you rolled over a 401K into a Roth, it became a taxable event.

 

[Dtail]

Someone please check me on this. I thought if you rolled over a 401K into a Roth, it became a taxable event.

Could be a Roth 401k.

 

[JoeWras]

If you have an existing tIRA with non-deductible contributions, you should first convert those to a Roth, if the taxable basis is low. Rolling over any regular 401k will increase the taxable basis. Your non-deductible portion is pro-rata and would be negatively impacted.

 

[scrabbler1]

I had a variety of assets in my 401k wen had to liquidate it upon leaving my old company back in 2008. I had pre-tax contributions and all earnings within the 401k (except for the company stock) which I rolled into a tIRA, a non-taxable event done by doing a trustee-to-trustee transfer (the check was made out to Fido, the tIRA holder). Before I initiated the transfer, I had already set up a shell tIRA account with Fido so I would have an account number to give to the plan Administrator to include on the check.


I had company stock in the 401k which I cashed out using NUA (Net Unrealized Appreciation) so it would be taxed at the lower cap gains rates. Do you have any of that in your current 401k?


I had some after-tax contributions in the 401k, too. I wanted the cash so I was able to take that entire amount out as a non-taxable event.


I spelled all of this out in the special instructions to the 401k plan administrator with the lengthy forms I had to send in. I needed the forms notarized and I needed a medallion stamp because I was transferring a large amount electronically to my local bank. Getting these two things could require some extra time and effort, so be prepared.


Once I got the rollover check in the mail, I went to my local Fido office to deposit the check and use the cash proceeds of the company stock to buy shares of a bond fund whose dividends have been supporting my ER for the last 10 years. The two checks involved were each between $200k and $300k so I wanted to do all of this in person. Everything went smoothly.

 

[jazz4cash]

Here’s a recent example of what could be an issue if employer has restrictions on rollovers.
A snag with Vanguard 401K partial withdrawal when retiring before age 59 1/2
http://www.early-retirement.org/forums/showthread.php?t=93591

 

[MI-Roger]

Are you 55 or older yet less than 59-1/2?

Do you see any need to tap those 401(k) funds in the foreseeable short-term future?

 

[RetireBy90]

Thanks for the feedback. I have Roth and traditional both in the 401K, and Fido assures me that they will transfer to appropriate Roth IRA and TIRA accounts. I will have to check to see if I need to open a 2nd TIRA to hold the after tax amounts. Hopefully contribution amounts will transfer also so Fido has the figures to compute the taxable amount of each draw from after tax account.

I am over 59 1/2 so there will be no penalties from the 401K program.

I have been told that all funds will transfer as cash to the base account so it will be a good opportunity to use fewer funds to set the AA. I plan to use the new Fido zero cost funds for a large part of the AA so it will make it much easier to set the AA. They have a new fund that is all stocks un US and all stocks world minus US, so they could take the entire equity allocation. Only problem is being new funds they have no history and didn't find any morning star ranking or stars for them. Probably won't use them for 100% of equity till they get a year underway.

 

[kaneohe]

If you have an existing tIRA with non-deductible contributions, you should first convert those to a Roth, if the taxable basis is low. Rolling over any regular 401k will increase the taxable basis. Your non-deductible portion is pro-rata and would be negatively impacted.

this works if you don't do the conversion and the rollover in the same year.

careful w/ those words: taxable basis.......In TIRA ,basis is more conventionally used to refer to the non-deductible (after tax)contributions while the other part is more conventionally called deductible contributions and earnings.

In this language,rolling over the traditional 401K would not change the basis but would certainly dilute it with the deductible contributions/earnings causing any conversion to be more heavily taxed. Using the term taxable basis could lead to misunderstandings. see lines 2/14 here
https://www.irs.gov/pub/irs-prior/f8606--2017.pdf

 

[Jerry1]

One thing to keep an eye out for is different funds. When I moved my 401k from work to an IRA, both Fido to Fido, one fund was not available. Employer offered a fixed value fund that Fido did not offer. So my fixed fund went from being basically free into a fund that was pretty heavy on the fees. Just make sure you’re into funds you expect when it’s all done.

 

[MI-Roger]

I have not researched the new Fidelity "All Market" funds but yours is the second thread where these funds have been mentioned as a diversification play.

Does "All Market" mean you are buying the dogs of the stock market as well as the super stars? If so, does buying underperforming or declining assets meet your investment goals?

