401K vs IRA conundrum...

[Flyfish1]

I have a self directed 401K plan at work, administered by ADP. I must hold 30% in ADP with very limited fund options and the remaining 70% is under my control at TD Ameritrade. I am going to retire in the summer of 2023 at the age of 59 1/2.

I can keep everything as is in the 410K and transfer money from TD every month to ADP and then withdraw from ADP every month. A bit of a hassle.Those are the rules I checked and double checked.

I have transitioned from a long term buy and hold investor to more income investing and made a big switch in the pandemic with tremendous purchases from a yield on cost perspective in the 401K.

If I switch to an IRA I have to sell everything on the TD side, transfer it to cash and then ADP says they will "mail me a check". WHAT? My single largest investment is my 401K and they are going to mail me a check so that I can set up an IRA. That kind of blew me away. I asked the person on th phone if they could electronically send the funds and he said yes if I choose to use their selected investment advisory group, which is not TD. Ugghhh
Seems über risky to have a check mailed to you.

So, I can stay in my 401K and deal with the hassles or take the liquidation and loss of some tremendous income stocks/funds and have to reboot the income portfolio from step 1 at the time of retirement. Not to mention deal with the nonsense of them mailing me a check. What if that gets lost??

Personally, I would prefer to keep it simple and deal only with one company , ie) TD and automate my withdrawals. But to do so, I must liquidate and trust the USPS with my biggest asset!!!!!!!



Any thoughts from the group are very welcome.

 

[PaunchyPirate]

It is not at all uncommon that liquidation and check proceeds are the way a 401k to IRA transfer works. That’s what Fidelity did when I transferred to an IRA at Vanguard. Look around. I suspect you will find that’s the way it is usually done. Not that I think it’s right, but that doesn’t really matter.

 

[gauss]

I think the bank check process is rather secure from the customers point of view.

My understanding is that if the check falls into the hands of a "bad guy" and then "bad guy" ultimately finds a way to cash it, then the banks will be on the hook for the loss, not the customer.

If the check is just lost but not stolen, then the 401k company should be able to put a stop on the first check and reissue the check again.

-gauss

 

[Montecfo]

Mine from Schwab was not only trustee to trustee, it was shares in kind. But these things vary.

Your greatest risk is they sell on a down day in my view. The check is not a risk except as to timing.

 

[cathy63]

I've rolled over several 401ks via check. That seems to be the only way that most of the non-broker plan providers will move money around. The only time I was able to do an EFT rollover was when I left a megacorp that used Fidelity to adminster their plans.

First open the new IRA. Then contact the 401k company for a rollover. They will send you a check made out to "[new IRA custodian] fbo Flyfish1". You just hand the check to the custodian with a deposit form and they will endorse it (since it's made out to them) and deposit into your IRA. A check made out this way is useless to anyone who might steal it from the mail.

 

[RunningBum]

Get them to send it FedEx or registered mail, even if it costs you a few bucks.

Why can't you just buy the same thing you have to sell to liquidate the account? You might be thinking that if you bought shares at a low price and now are getting a tremendous yield that you will lose it, but in the real world it won't matter. You'll have the same # of shares and the same dividends (except for the short time out of the market while waiting to get the check). Holdings in an IRA have no basis. The price you bought stuff at has no bearing on the value of your IRA. It's just bragging rights, and you can keep track of that in your own spread sheet if you want.

 

[CardsFan]

I've rolled over several 401ks via check. That seems to be the only way that most of the non-broker plan providers will move money around. The only time I was able to do an EFT rollover was when I left a megacorp that used Fidelity to adminster their plans.

First open the new IRA. Then contact the 401k company for a rollover. They will send you a check made out to "[new IRA custodian] fbo Flyfish1". You just hand the check to the custodian with a deposit form and they will endorse it (since it's made out to them) and deposit into your IRA. A check made out this way is useless to anyone who might steal it from the mail.

^^^This. Though I think I had the check sent directly to my broker, so I never touched it.

