Pros/Cons on keeping 401k with Employer or move to an IRA

[Big_Hitter]

tough to get a decent stable value fund outside of a 401k

 

[USGrant1962]

OP might also look up how the company 401k ranks among its peers.

https://www.brightscope.com/ratings/

Thanks for that link. I found out that my 401(k) is the "Top Plan" in its peer group , I think I'll keep it.

 

[gauss]

Another advantage - IRS allows unlimited 60 rollovers from 401(k) to IRA, but it only allows one 60 rollover from an IRA to another IRA per year.

This may be advantageous if one wishes to add some "tax withholding" near the end of the year after realizing an underwithholding penalty may apply and/or estimated payments have not been sent in in all 4 quarters.

I have posted elsewhere about a variety of advantages of 401k over IRA. The biggest issue that you are up against is no new people can make money on you if you leave the funds in the 401k, so folks are rarely going to recommend it to you. That old (lack of) fiduciary thing raising its head again.

-gauss

 

[COcheesehead]

Someone posted on here a while back about keeping a 401K as that and not rolled into an IRA because it changes the basis of your taxation for rollovers to a Roth. I may have that completely wrong. Does anyone know what I am talking about?

 

[gauss]

IMO creditor protection is so far down on the list of things to be considered as to be negligible.

Hmm..

Are you paying for liability insurance every year to guard the money that could be at risk? I'd rather be 'uncollectable' under Federal law with the funds in retirement accounts.

Remember a lawsuit against you that you loose or choose not to defend is then a creditor protection issue.

Perhaps less of an issue if folks have the majority of their wealth in non-retirement funds/assets.

-gauss

 

[kaneohe]

Someone posted on here a while back about keeping a 401K as that and not rolled into an IRA because it changes the basis of your taxation for rollovers to a Roth. I may have that completely wrong. Does anyone know what I am talking about?

sounds like you are talking about backdoor Roth contributions/conversions.
If you leave the 401K alone, your conversions may be tax free. If you roll a
large 401K into your TIRA, that could make the Roth conversions of non-deductible contributions, almost fully taxable. A good reminder for those who plan to do it.

 

[pb4uski]

tough to get a decent stable value fund outside of a 401k

Tough? I thought it was impossible. Got tickers?

 

[pb4uski]

Hmm..

Are you paying for liability insurance every year to guard the money that could be at risk? I'd rather be 'uncollectable' under Federal law with the funds in retirement accounts.

Remember a lawsuit against you that you loose or choose not to defend is then a creditor protection issue.

Perhaps less of an issue if folks have the majority of their wealth in non-retirement funds/assets.

-gauss

I've never beeen sued (I've also never sued anyone). I have $2m in umbrella coverage that I would carry irrespective of whether or not my IRA is available to creditors. Therefore, risk is negligible.

I don't see what your point is.

 

[COcheesehead]

sounds like you are talking about backdoor Roth contributions/conversions.
If you leave the 401K alone, your conversions may be tax free. If you roll a
large 401K into your TIRA, that could make the Roth conversions of non-deductible contributions, almost fully taxable. A good reminder for those who plan to do it.

I think you have it right. Thanks for helping out with my sketchy memory of the post.

 

[gauss]

I've never beeen sued (I've also never sued anyone). I have $2m in umbrella coverage that I would carry irrespective of whethr or not my IRA is available to creditors. Therefore, risk is negligible.

I don't see what your point is.

I was trying to point out that if the majority of one's wealth is in a 401k plan (currently off limits to creditors under Federal law), and they were thinking of rolling over to an IRA in a state which has less generous protections, then the increased yearly cost of insurance to protect the assets may not be trivial.

Thanks for clarifying your situation.

-gauss

 

[gauss]

Someone posted on here a while back about keeping a 401K as that and not rolled into an IRA because it changes the basis of your taxation for rollovers to a Roth. I may have that completely wrong. Does anyone know what I am talking about?

I have posted in the past that for a 401k plan, the plan administrator is responsible for tracking and reporting any after tax basis in the account.

Once the funds are transferred to an IRA, the responsibility falls to the individual.

The transactions that make up this tax basis often take place decades in the past. I see this all the time at our volunteer tax site. The widows often have no idea if there is any taxable basis in the IRA so 100% of their withdrawals are taxed. This is not an issue with 401k/DB pension plans.

-gauss

 

[Big_Hitter]

Tough? I thought it was impossible. Got tickers?

okay impossible lol

 

[GenXguy]

I didn't see anyone mention this...

but I have a government 457B plan, and you don't have to worry about being 59 1/2 or the rule of 55, either one, to withdraw. I can take distributions at any age penalty free. If I were to move that into a regular traditional IRA, I couldn't take penalty free distributions until age 59 1/2, except under certain conditions like 72(t).

Another advantage of my work retirement account is that they have a NO FEE Fixed Interest Fund that pays 3% (has paid 4% at times in the past as well). It has no expense ratio associated with it nor does any investment in it require the plan administration fee. For the regular equity bond and stock funds, the management fee is over 0.3% and expense ratios of around 0.5% on the low end (many are over 1%). The fixed interest fund has neither.

The con of the work retirement account would be the expenses and management fee that apply to the bond and equity funds, which are considerably higher than my Vanguard funds.

