Should I roll 401K to IRA?

[kaneohe]

Quote:

Originally Posted by pjigar ......................................... Both 401K and IRA enjoys the same asset protection under bankruptcy situation.

This is not true. IRA protection is state-dependent. CA, for example, has poor protection of IRA. 401Ks can't be touched by almost anyone.....except IRS,
QDRO , and perhaps 1 more.

[Luvdogs]

Quote:

Originally Posted by statsman We left my wife's funds in her company's 401(k) plan when she retired mid-2017 because, in addition to having several Vanguard funds available, she also had access to some manage funds, like DODIX. Those funds could be bought/sold within the 401(k) without purchase or selling fees. That said, they changed the plan in the middle of 2018 to start charging an administration fee (beyond the fund fees) for retirees to maintain their account within the 401(k). An additional 0.15% fee per year. Needless to say, once we're settled into our new house in a few months, we'll be rolling over her 401(k) into an IRA. Just one of those things you may have to watch with any money left in a 401(k) plan upon retirement.

How were you notified of this? Did they advise you via email/letter--or was this just buried in the online info and you had to search it out?

[pjigar]

Quote:

Originally Posted by kaneohe This is not true. IRA protection is state-dependent. CA, for example, has poor protection of IRA. 401Ks can't be touched by almost anyone.....except IRS, QDRO , and perhaps 1 more.

I should have been more specific. "Rollover IRA" enjoys the same protections as 401k.

https://www.retirementwatch.com/how-...from-creditors

[coveredbridge]

Quote:

Originally Posted by Spock If your 401K has a Stable Value fund, and if you desire such a fund in your portfolio, leave it at the 401k. IRAs do not have access to stable value funds.

This is the main reason I haven't rolled my 401k into my IRA, along with the access at age 55 for early retirement, which my 401k allows.

[kaneohe]

Quote:

Originally Posted by pjigar I should have been more specific. "Rollover IRA" enjoys the same protections as 401k. https://www.retirementwatch.com/how-...from-creditors

Thanks for that link........it does say you have to successfully file for bankruptcy in order to be so protected. 401Ks are protected.....period......bankruptcy or not
(except vs IRS/QDRO).

[Dash man]

Quote:

Originally Posted by gwraigty As I posted, Roth 401k are still subject to RMDs, an important distinction. I'm pretty sure you're wrong about IRAs having the same protection everywhere. A quick Google search confirms this from any number of sources.

If an IRA was a rollover from an ERISA protected 401k or other ERISA covered account, it retains the same protections. Additionally, an IRA can be protected up to $1M by declaring bankruptcy.
https://www.iraservices.com/is-my-re...-from-lawsuits

[kaneohe]

Quote:

Originally Posted by Dash man If an IRA was a rollover from an ERISA protected 401k or other ERISA covered account, it retains the same protections. ........................................[/url]

What about under non-bankruptcy conditions?

[Dash man]

Quote:

Originally Posted by kaneohe What about under non-bankruptcy conditions?

If the IRA was funded by an ERISA protected account, it retains the protections. If not, $1M is protected under bankruptcy. If no bankruptcy, each state has their own laws you would need to research.

[gwraigty]

Quote:

Originally Posted by Bikechuck In Ohio, assets held in 401Ks are more protected from law suits than assets held on IRAs.

That is incorrect. Here is the full text of the ORC (as referenced in the PDF file I linked to) that applies to the exempt status of IRAs, both traditional and Roth:

Lawriter - ORC - 2329.66 [See notes for adjustments for inflation] Exempted interests and rights.

The most relevant portion:

"(A) Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:

(c) Except for any portion of the assets that were deposited for the purpose of evading the payment of any debt and except as provided in sections 3119.80, 3119.81, 3121.02, 3121.03, and 3123.06 of the Revised Code, the person's rights or interests in the assets held in, or to directly or indirectly receive any payment or benefit under, any individual retirement account, individual retirement annuity, "Roth IRA,""

Here is a legal paper published in 2017 that provides excruciating detail on the matter regarding Ohio law:

http://www.wickenslaw.com/wp-content...lan-Assets.pdf

From page 6:

"Ohio law, for example, specifically exempts traditional and Roth IRAs from execution, garnishment, attachment, or sale to satisfy a judgment or order. There is no cap under the Ohio exemption."

