Should I roll 401K to IRA?

[ychuck46]

True for many large employers

The employer doesn't have custody of the 401k funds.

While that is often true for large employers, there have been instances of companies raiding the 401k plans at some smaller enterprises.

 

[pb4uski]

True, but all the big players have money market funds that are pretty much on par (at least right now) with the interest being paid by a Stable Value fund. Think Vanguard and Fidelity for instance.

That is true now but was not for much of the last 10 years... stable lue funds were spanking even the highest yielding MM funds until a little over a year ago.... and one never knows when it might revert to the past.

 

[indiajust]

I've done a dozen rollovers. Costs at brokerages are lower and choices are higher. Very few 401k's allow individual stock purchases, most have just a handful of options. Smaller plans usually have fewer options than those with larger employers.

You can contribute personally to an IRA, not so with 401k's once you are not working. Otherwise, they behave the same. It comes down to choice and cost.

 

[LRDave]

Interesting....my state was YES on protecting IRA but NO on protecting Roth IRA. Puzzling....I better look into the details of that law.

 

[Bamaman]

My Megacorp requires all retirees to exit their 401k, which indicates they're paying some of the carrying costs.

I rolled my Fidelity 401K into my Fidelity IRA's and then reallocated the consolidated accounts into 5 different diverse funds. I find too many funds to be difficult to keep up with and manage.

 

[LRDave]

This chart is different from one earlier in this post:

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

 

[Bikechuck]

Major reason to keep the money in 401K vs IRA is to allow simple math for backdoor IRA contributions if you are in that situation. Other than that I would roll over to IRA any day. Both 401K and IRA are subject to RMD. Both 401K and IRA enjoys the same asset protection under bankruptcy situation.

In Ohio 401K assets have certain protections from law suits that IRA assets do not.

 

[arch57]

That is true now but was not for much of the last 10 years... stable lue funds were spanking even the highest yielding MM funds until a little over a year ago.... and one never knows when it might revert to the past.

I'm getting 3.7% in our Stable Value fund and it just checked Vanguard MM is at 2.5% so my 401K plan has always been about 1 to 1.5% higher and therefore I kept my funds there with most allocated to Stable Value fund. Then my DW IRA and 401K are weighted towards equities giving us a nice 60/40 ratio.

 

[pb4uski]

3.7% in a stable value fund is outstanding from what I hear.

 

[Sunset]

My Megacorp requires all retirees to exit their 401k, which indicates they're paying some of the carrying costs.
....

Not necessarily, it could simply be good prudence on their part to remove the liabilities they have towards the 401K. There are all sorts of rules and punishments for companies when dealing with 401K's, so not supporting ~20 years worth of retired folks 401K's is smart.
Their cost could simply be their staff cost in dealing with all the 401K folks, questions, withdrawal requests, and not actually any cost of the 401K fund management itself.

 

[COcheesehead]

Yup, I made this mistake. Cost me money on Roth conversions.

Trying to wrap my head around this. You need to take RMD’s from the aggregate of all your IRA’s and 401K’s so what if they are in different accounts. The basis stays the same overall.

 

[Dtail]

I'm getting 3.7% in our Stable Value fund and it just checked Vanguard MM is at 2.5% so my 401K plan has always been about 1 to 1.5% higher and therefore I kept my funds there with most allocated to Stable Value fund. Then my DW IRA and 401K are weighted towards equities giving us a nice 60/40 ratio.

Same thoughts.
My Stable Value currently at a net of expenses 3.78% has always been greater than MM funds.
Represents 50% of my bond allocation.

 

[RockLife]

It should be easy enough to find out if your brokerage has any fees for IRAs via their website. Many don't.

The only major reason you might want to keep the 401k is for the lawsuit protection, if you're in a state that doesn't exempt all or enough of it. Here is something I've posted before that gives a state by state breakdown:

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

Question: what constitutes a creditor? I'm thinking of the case where you get sued for a slip and fall or a car accident and they don't take the insurance. Is the person suing you now a creditor? Are you 401K/IRA funds protected from this? Another way to ask the question is this: do I need a umbrella policy protecting all of my retirement accounts, or just my taxable accounts and other assets?

 

[audreyh1]

If I had been able to roll my smallish IRA over to a Roth when I retired, and before I rolled over my 401K to another IRA, I would have been able to use the post-tax basis, getting rid of it and not have it lingering for all time with extra tax filings.

But Roth rollover was not an option for me way back then - not until 2010 - so no matter.

 

[gwraigty]

Question: what constitutes a creditor? I'm thinking of the case where you get sued for a slip and fall or a car accident and they don't take the insurance. Is the person suing you now a creditor? Are you 401K/IRA funds protected from this? Another way to ask the question is this: do I need a umbrella policy protecting all of my retirement accounts, or just my taxable accounts and other assets?

