Fidelity "Bonus" for Transfer and Unknown to Me After Tax Rollover of Excess 401K

[stephenson]

Fidelity "Bonus" for Transfer and Unknown to Me After Tax Rollover of Excess 401K

Hi All,

Finally left megacorp.

Megacorp had recently transferred their proprietary 401K funds to Fidelity for administration (no access to Fido funds). I had telecom with financial advisor at Fidelity and discussed options to transfer 401K to them.

Fido guy noted IRS had modified it's position on after tax contributions to 401Ks and that these after tax contributions could be rolled out of megacorp 401K into a Roth without tax implications - BUT, withdrawals are not allowed tax free until the account has been in standing for at least 5 years. Note: I have not been able to utilize Roth due to income restrictions.

And, Fidelity was/is offering bonus for transfer - as much as $2500 for 1M and up transfer.

So, I rolled all 401K funds from megacorp, split out the after tax component into a Roth, at Fidelity.

Another note - I did offer same opportunity to Vanguard, but they seemed offended and did not mention the option to roll to Roth, even after I explained to them there was a chunk of after tax. The discussion between the two institutions can be summarized as follows: Fidelity appeared to really desire a long term relationship and Vanguard wanted to execute a transfer.

 

[euro]

I do business with both. I think what you have observed is something many folks on this board would agree on. Fidelity's customer service is more extensive and stronger (better website, online tools, more physical locations, etc), Vanguard tends to have more rock-bottom fee structures ( though Fido is catching up).
Also, it is of course possible that you just happened to run into someone less experienced/educated at Vanguard and if you called back again, you might get a better result.

Congrats on your retirement!

 

[stephenson]

I was passed to one of the larger account specialists at Vanguard ... I gave lots of opportunity for him to offer advice, set up a more extensive discussion, provide a model of some sort for us to use as the basis for the way we proceeded ... got crickets and some sense of offense that I would ask if they could match Fidelity.

BTW - forgot to mention ... the Fido rep provided me access to a beta version of an update on their model that is accessible on their site. He and I worked on screen together to add and modify inputs to it ... he was able to allow me to see his screen ... very different approach ...not pushy, but he clearly wanted to "hook" me as a long term customer and it sounded that way.

 

[hesperus]

I've used both as well, but recently moved everything into Fido. I used vanguard simply to purchase their admiral funds, but that was about it. Their website and interface are basic. Customer service acceptable, but again, basic. Fido's customer service is miles above it, and their private client rep has helped me solve a few complex problems. I'm still learning all the tools they offer on their website. If you simply want to buy and forget, vanguard is fine for that. And that's not a bad thing, by the way.

 

[COcheesehead]

Get your rep to give you a good tour of the FIDO website. There are some really valuable tools on there that can be a little hard to find. Tax loss harvesting, CD and Bond ladder builders, retirement planners, income planners, just a whole host of things.

 

[nwsteve]

Hi All,

Finally left megacorp.

Another note - I did offer same opportunity to Vanguard, but they seemed offended and did not mention the option to roll to Roth, even after I explained to them there was a chunk of after tax. The discussion between the two institutions can be summarized as follows: Fidelity appeared to really desire a long term relationship and Vanguard wanted to execute a transfer.

Based on my experience with Vanguard, what you actually discovered is the "depth" or lack of in Vanguard's administrative staff. What they know how to do they do very well. Any unusual situations, V's capabilities are better described as "not too much". Bonus Dollars from Vanguard?? Dreamer!

 

[Happyras]

I've used both as well, but recently moved everything into Fido. I used vanguard simply to purchase their admiral funds, but that was about it. Their website and interface are basic. Customer service acceptable, but again, basic. Fido's customer service is miles above it, and their private client rep has helped me solve a few complex problems. I'm still learning all the tools they offer on their website. If you simply want to buy and forget, vanguard is fine for that. And that's not a bad thing, by the way.

Diddo on the Admiral funds...I still have accounts at Fido, but moved most to VG for the Admiral shares which can not be held at Fido. I have had accounts at TD and Schwab as well, I would say Schwab had a great sales team, but Fido has better tools. Both tried to sell us suitable investments, but certainly not the best for our interest.

I am stewing about moving more back to Fido, I have swept that incentive $$ at Schwab, and might just do it at Fido. My 401K is still at Fido, which might qualify for the rollover incentive, and more if I move some VG to get a full $1M bonus. However I like to reward VG who has not tried to sell us funds that have higher than necessary fees and marketing kick-backs.

 

[jazz4cash]

I was alarmed by the term "excess 401k" . What is that? Is it like excess bacon?

 

[hesperus]

Diddo on the Admiral funds...I still have accounts at Fido, but moved most to VG for the Admiral shares which can not be held at Fido.

My admiral shares (VTSAX) transferred over without a hitch, and are happily residing in my fido account for months now

edit: I also hold the admiral shares VWIUX and VTMGX that transferred over from VG

 

[Happyras]

My admiral shares (VTSAX) transferred over without a hitch, and are happily residing in my fido account for months now

Some do, others don't. VWIAX and VWENX can only be held in an institutional advisor account. So I was told when I tried to move them from another institution.