Note that there are different protections for bankruptcy vs. lawsuits. There are also differences in whether the assets in the IRA/Roth IRA were funded outside of an employer plan vs. funded via a 401k rollover. The OP was specifically asking about lawsuit protection in a 401k vs. a rollover IRA.

"Assets in qualified retirement plans (pension, profitsharing, and section 401(k) plans) possess the most extensive debtor protections both within and outside of a bankruptcy proceeding. Assets in IRAs are exempt from creditor claims in bankruptcy (up to $1,283,025 for contributory IRAs and Roth IRAs and to an unlim‑ited dollar amount for SEPs, SIMPLEs and rollover IRAs). Outside of bankruptcy, one must look to state law to determine the level of exemption for IRAs."

With all that said, we don't know what state the OP is in, so Ohio law may not even be relevant to OP's situation. I just used Ohio as an example of a state that grants full protection to rollover IRAs, regardless of bankruptcy or lawsuits. OP has to do the research for the appropriate state. I simply tried to provide a starting point for that.

[gwraigty]

Quote:

Originally Posted by Dash man If an IRA was a rollover from an ERISA protected 401k or other ERISA covered account, it retains the same protections. Additionally, an IRA can be protected up to $1M by declaring bankruptcy. https://www.iraservices.com/is-my-re...-from-lawsuits

Quote:

Originally Posted by Dash man If the IRA was funded by an ERISA protected account, it retains the protections. If not, $1M is protected under bankruptcy. If no bankruptcy, each state has their own laws you would need to research.

In my state, rollover IRAs have unlimited protection under bankruptcy. So even that depends on the laws of your state.

[statsman]

Quote:

Originally Posted by Luvdogs How were you notified of this? Did they advise you via email/letter--or was this just buried in the online info and you had to search it out?

Buried in the documentation. It took a call into her old company's HR department to determine this change had taken place (apparently, my wife wasn't the only ex-employee who got bit by this).

[Cat-tirement]

I have kept my megacorp 401k since leaving work more than 4 years ago primarily because it offers institutional or custom classes of desirable funds with very low expenses. The savings more than makes up for admin fees of a few dollars each quarter.

[gauss]

I am pleased to see that many good reasons for avoiding 401k to IRA rollovers have been mentioned by others in the group, so it looks like the word is getting out.

One reason, that hasn't been mentioned yet, to leave the funds in the 401k, rather than move to IRA, would be for simplification of tax return preparation down the road and increased confidence that you will not overpay taxes every year down the road.

For funds in a 401k, the plan custodian is nearly always responsible for correctly determining and reporting the taxable amount of any distribution. (ie the "taxable amount not determined" (box 2b) on 1099-R is unchecked and the taxable amount is correctly reported (in box 2a).

The 401k plan providers are required to track any non-taxable basis in the account, over the account's entire lifetime , and correctly apply the "general rule" to determine the taxable amount each year there is a distribution.

IRAs, on the other hand, will nearly always have box 2b checked. "Taxable amount not determined". Even if they report a taxable amount in box 2a, it should not be relied upon. The burden is on the taxpayer, not the IRA provider, to correctly determine the taxable amount -- which in general can be less than the gross distribution.

The issue is that far too many people will just type the amount of box 2a into their tax software and pay tax on the entire amount and not know the difference. This is even more common when surviving spouses take over responsibility for filing taxes after the passing of the first individual in a married couple.

-gauss

[gwraigty]

Quote:

Originally Posted by gauss I am pleased to see that many good reasons for avoiding 401k to IRA rollovers have been mentioned by others in the group, so it looks like the word is getting out. One reason, that hasn't been mentioned yet, to leave the funds in the 401k, rather than move to IRA, would be for simplification of tax return preparation down the road and increased confidence that you will not overpay taxes every year down the road. For funds in a 401k, the plan custodian is nearly always responsible for correctly determining and reporting the taxable amount of any distribution. (ie the "taxable amount not determined" (box 2b) on 1099-R is unchecked and the taxable amount is correctly reported (in box 2a). The 401k plan providers are required to track any non-taxable basis in the account, over the account's entire lifetime , and correctly apply the "general rule" to determine the taxable amount each year there is a distribution. IRAs, on the other hand, will nearly always have box 2b checked. "Taxable amount not determined". Even if they report a taxable amount in box 2a, it should not be relied upon. The burden is on the taxpayer, not the IRA provider, to correctly determine the taxable amount -- which in general can be less than the gross distribution. The issue is that far too many people will just type the amount of box 2a into their tax software and pay tax on the entire amount and not know the difference. This is even more common when surviving spouses take over responsibility for filing taxes after the passing of the first individual in a married couple. -gauss

