Fido Adviser Doesn't Think I Should Do Roth Conversions/ (huh?)

[Zantastic]

In trying to figure out what to do with my $385k FIDO 401K, I met with one of their reps today about possibly moving the 401K to an IRA. There are many good reasons to do this, but my primary one was to take advantage of the next few years when I'll be living off savings and have no income other than a few thousand in dividends. It seemed like the perfect opportunity to do some ROTH conversions with little to no taxes due.

I was shocked that the adviser didn't think it was worth my time to convert. She also seemed to think I'm too focused on the "little" things like expense ratios and keeping taxes low. I said I wanted to do a spreadsheet to compare the expense ratios of the available 401k funds vs. IRA funds and she gave me a look like I was out of my ever lovin' mind.

Please tell me I'm not crazy! (Or if I am, I guess I should know that, too).

 

[l2ridehd]

She saw a potential loss of business. I like Fidelity and still own a few of their funds, but your rant was exactly why I moved everything to Vanguard. Their very helpful when you move money to them, but less so when you might be doing something different with it.

 

[FinanceDude]

Their very helpful when you move money to them, but less so when you might be doing something different with it.

So, Fido is just like Vanguard? Who would have thunk that?

How would they lose money if you move from Fido 401K to Fido IRA? I am assuming you are retired from your company?

 

[MichaelB]

In trying to figure out what to do with my $385k FIDO 401K, I met with one of their reps today about possibly moving the 401K to an IRA. There are many good reasons to do this, but my primary one was to take advantage of the next few years when I'll be living off savings and have no income other than a few thousand in dividends. It seemed like the perfect opportunity to do some ROTH conversions with little to no taxes due.

I was shocked that the adviser didn't think it was worth my time to convert. She also seemed to think I'm too focused on the "little" things like expense ratios and keeping taxes low. I said I wanted to do a spreadsheet to compare the expense ratios of the available 401k funds vs. IRA funds and she gave me a look like I was out of my ever lovin' mind.

Please tell me I'm not crazy! (Or if I am, I guess I should know that, too).

You are sane and should take advantage of every opportunity to convert to ROTH. Favorable taxes are a good enough reason but you also get no more RMD. Don't mind the Fidelity rep.

 

[Midpack]

You're not crazy at all to want to rollover your 401k $ to an IRA. More often than not it's the smart move. I've never seen a case where a 401k was a better option, it's possible but very, very rare. That Fidelity rep probably just shot her own foot off...

 

[justplainbll]

We have accounts with both Fidelity and Vanguard and found Fidelity more accommodating with respect to 401K to IRA to ROTH conversions.

 

[HornedToad10]

If you do a Roth conversion then you have less raw $$$ in their funds....

I absolutely agree with converting when you are at 0% Fed Tax rate, and potentially even at ~10-15% depending on other factors.

 

[Texas Proud]

You're not crazy at all to want to rollover your 401k $ to an IRA. More often than not it's the smart move. I've never seen a case where a 401k was a better option, it's possible but very, very rare. That Fidelity rep probably just shot her own foot off...

There is one case where the 401(k) is better than an IRA... if you have company stock that has appreciated a lot...

You can take the stock out of the 401(k) at COST, not what it is valued today...

I am waiting until I am retired and my income is low to do it for my investment in mega.... however, it has basically been flat for 10 years so in a way it probably would have been better for me to move it awhile back and invest it somewhere else....

 

[jdw_fire]

You're not crazy at all to want to rollover your 401k $ to an IRA. More often than not it's the smart move. I've never seen a case where a 401k was a better option, it's possible but very, very rare. That Fidelity rep probably just shot her own foot off...

i can think of 2 (not counting the 1 already given): 1) if you retire at 55 yo. (up to 59.5) and need money out of your tax deferred account to live, you can take it out of your 401K w/o penalty and w/o setting up a 72t WD and 2) the feds have very low expense investment choices in the TSP (401K equivalent) so you could easily pay lower yearly fees in the TSP than in an IRA.

If you do a Roth conversion then you have less raw $$$ in their funds....

not if you do it right and pay the taxes with funds outside the 401K/TIRA

 

[KiraC]

Have you talked with a tax person? Our CPA told us converting is not a good idea because of our tax bracket. That advice may change once we both stop working.

 

[RetireBy90]

I moved all my IRA accts and my cash stock acct to Fido several years ago an I have been mostly happy with them since. My initial move was because my 401K is with them and I wanted to get everything in one place. However, I don't expect advice but good tools. I have had a hard time with advisors always wa nting to fit me into a profile. You know, 50/53 pension means this group of funds and this AA. They never want to evaluate my plan and comment on will it work. Besides, if they are wrong will they pay the electric bill?