Trade Message
(010952) The mutual fund you requested to trade is an Advisor Fund and is not available for retail trading. For more information, contact a Fidelity Representative at 1-800-544-6666.

 

[nwsteve]

For those of you at Fido but wanting Vanguard Admirals, be sure to check out the Vanguard ETF's. Many of the Vanguard Admirals have an ETF equivalent with the same low cost. The Vanguard ETFs can, of course, be had at Fido for the same 7.95/transaction as any other ETF.

 

[Texas Proud]

I was alarmed by the term "excess 401k" . What is that? Is it like excess bacon?

Me also...


From what the OP posts, I would think it is just regular savings and NOT a ROTH.... I remember way back when I was young I had a 401(k) that would allow me to set aside after tax money... but it was more like an annuity than a 401(k).... IOW, the earnings would not be taxed each year... but it was not a ROTH as they were not yet 'invented'.... when you started to take the money out, the income part was taxable... like an annuity...


The OP better find out what he really had as the tax implications can be huge... I would think the penalty might wipe out most everything... (just a guess as I have no knowledge of what might happen, but I would be worried).....

 

[jazz4cash]

Actually our 401k allowed after-tax savings before the Roth was available but I never used it. It may still be an option but I am not sure. Eventually megacorp made the Roth 401k available (at Fido) and I participated. In reviewing options with Fido, they have been pretty good to point out funds that contain pre-tax and roth balances so that I can avoid further inter-mixing. Pre-tax balances can transfer to a tIRA (e.g. Penfed CDs) and Roth balances can transfer to the Fidelity Roth IRA and both are non taxable events.

 

[Texas Proud]

Actually our 401k allowed after-tax savings before the Roth was available but I never used it. It may still be an option but I am not sure. Eventually megacorp made the Roth 401k available (at Fido) and I participated. In reviewing options with Fido, they have been pretty good to point out funds that contain pre-tax and roth balances so that I can avoid further inter-mixing. Pre-tax balances can transfer to a tIRA (e.g. Penfed CDs) and Roth balances can transfer to the Fidelity Roth IRA and both are non taxable events.

I guess I did not write down what I was trying to say.... you could invest after tax money into your plan... that money would grow without paying current taxes.... however, the earnings were not tax free for life... they were like a regular 401(k) that when you started to withdraw you were taxed on the income portion.... you got your investment back tax free...


However, rolling that money into a ROTH means that the INCOME has never been taxed and never will be taxed.... sure, that is what a ROTH does, but the money was invested before ROTHs existed (from what I am reading, I could be wrong).... and there was no tax avoidance on the income portion....

 

[stephenson]

OP here ...the after tax contributions I made into my 401K are the portion that was rolled into a Roth IRA at Fido ...the growth related to those after tax contributions rolled into a regular IRA, along with the other 401K contributions and earnings.

No sure where jazz4cash got "excess contributions" ...don't think I said that?

 

[Texas Proud]

OP here ...the after tax contributions I made into my 401K are the portion that was rolled into a Roth IRA at Fido ...the growth related to those after tax contributions rolled into a regular IRA, along with the other 401K contributions and earnings.

No sure where jazz4cash got "excess contributions" ...don't think I said that?

OK, that makes more sense... your earnings are now in a regular IRA and will be taxed when withdrawn...

However, I do not know the law that allows you to roll over the other into a ROTH... because a ROTH means you do not have to pay taxes on any future income....

Are you sure they know the real source of the funds IOW, if I had money sitting around I could not just put it in a ROTH... the money you invested was like the cost of an annuity... not a ROTH contribution.....


I would still want to get something from Fidelity showing me the legal reason they say they can put this money into a ROTH...


Again, I have NO knowledge in this area.... just going by what I know and making an assumption that sounds reasonable to me...


Edit.... decided to look it up... and Fidelity is right!!! I have none to roll over, but it is a good deal for anybody who has this...

https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

Rollovers to multiple destinations

Distributions sent to multiple destinations at the same time are treated as a single distribution for allocating pretax and after-tax amounts (Notice 2014-54). This means you can roll over all your pretax amounts to a traditional IRA or retirement plan and all your after-tax amounts to a different destination, such as a Roth IRA.

 

[Winemaker]

While at Megacorp, I contributed over 22% of my salary to my 401k, and sometimes it exceeded the maximum allowable amount, which was IIRC, was $16,500 and then $5000 additional for those over 50. Any amount over that became a 401(a) contribution and was allowed to remain, but did not reduce my taxable income.

 

[whatnot]

I just found out DH has a "spill over" election on his 401k. This should be our last full year of employment. So I hope to fund to the max. His 2016 401k contrib was $24,000, employer match was $15,956. So that means we could contribute approx. $14,044 to reach the max contrib of $54,000 in 2017. I have just requested plan information on the Roth rollover feature. The last 3 years he has done back door Roth IRA's so we have about $22,000 in Roth currently (outside of his 401k). He does not have any other IRA's. So the $14,000 will be a small amount that can grow tax deferred and hopefully rolled into a ROTH.