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Moving 401k
Old 07-26-2017, 08:32 PM   #1
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Moving 401k

Smart people of ER, enlighten me on the finer points of moving a 401k. Please point me to previous discussions as appropriate.

If I stay at my current employer, I can access my 401k penalty free if I separate from them in the year I turn 55.

If I leave before then, I understand my options to be:
A) leave the money in the current plan
B) roll into IRA
C} roll into new employer's plan
D) just take the money and get brutalized on taxes & penalties

D really isn't an option.
A & B require waiting until 59.5 to access penalty free.

Under option C, is the money from the first plan (now commingled) accessible penalty free if I separate from the 2nd employer at 55 or later?

In other words, does the IRS differentiate between the original funds and the new funds added at the 2nd employer (even though they are now in the same account) with respect to separating at 55+?












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Old 07-26-2017, 08:36 PM   #2
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One note, while the IRS permits a plan to include access to 401k funds if separate from employer in the year you turn 55 penalty free, there is no requirement that all 401k plans allow these distributions. Entirely up to how the employer set up the plan
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Old 07-26-2017, 08:43 PM   #3
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Understood. I checked that box with the current employer, would need to verify with the new one. Also, some plans allow partial withdrawals while others require you to take it all upon leaving.
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Old 07-27-2017, 03:19 AM   #4
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If you transfer the 401K money into a rollover IRA, you can take 72t distributions prior to age 59.5. The IRS 72t rules dictate you need to take equal distributions for at least 5 years or until age 59.5 - whichever is longer. Also, the distributions are based on your age and 120% of the Federal mid-term rate. Bankrate has a calculator to determine distributions 72t Distribution Calculator
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Old 07-27-2017, 07:50 AM   #5
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Keep in mind that you may want to do more than one of those options, depending on how many and which types of money you have in the plan.


When I ERed back in 2008 at age 45, I wrote out lengthy instructions to the plan Admin for how to handle the different types of money I had in the plan.


(a) A little more than half of it was in company stock and I chose to cash it out using NUA (Net Unrealized Appreciation) so it would be taxed at much lower rates.


(b) A small amount of it was after-tax dollars so this was my one chance to get all that money back in a lump sum without paying any taxes on it. I used this to pay some of the taxes in (a).


(c) And the rest of it (pretax contributions and earnings on them and earnings on the after-tax dollars), just under half of it, I did a direct rollover into an IRA, also a nontaxable event.


The plan admin followed all my instructions perfectly, to their credit.
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Old 07-27-2017, 07:52 AM   #6
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depending upon your state, you may have better protection from creditors with a 401k than with an IRA.

The obvious question would be, "would you need access to the 401k/IRA funds before 59.5yo? If no, then it may not matter if the IRA path has an early withdraw penalty.
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Old 07-27-2017, 08:37 AM   #7
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Quote:
Originally Posted by Geld ist Freiheit View Post

In other words, does the IRS differentiate between the original funds and the new funds added at the 2nd employer (even though they are now in the same account) with respect to separating at 55+?

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no; best move imo would be to roll it to the new er plan. that's what I did 6 years ago when I changed jerbs. check with your new employer first tho, ymmv
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Old 07-27-2017, 09:22 AM   #8
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Originally Posted by Big_Hitter View Post
no; best move imo would be to roll it to the new er plan. that's what I did 6 years ago when I changed jerbs. check with your new employer first tho, ymmv

"Best move" only if the new plan is a good one. There are some crappy 401k plans out there.
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Old 07-27-2017, 09:25 AM   #9
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I ER'd at age 55. I did have a 401K that I could access at that age, but instead rolled my 401K into an IRA and Roth IRA (I had made after-tax contributions going into my 401K also) on the recommendations of my financial advisor. The IRA and Roth IRA now consolidates a lot of my previous IRA and Roth IRA accounts I had from various own contributions, roll-overs from previous jobs, etc. into one managed program (still 6 different funds in there). I will not have access to these funds till age 59.5 unless some terrible economic tragedy occurs. I did have $200K of the Roth IRA funds kept in cash outside of the Roth investment plan without any penalties, that I can use as an emergency fund, if needed till I get to 59.5 - so far, no indication that I will need it. I'm currently living off of a pension, dividends from stocks, and a stock option plan that I still have 9 years of available stocks in. I also have a little part-time job, that really just pays my health insurance fees now. I don't need my 401K funds currently and have had no sleep loss issues limiting my access till 59.5.
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Old 07-27-2017, 11:03 AM   #10
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Another advantage of a 401(k) over an IRA is that some 401(k) plans have a cash fund that pays higher interest than short term bonds or CDs.
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