Rant off

 

[panacea]

In trying to figure out what to do with my $385k FIDO 401K, I met with one of their reps today about possibly moving the 401K to an IRA. There are many good reasons to do this, but my primary one was to take advantage of the next few years when I'll be living off savings and have no income other than a few thousand in dividends. It seemed like the perfect opportunity to do some ROTH conversions with little to no taxes due.

I was shocked that the adviser didn't think it was worth my time to convert. She also seemed to think I'm too focused on the "little" things like expense ratios and keeping taxes low. I said I wanted to do a spreadsheet to compare the expense ratios of the available 401k funds vs. IRA funds and she gave me a look like I was out of my ever lovin' mind.

Please tell me I'm not crazy! (Or if I am, I guess I should know that, too).

Great strategy. Goofy Fidelity rep. By the way, it's the Fidelity rep who has to say "please consult with your tax advisor" because they are not allowed to give tax advice. Honestly, there's a good chance the rep doesn't understand what you're talking about becuase that's not their area of expertise.

 

[sunnysideup]

We have accounts with both Fidelity and Vanguard and found Fidelity more accommodating with respect to 401K to IRA to ROTH conversions.

+1

I have had an account with TRP for over 15 years and had no problems with rollovers and conversions--they were my gold standard.

Then after a couple of job changes after 2000, I ended up with 401ks in Fidelity and Vanguard. In the past 2 years I did rollovers and Roth conversions in both Fidelity and Vanguard. Vanguard was terrible. It was slow. They couldn't even put my company stock through the Roth conversion. I found them not very flexible nor helpful. Maybe the agents were not trained well, but it was a painful experience.

OTOH, Fidelity really did a good job of both the rollovers and conversion. And this year I decided to move the Vanguard monies into the Fidelity acct, it was totally painless and so fast.

That being said, I have yet to find an advisor in any of these companies who can give me much valuable investment advice. I have spent years learning about how to handle my money and investments, learning from my own mistakes. The advisors I have spoken with have not added value to my decisions.

So, if I were the OP I might listen to the advisor but I would do what I felt was best for me.


Norma

 

[rescueme]

That being said, I have yet to find an advisor in any of these companies who can give me much valuable investment advice. I have spent years learning about how to handle my money and investments, learning from my own mistakes. The advisors I have spoken with have not added value to my decisions.

I agree, having both FIDO and VG for over 25 years.

I always looked at any advisor from either firm (along with their annual "free review") as something that could be listened to, but ignored in most cases.

Anyway, I don't use either company for financial advice or decision making, but rather look at them as providing the conduit to allow me to invest as I want to.

Heck, most of us would find better "free advice" on a forum, such as this.

 

[heirloom]

Also, don't forget that your money is safer in the 401K vs IRA in a case of a law suit.

My January stmt had a msg stating we can move our after tax money to a roth acc't. within the 401K. It might be worth your while to see if your company offers this too.

Your Savings Plan already offers a way of saving for retirement with certain after-tax contributions known as the Roth 401(k). In addition to being able to make Roth 401(k) contributions, effective July 1, eligible participants may also be able to convert certain pre-tax and traditional after-tax money to Roth 401(k) money within the Savings Plan. Previously, this could be accomplished only by rolling over to a
Roth IRA, which is still an option for some participants.​

As

Smartmoney website has a worksheet to help decide whether it is smart to xfer to a roth ira at you age.

http://www.smartmoney.com/calculator/retirement/should-i-convert-my-ira-to-a-roth-ira-1304481621417/

 

[Rowdy]

I have three 401Ks with 3 different companies. The advantages of staying with your company 401Ks vs moving to an IRA:

- Typically the 401Ks offer dirt cheap funds to choose from; three of my funds have fees of less than 0.04%.
- 401Ks are typically exempt in lawsuits; IRAs may not be.

Granted, you have more choices with an IRA in a brokerage, however, given the low fees and lawsuit protection, I believe the company 401K is the way to go.

 

[packrat44]

Sounds like time to drop that FA.

 

[Nords]

I was shocked that the adviser didn't think it was worth my time to convert. She also seemed to think I'm too focused on the "little" things like expense ratios and keeping taxes low. I said I wanted to do a spreadsheet to compare the expense ratios of the available 401k funds vs. IRA funds and she gave me a look like I was out of my ever lovin' mind.
Please tell me I'm not crazy! (Or if I am, I guess I should know that, too).

I think I see the problem-- "your" financial advisor thinks you should have her best interests at heart.

I bet that expense ratio is anything but "little"...

 

[TrvlBug]

Bad FA? Our Fidelity FA has encouraged us to crunch the numbers for Roth conversions now that I have retired (DH is still working...actually loves certain aspects of his job and is not ready to pack it in) and we'll drop a notch or 2 in tax bracket. We expect to be in a high tax bracket once we retire and SS and RMD kick in as too much of our nest egg is in retirement accounts.

