Leave 401K in Vanguard or roll over to Vanguard IRA?

[fh2000]

DW and I left megacorp recently. Our 401K are in Vanguard. Our funds in 401K are:

Vanguard institutional 500 Index Trust
Vanguard institutional Total Bond Market Index Trust
Vanguard institutional Total International Stock Market Index Trust.

Megacorp is quite stable. Is there a benefit to roll over to Vanguard Rollover IRA accounts?

 

[youbet]

I left my 401k at Mega unitl RMD time approached. Then I converted to a Rollover IRA at Schwab (any major brokerage house would do) because they offered nice features for calculating and tracking your RMD's and QCD's. That also made it super easy for the RMD (net of QCD's and withholding tax) to transfer to my main brokerage account.

You'd likely have a much greater choice of investments with the Rollover IRA than with the 401k, but it sounds like your 401k in adequate as long as you don't do any individual issue trading, etc.

 

[GrayHare]

Institutional funds available within a 401k can have lower expense ratios than funds accessible by an IRA. If not, moving to a IRA can make sense.

 

[jazz4cash]

Institutional funds available within a 401k can have lower expense ratios than funds accessible by an IRA. If not, moving to a IRA can make sense.

+1
It's not an either/or decision. You can have both! Leave enough in the 401k to take advantage of whatever funds/features that are better than Vanguard offers in their IRA option. Does the 401k have a good stable value option? Rollover enough to take advantage of whatever funds/features offered by Vanguard that are not available within the 401k.

 

[SumDay]

I'm wrestling with this myself. However, I'm considering moving my 401(k) TO Vanguard.

You may want to consider that you'll loose your ERISA protection if you leave the confines of the 401(k). I'm pondering this too...

https://www.investopedia.com/articl...-retirement-funds-are-protected-creditors.asp

https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira

May not be a consideration for you, but I worked in this field for years so it is on my radar screen. Let us know what you decide (if you want).

 

[OldShooter]

Look at the fees you're paying in the 401K, both the individual fund expenses and any overall fees. I had a student in my investing class that had nice low fund expenses but was getting whacked with a fee, IIRC 1.25% in addition. Look for "404a-5 Participant Fee Disclosure" and make sure you're good.

Edit: An example.

 

[fh2000]

I'm wrestling with this myself. However, I'm considering moving my 401(k) TO Vanguard.

You may want to consider that you'll loose your ERISA protection if you leave the confines of the 401(k). I'm pondering this too...

https://www.investopedia.com/articl...-retirement-funds-are-protected-creditors.asp

https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira

May not be a consideration for you, but I worked in this field for years so it is on my radar screen. Let us know what you decide (if you want).

Since our current 401K is managed by Vanguard, and the funds we hold are in Vanguard index funds, there might not be any difference between our Vanguard 401K and Vanguard Rollover IRA.

We have no debt, and have a 2M Umbrella insurance policy so the chances of being pursued by creditors for IRA money is likely small.

The only question unknown to me, is if we chose to leave 401K, when we begin Roth IRA conversion, can we withdraw funds from 401K directly (we are older than 59 1/2) and convert to Roth IRA (from Vanguard)?

 

[fh2000]

Look at the fees you're paying in the 401K, both the individual fund expenses and any overall fees. I had a student in my investing class that had nice low fund expenses but was getting whacked with a fee, IIRC 1.25% in addition. Look for "404a-5 Participant Fee Disclosure" and make sure you're good.

Edit: An example.

Thanks, I will do some homework on both our Vanguard 401K and potential Vanguard Rollover IRA on fees.

 

[pj.mask]

I plan on keeping my megacorp 401k (no fees, low expense, amazing options) and I can roll over future 401k into it. Don’t want IRA while working (backdoor)

If you retired at 55 from the company, you can access those funds penalty free. May be worth keeping.

If fund selection and fees aren’t a problem, no real reason to change

 

[Hermit]

I left my 401k at Mega unitl RMD time approached. Then I converted to a Rollover IRA at Schwab (any major brokerage house would do) because they offered nice features for calculating and tracking your RMD's and QCD's. That also made it super easy for the RMD (net of QCD's and withholding tax) to transfer to my main brokerage account.

You'd likely have a much greater choice of investments with the Rollover IRA than with the 401k, but it sounds like your 401k in adequate as long as you don't do any individual issue trading, etc.

QCDs can only be done from IRA. 401k offers more protection from law suits.