At it's simplest, when a 401k has a mix of pretax, after tax, and Roth contributions, the balances that are attributable to pretax (including earnings on pretax and after tax) can be rolled over into an IRA. The balances that are attributable to after tax (excluding earnings) and Roth (including earnings) can be rolled over into a Roth IRA. Here is a handy-dandy chart direct from the IRS that illustrates this:

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

If done in this way, balances that are subject to RMDs and are fully taxable will be neatly segregated from balances that are not. Knowing the basis wouldn't be necessary.

From Fidelity:

https://www.fidelity.com/viewpoints/...lover-guidance

"According to IRS guidance, you can roll after-tax money to a Roth IRA and pre-tax money to a traditional IRA and avoid creating taxable income...In the most straightforward scenario, the entire account balance would be rolled out of the workplace plan, sending after-tax contributions to a Roth IRA and pre-tax contributions and earnings to a traditional IRA...If the plan allows partial withdrawals and does track each source balance separately, one could take a rollover of just the after-tax source balance, which includes both the after-tax contributions and all of the associated earnings. Again, the after-tax balance would go to a Roth IRA while earnings would go to a traditional IRA."

[GrayHare]

A lesser known benefit of 401k vs IRA is that some states treat 401k withdrawals as a pension that, again depending on state, might qualify for a reduced tax rate. That benefit can go away if you move 401k money to an IRA, even if it's a rollover IRA. Unfortunately I do not know a single web page that lists how each state handles this issue.

[53anddone]

I rolled mine from Vanguard into Fidelity. Mainly because the options for investment were far greater. Now I have my rollover invested into ETFs and Individual stocks which were not available in the company sponsored plan.

Fidelity made it painless and now I have everything under one roof so to speak.

[deserat]

Quote:

Originally Posted by fh2000 Our 401K accounts are managed by Vanguard. I asked them about Vanguard rollover accounts. They told me that the S&P500 fund, and bond fund we hold in 401K are institutional shares. They will have to be sold; rolled over; purchase like-kind individual shares. The expense ratio for institutional shares are lower than individual shares, so we left our money in 401K. I will roll it over when I am ready to do Roth conversion maybe next year.

^^^^This - depending on your institution, they may have negotiated a lower management on any shares held/administrated by Vanguard versus you as an individual investor. That is the main reason I am holding onto my 403B from an employer which uses VG as the administrator. Additionally, the institution may have negotiated free or low cost access to services that would cost more if you had those shares in an individual area.

As an example, I have free access to VG retirement planning services which allow you to input information from all of your portfolio and then based on other variables that you tweak, they recommend an asset allocation as well as when/how to re-balance. They also have a similar retirement calculator to FIRECalc and I-orp. For peace of mind, it can be nice to have different calculators help with decision making: it's like having a staff give you option A, B and C and then you choose.

[Murph]

I like how my 401K performs, so I just left mine in there.

[wildbilly]

"I remember reading somewhere that if you were sued it was harder to take the money in the 401K compared to the IRA. Is that a consideration?"

I won't move mine because of this reason. You can't even buy that kind of insurance and it's free(per the federal governments rules). IRA's laws are governed by the state and most have similar protection but only for the for $50-$100K or so; some have no protection.

[pb4uski]

Quote:

Originally Posted by wildbilly "I remember reading somewhere that if you were sued it was harder to take the money in the 401K compared to the IRA. Is that a consideration?" I won't move mine because of this reason. You can't even buy that kind of insurance and it's free(per the federal governments rules). IRA's laws are governed by the state and most have similar protection but only for the for $50-$100K or so; some have no protection.

Sure you can... its called umbrella insurance and many of us here have it.