 

[ronocnikral]

Also, don't forget that your money is safer in the 401K vs IRA in a case of a law suit.

have you ever been sued? and if so, were you protected by ERISA or whatever it is called?

one's state can also have protections in place.

while a reason to keep funds in a 401k, I wouldn't consider it a strong enough reason to prevent me from rolling over if I needed better investment options, lower fees or to do conversions. while it is certainly a risk, I don't plan on being sued, nor do I know someone who knows someone who has been sued. ymmv.

 

[nwsteve]

+1



OTOH, Fidelity really did a good job of both the rollovers and conversion. And this year I decided to move the Vanguard monies into the Fidelity acct, it was totally painless and so fast.

That being said, I have yet to find an advisor in any of these companies who can give me much valuable investment advice. I have spent years learning about how to handle my money and investments, learning from my own mistakes. The advisors I have spoken with have not added value to my decisions.

So, if I were the OP I might listen to the advisor but I would do what I felt was best for me.


Norma

Pretty much captures our experience with Vanguard and Fido--Vanguard offers great funds with low cost, but TERRRIBLE administrative abilities and limited CSR ability to operate outside their standard script.
I have found our Fido rep valuable in not only facilitating unusual transactions but also being very knowledgeable how to use the many Fido tools available online. When she does not know, she always tells me (a valuable attribute IMHO) but always goes away and gets me the answer in a timely manner.
Investment advise is helpful in the sense of a sounding board but rarely offers specific insight into taking a different direction. I will say, however, she gets credit for nudging from leaving too much in cash too long several years ago when we had home sales proceeds parked too long.
Nwsteve

 

[pb4uski]

In trying to figure out what to do with my $385k FIDO 401K, I met with one of their reps today about possibly moving the 401K to an IRA. There are many good reasons to do this, but my primary one was to take advantage of the next few years when I'll be living off savings and have no income other than a few thousand in dividends. It seemed like the perfect opportunity to do some ROTH conversions with little to no taxes due.

I was shocked that the adviser didn't think it was worth my time to convert. She also seemed to think I'm too focused on the "little" things like expense ratios and keeping taxes low. I said I wanted to do a spreadsheet to compare the expense ratios of the available 401k funds vs. IRA funds and she gave me a look like I was out of my ever lovin' mind.

Please tell me I'm not crazy! (Or if I am, I guess I should know that, too).

Like others, I think you would be crazy NOT to do Roth conversions while you are in a low tax bracket and reduce RMDs later in life that might be subject to higher taxes.

I wonder if your FA is clueless.

It might well be that the ER differences between the 401k and IRA are not horribly significant, but the tax difference probably would be.

 

[rescueme]

Sorry to go OT, but in addition to the noted reasons why/why not rolling over your 401(k) to an IRA in retirement is the inability (at least in DW/my respective 401(k) plans, from different companies) to have your distributions go directly to cash (e.g. an IRA MM account) rather than reinvested in the fund issuing the distribution or have to do a manual exchange (buy/sell) to capture the distribution.

For instance, our respective bond funds in our IRA's distribute monthly, which go directly to cash for current/retirement income needs.

DW's 401(k) - and mine before converting, did not allow this option, so what I'm noting may not be your situation.

It's OK while still in the accumulation phase and for those that have other income sources while retired but for one who is using their portfolio to support their ER, it is a pain to sell funds to reap the distribution - and subject to market flux.

DW will retire at the end of this month. She intends to do a rollover as soon as her semi-monthly matching funds are posted - sometime early next month, when she starts getting her "paycheck" from her investments, rather than employment and be able to capture those distributions.

FWIW, we don't "cash in" all fund distributions. For instance, our (Psst) Wellesley holding (in our respective Roth IRA's) have quarterly distributions reinvested. Unlike Alan (who uses the same fund distributions for current income), we are just "letting it ride" with the expectation of never needing to use the fund (unless needed to mitigate excessive income taxes in the future).

 

[RetireBy90]

Lots of views here, did anyone remind OP that when you do a conversion from tIRA to Roth that you have to take into account all IRAs not just this one, for taxes. If you have deductable and non deductable, say 90K deductable and 10K non, then you pay taxes on 90% of withdrawls or conversions.

I'm sure others will correct me soon if I understand it wrong, but it can be a hassle if you have to dig out records from many many years ago.

Is it possible to convert say 10K from a 401K directly to a Roth IRA and bypass the deductable/non-deductable thing?

 

[jdw_fire]

Lots of views here, did anyone remind OP that when you do a conversion from tIRA to Roth that you have to take into account all IRAs not just this one, for taxes. If you have deductable and non deductable, say 90K deductable and 10K non, then you pay taxes on 90% of withdrawls or conversions.

and therefore if you do have a TIRA that is mostly non deductable it should be converted to the roth before the 401K is rolled to a TIRA so you dont have to pay as much tax on that conversion.

Is it possible to convert say 10K from a 401K directly to a Roth IRA and bypass the deductable/non-deductable thing?

no