 

[gwraigty]

I'm wrestling with this myself. However, I'm considering moving my 401(k) TO Vanguard.

You may want to consider that you'll loose your ERISA protection if you leave the confines of the 401(k). I'm pondering this too...

https://www.investopedia.com/articl...-retirement-funds-are-protected-creditors.asp

https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira

May not be a consideration for you, but I worked in this field for years so it is on my radar screen. Let us know what you decide (if you want).

It depends on the laws of your state.

https://www.thetaxadviser.com/content/dam/tta/issues/2014/jan/stateirachart.pdf

https://www.assetprotectionplanners.com/planning/ira-by-state/

 

[kgtest]

DW and I left megacorp recently. Our 401K are in Vanguard. Our funds in 401K are:

Vanguard institutional 500 Index Trust
Vanguard institutional Total Bond Market Index Trust
Vanguard institutional Total International Stock Market Index Trust.

Megacorp is quite stable. Is there a benefit to roll over to Vanguard Rollover IRA accounts?

My medium-corp charges me a $15 quarterly maintenance fee, to hold a single SCHA ETF in the account. Soo yes, when I quit or get laid off, I plan to rollover and save myself the $60 a year charge. Its not a lot, but I don't like throwing money away if I don't need to.

 

[pjigar]

Also keeping the funds in A 401K allows you to keep the backdoor IRA gate open.

 

[HI Bill]

Since you're 62, the penalty-free withdrawals if you retire between 55 and 59.5 rule don't matter to you.

Does your state tax the employer match portion of the 401(k) contributions? Mine (Hawaii) does not. Keeping it in the 401(k) might make the tax accounting on this easier (the employer match contribution basis is maintained in the account, rather than you having to track it), if a similar law applies to you.

 

[fh2000]

Since you're 62, the penalty-free withdrawals if you retire between 55 and 59.5 rule don't matter to you.

Does your state tax the employer match portion of the 401(k) contributions? Mine (Hawaii) does not. Keeping it in the 401(k) might make the tax accounting on this easier (the employer match contribution basis is maintained in the account, rather than you having to track it), if a similar law applies to you.

I am in California. I believe they tax everything.

I did a google search, and found below link:
https://www.retirementliving.com/taxes-by-state

Here is California portion for retirement income taxes:
Retirement Income Taxes: Social Security and Railroad Retirement benefits are exempt. There is a 2.5% tax on early distributions and qualified pensions. All private, local, state and federal pensions are fully taxed.

I also looked up Hawaii:
Retirement Income Taxes: Social Security, first tier Railroad Retirement benefits, military, federal, state/local, and some private pensions are exempt. All out-of-state government pensions are exempt. Also, employer-funded pension plans are exempt. Distributions from private employer pension plans received upon retirement are partially taxed by the state if the employee contributed to the pension plan.

Maybe what you described in Hawaii is what is highlighted portion.

So, for me, there is no difference between 401K and Rollover IRA in terms of state taxes.

 

[HI Bill]

I also looked up Hawaii:
Retirement Income Taxes: Social Security, first tier Railroad Retirement benefits, military, federal, state/local, and some private pensions are exempt. All out-of-state government pensions are exempt. Also, employer-funded pension plans are exempt. Distributions from private employer pension plans received upon retirement are partially taxed by the state if the employee contributed to the pension plan.

Maybe what you described in Hawaii is what is highlighted portion.

My former boss was also a paid tax preparer for Hawaii and Federal returns. He said "Company contributions would not be taxed by Hawaii. They would be considered payment for past services calculated as a percentage of the distribution." Sorry, CA is a tax-heavy state, for sure! I lived there most of my life, then moved back briefly to Monterey...I was shocked when I bought a new car there!

 

[Katsmeow]

+1
It's not an either/or decision. You can have both! Leave enough in the 401k to take advantage of whatever funds/features that are better than Vanguard offers in their IRA option. Does the 401k have a good stable value option? Rollover enough to take advantage of whatever funds/features offered by Vanguard that are not available within the 401k.

That entirely depends on the plan. Once retired, I can no longer withdraw anything or rollover anything from the 401k unless it is total. No partial withdrawals or rollovers any more (I could do them while employed). Right now I don't need the money in the 401k and the investment options are adequate so I am doing that. At some point, I may need to rollover to an IRA though so I can get more flexibility to split up the money. I have several years before I have to take RMDs.