 

[Big_Hitter]

Another advantage of my work retirement account is that they have a NO FEE Fixed Interest Fund that pays 3% (has paid 4% at times in the past as well). It has no expense ratio associated with it nor does any investment in it require the plan administration fee.

that's the stable value fund I mentioned above - basically nonexistent on the retail side

 

[pb4uski]

I didn't see anyone mention this...

but I have a government 457B plan, and you don't have to worry about being 59 1/2 or the rule of 55, either one, to withdraw. I can take distributions at any age penalty free. If I were to move that into a regular traditional IRA, I couldn't take penalty free distributions until age 59 1/2, except under certain conditions like 72(t). ...

Perhaps nobody mentioned that because the OP and title of the thread refers to pros/cos of keeping 401k.

 

[GenXguy]

Perhaps nobody mentioned that because the OP and title of the thread refers to pros/cos of keeping 401k.

I'm guessing the OP isn't the only one reading responses to this thread and that I'm not the only one with this choice/option. It's just another type of employee retirement program that I bet others here have. In fact, you often see people use the term "401k" loosely when they mean the host of other employer based plans, such as 457B, 401a, 403b. Over the last 18 years, I've even heard fellow employees often call our plan a 401k. We don't even have a 401k. Happens all the time.

The FEE FREE fixed interest fund that I mentioned isn't unique to 457B and can exist in 401K plans as well.

 

[GenXguy]

I've never beeen sued (I've also never sued anyone).

I've never had my house burn down, but that doesn't keep me from protecting myself against the possibility. The fact it has never burned down in the past is irrelevant.

 

[Bamaman]

When I retired, my MegaCorp required that all ex-employees must move their 401K accounts out of Fidelity.

That indicates that MegaCorp was picking up some of the service fees associated with the account.

I had long moved out of the standard 401K program to a self directed 401K where I paid expenses. But that was when the price of the stock market was going up more steadily than the meandering of the stock prices we're presently experiencing. Over the years, I came out far ahead by getting out of their somewhat conservative stock offerings to MegaCorp's 401K.

 

[pb4uski]

I've never had my house burn down, but that doesn't keep me from protecting myself against the possibility. The fact it has never burned down in the past is irrelevant.

You needed to read the whole post ...

I've never beeen sued (I've also never sued anyone). I have $2m in umbrella coverage that I would carry irrespective of whether or not my IRA is available to creditors. ...

I still carry umbrella insurance in case I do get sued, but the fact that I never have been is relevant to assessing the risk.

So your point is pointless... you seem to be on a roll.

 

[pb4uski]

I'm guessing the OP isn't the only one reading responses to this thread and that I'm not the only one with this choice/option. It's just another type of employee retirement program that I bet others here have. In fact, you often see people use the term "401k" loosely when they mean the host of other employer based plans, such as 457B, 401a, 403b. Over the last 18 years, I've even heard fellow employees often call our plan a 401k. We don't even have a 401k. Happens all the time.

The FEE FREE fixed interest fund that I mentioned isn't unique to 457B and can exist in 401K plans as well.

In a previous post #13 I mentioned that a stable value fund would be a good reason for staying in the 401k.

+1 access to a stable value fund is a great reason to stay with a 401k.

Dtail is lucky to have access to a stable value fund that pays a very handsome rate... I'm jealous.

Reading comprehension is hard.

 

[COcheesehead]

I have posted in the past that for a 401k plan, the plan administrator is responsible for tracking and reporting any after tax basis in the account.

Once the funds are transferred to an IRA, the responsibility falls to the individual.

The transactions that make up this tax basis often take place decades in the past. I see this all the time at our volunteer tax site. The widows often have no idea if there is any taxable basis in the IRA so 100% of their withdrawals are taxed. This is not an issue with 401k/DB pension plans.

-gauss

You can make after tax contributions to a 401k? I didn’t know that.

 

[pb4uski]

Yup, and there is separate tracking of pre-tax and after-tax accounts.

I never saw much point to making after-tax contributions and just had after-tax investments.... if I had only know that they would someday allow those after-tax 401k accounts to be rolled into a Roth I would have put a lot more in there.

 

[ychuck46]

Six of one, half ...

As long as your options are attractive in the 401k it is really a toss up between moving the funds or leaving them where they are. We have done both and I still have the 401K from my final employer with Fidelity, even though all our others investments are with Vanguard and TD. If you want the convenience of having the funds in one account, then by all means move them.

Regarding the Fidelity "adviser" - ignore him. I have a similar situation with TD in that they know I have IRAs with other firms, so their Nashville office calls me periodically wishing to "update" with me. I ignore the calls since I have no need for them or their advice, which will likely be the same as you are getting from Fidelity, namely to move the funds to them and to also look at annuities, which I despise. I use TD for any stock trades, and all my ETFs and mutual funds are with Vanguard.

 

[mckittri2000]

IRA Rollover SEPP

I retired at 56 and rolled over my 401K to an IRA so I could get SEPP payments for the next 5 years. My 401K plan did not allow me to take out a portion of my balance (55 yr old rule). They allowed full payout, rollover to an IRA or leave it as is. Check with your employers plan to see what is available. Full payout was not an option for me due to the taxes that would have been owed and the amount going against my ACA adjusted gross income number.

 

[neihn]

+1 access to a stable value fund is a great reason to stay with a 401k.

Dtail is lucky to have access to a stable value fund that pays a very handsome rate... I'm jealous.

Yes, access to a stable fund is the reason that I stay with my mega-corp 401k, however, it only pays 3%.