 

[RetireBy90]

One thing to keep an eye out for is different funds. When I moved my 401k from work to an IRA, both Fido to Fido, one fund was not available. Employer offered a fixed value fund that Fido did not offer. So my fixed fund went from being basically free into a fund that was pretty heavy on the fees. Just make sure you’re into funds you expect when it’s all done.

None of the funds available for my 401K are available to general public. For the conversion or roll over they will sell everything in the 401K and deposit to the cash fund in the IRA. That makes it much easier for me to get my asset allocation back in shape.

 

[RetireBy90]

I have not researched the new Fidelity "All Market" funds but yours is the second thread where these funds have been mentioned as a diversification play.

Does "All Market" mean you are buying the dogs of the stock market as well as the super stars? If so, does buying underperforming or declining assets meet your investment goals?

I look at them like buying any other index fund, you get the good and the bad. If I was talented enough to pick dogs and super stars I would just buy the super stars and stay away from any funds. Sadly my experience trying this included Dome Petroleum, Pan AM and most recently GE. Some can certainly do better than I can, perhaps most can but even the pros fall behind an index on a frequent basis. I will tell you, just between you and me, I'll still have some bets on specific companies or industries and I like Fidelity Contra which is an actively managed value fund not index fund. Just don't tell others on the forum. Kinda goes against the index mantra.

 

[RetireBy90]

Just for anyone following the thread, found this by Ed Slott site (irahelp.com)
https://www.irahelp.com/slottreport/time-rollover-your-employer-plan-know-your-options

In typical fashion for his site, covers many different circumstances. By Beverly DeVeny,

it lists 6 options.
1) Roll over to an IRA
2) Leave you 401K with the company plan
3) Roll over to a new employer's plan
4) Take taxable lump-sum distribution
5) Do a Roth IRA Conversion
6) In-Plan Roth conversion

As always it is a good article and starting point for thinking about how deal with your 401K when you leave an employer.

 

[sengsational]

On a related note, do you have a good stable value in your 401k account? If you do, you would lose this option as part of a non stock allocation.

The stable value fund is what's keeping me from rolling out of my 401k. Nothing on the "outside" comes close. And the fee structure is another thing to consider. In my case, the fees are right in there with what I'd get on the outside...not zero, but very low.

 

[MI-Roger]

I look at them like buying any other index fund, you get the good and the bad. If I was talented enough to pick dogs and super stars I would just buy the super stars and stay away from any funds. Sadly my experience trying this included Dome Petroleum, Pan AM and most recently GE. Some can certainly do better than I can, perhaps most can but even the pros fall behind an index on a frequent basis. I will tell you, just between you and me, I'll still have some bets on specific companies or industries and I like Fidelity Contra which is an actively managed value fund not index fund. Just don't tell others on the forum. Kinda goes against the index mantra.

I just looked up this fund and saw the title is slightly misleading. No, it is not constrained to only one grouping or market and is actually comprised of a select group of high performing stocks from large companies (none less than $10B capitalization), it does not represent the entire stock market (i.e. dogs and stars). The top 10 holdings comprise 17% of the fund, so the fund may contain about 100 different individual stocks.

It sounds like a good place to get a diversified group of top performing stocks all in one fund.

 

[scrabbler1]

The stable value fund is what's keeping me from rolling out of my 401k. Nothing on the "outside" comes close. And the fee structure is another thing to consider. In my case, the fees are right in there with what I'd get on the outside...not zero, but very low.

When I liquidated my 401k nearly 10 years ago, I had to liquidate the good stable value fund I had nearly half the money in (excluding the company stock). The rules of the plan (and perhaps the law) said if I used NUA I would have to completely empty what I had in there.

My employer picked up the expenses of the SV fund which made it even more attractive. I was able to find out roughly what was in there and did my best to find a bond fund on the outside which mimicked it so I could maintain my AA. The bond fund I chose was an intermediate-term corporate bond fund.

 

[Dtail]

The stable value fund is what's keeping me from rolling out of my 401k. Nothing on the "outside" comes close. And the fee structure is another thing to consider. In my case, the fees are right in there with what I'd get on the outside...not zero, but very low.

+1
Unfortunately, I didn't do a reverse roll from a rollover 401k in Fidelity back to my 401k before I left coz I just didn't know how good I had it.

My SV is currently at 4.24% and does make up half my non equity allocation.