 

[HI Bill]

Ensure that you request a 'direct rollover' so you don't incur taxes. You'll never receive the check, it will be received by the receiving institution. You can often request 'in kind' transfers, but it sounds like you wouldn't want/be able to do that with all of your investments. Yes, unfortunately, mailing large checks seems to be the norm. When I rolled over my previous employer's 401(k), they mailed a check that was upwards of $400K. I was nervous for about a week until it showed in Vanguard's system.

 

[Out-to-Lunch]

You (likely) don't have to make this entire transition at the same time. It might benefit you to roll over your 401k stash in 2 or 3 chunks.

As I see it, the worst part is the time-out-of-market effect. However, you may be able to mitigate this if you have any serious funds in other tax-advantaged accounts. You could, for example, sell your stocks in the 401k, but simultaneously buy them (or a reasonable proxy) in another tax-advantaged account, while the ~1/3 of your 401k is languishing in cash and/or check. Then, when you get the check cashed, you can reverse this process (if desired).

One small other point: Once you have the check in your possession, you don't necessarily have to use the mail to get it to your IRA custodian. I will admit that this kind of astonished me, but a week or two ago I used my cell phone to make a mobile deposit on Vanguard's app to deposit a check worth a few hundred thousand dollars.

 

[Sunset]

Get them to send it FedEx or registered mail, even if it costs you a few bucks.

Why can't you just buy the same thing you have to sell to liquidate the account? You might be thinking that if you bought shares at a low price and now are getting a tremendous yield that you will lose it, but in the real world it won't matter. You'll have the same # of shares and the same dividends (except for the short time out of the market while waiting to get the check). Holdings in an IRA have no basis. The price you bought stuff at has no bearing on the value of your IRA. It's just bragging rights, and you can keep track of that in your own spread sheet if you want.

+1
A check is common from a 401K to rollover IRA.

OP may be lucky and the market drops while the check is in the mail

 

[target2019]

My experience is discussed here:
https://www.early-retirement.org/forums/f28/401-k-consolidation-and-rollover-complete-109552.html

It seems that each situation has a new twist. Your existing institution that holds funds dictates what is possible before you receive the check.

Your new institution should reimburse any costs you incur during the transfer.

 

[bada bing]

No brokerage has any incentive to be accommodating to people wishing to leave. All the major brokerages have teams dedicated to assisting clients rolling funds in. In particular, I have found Schwab's roll over team to be particularly efficient at retrieving accounts from other custodians..

I don't know TdAmeritrade rules. I had a similar potential hassle with rolling out my 401K at Fidelity to an IRA at Schwab. What made the transition smooth was a two step process. First step was to have Fidelity roll the 401K into Roth IRA and tIRA accounts opened at Fidelity, all done with one phone call. Second step was to have the Schwab roll over team electronically roll over the IRA accounts as positions in an IRA to IRA custodian transfer. Fidelity wanted to do the paper check route for a roll over to another custodian if done directly from the 401K. IRAs generally transfer between custodians electronically.

Don't know if TdAmeritrade will accommodate that or not.

 

[OldShooter]

Have you verified that your 401K balances are not subject to fees? I have seen administrators charging fees as high as 1.5%, which pretty much blows away the "low cost index fund" scenario. There is a statutory fee disclosure statement that you can request from your HR department if you're not sure.

 

[ERD50]

+1
A check is common from a 401K to rollover IRA.

OP may be lucky and the market drops while the check is in the mail

I rolled my 401K over, they lost the check like 3 times! They kept sending to the wrong address at the brokerage house, despite my specific instructions. When it did get there, I managed to get them to reimburse me interest from the lost time, and the market did drop a little, so financially it was fine.

But it wasn't good for my health! Yes, checks seem like a lousy way to do it, even way back then.

But I never really worried about losing the money itself, I wouldn't be on the hook for a stolen check. I'd be concerned that the plan involving "tremendous purchases from a yield on cost perspective" and "some tremendous income stocks/funds" would be a bigger risk to the portfolio.

-ERD50