I think the person suing would be a creditor only if they get a judgment against you. Your non-retirement/non-HSA assets (another benefit of HSAs that isn't normally mentioned) would only be at risk if the judgment exceeded your insurance limits. We have an umbrella policy to cover accounts/property that isn't legally exempt in our state. IRAs are fully exempt.

 

[kaneohe]

from one of the links earlier.....................to me this sounds like a rollover IRA containing only formerly ERISA assets is protected for unlimited amounts under federal bankruptcy law. Does this mean you have to file successfully for bankruptcy in order to get that protection?
*********************************************************

"So, how safe from creditors are your IRA and other retirement assets?

Federal law provides important protection for qualified retirement plans. Your qualified retirement plan is protected by the Employee Retirement Income Security Act of 1974 (ERISA) from claims by creditors.

This protection covers most employer plans, such as 401(k)s, defined benefit plans and others.

...........................................

........................................................
For example, a 403(b) plan offered by a state or local government probably isn’t set up under ERISA, and doesn’t qualify for the federal protection.

IRAs also aren’t protected by ERISA, but they do have some protection under federal bankruptcy law.

A rollover IRA of any amount is protected from creditors under federal bankruptcy law.

That is, if you rolled over money from an employer plan such as a 401(k) to an IRA, the IRA is protected from creditors. This protection also applies to a SEP or Simple IRA.

A contributory IRA (that is, an IRA that isn’t a rollover IRA) also is protected from creditors under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Up to $1 million of IRAs are protected under federal bankruptcy law. The $1 million limit is indexed for inflation every three years, and currently is at $1,283,025.

But these federal protections for IRAs are available only in a federal bankruptcy action. You have to file for bankruptcy to protect the IRA."

 

[gwraigty]

from one of the links earlier.....................to me this sounds like a rollover IRA containing only formerly ERISA assets is protected for unlimited amounts under federal bankruptcy law. Does this mean you have to file successfully for bankruptcy in order to get that protection?

There is a difference between the federal bankruptcy protection afforded 401k assets rolled over into an IRA/Roth IRA, and state law protection of the same assets, which may also cover bankruptcy as well as creditor protections w/o filing for bankruptcy.

I would say that, in general, you would have to file successfully for bankruptcy to be protected under federal law. However, if your state protects the assets from all creditors to the extent that your entire balance would be covered, or even unlimited as mine does, you don't have to file for bankruptcy.

IANAL, but I've researched my state law on this, as everyone should.

 

[RockLife]

I think the person suing would be a creditor only if they get a judgment against you. Your non-retirement/non-HSA assets (another benefit of HSAs that isn't normally mentioned) would only be at risk if the judgment exceeded your insurance limits. We have an umbrella policy to cover accounts/property that isn't legally exempt in our state. IRAs are fully exempt.

Thanks!

 

[kaneohe]

There is a difference between the federal bankruptcy protection afforded 401k assets rolled over into an IRA/Roth IRA, and state law protection of the same assets, which may also cover bankruptcy as well as creditor protections w/o filing for bankruptcy.

I would say that, in general, you would have to file successfully for bankruptcy to be protected under federal law. However, if your state protects the assets from all creditors to the extent that your entire balance would be covered, or even unlimited as mine does, you don't have to file for bankruptcy.

IANAL, but I've researched my state law on this, as everyone should.

Thanks, that was my impression too about protection under federal law. Better under 401K than IRA. Not thinking about state law since mine (CA) provides very poor protection.

 

[N02L84ER]

Trying to wrap my head around this. You need to take RMD’s from the aggregate of all your IRA’s and 401K’s so what if they are in different accounts. The basis stays the same overall.

Yes, IRA RMD's are from the aggregate of all your deductible and nondeductible IRA's. 401K's have a separate 401K RMD. But, when doing Roth conversions, only the aggregate of all your deductible and nondeductible IRA's are used when determining what percentage of the conversion is taxable on form 8606. All money in 401K's are ignored for Roth conversions, so leaving fully taxable 401K monies or moving fully taxable rollover IRA monies to a 401K before doing conversions will simplify the process and increase the amount of conversion you can do at lower tax rates.

 

[sn2792]

I left mine at my employer because they allowed withdrawals before 59 1/2 . So I used it to bridge the gap between retirement and when I had access to my IRAs. When that wasn't needed I did roll it over to an IRA to simplify things.

Me too, I did this also.

 

[COcheesehead]

Yes, IRA RMD's are from the aggregate of all your deductible and nondeductible IRA's. 401K's have a separate 401K RMD. But, when doing Roth conversions, only the aggregate of all your deductible and nondeductible IRA's are used when determining what percentage of the conversion is taxable on form 8606. All money in 401K's are ignored for Roth conversions, so leaving fully taxable 401K monies or moving fully taxable rollover IRA monies to a 401K before doing conversions will simplify the process and increase the amount of conversion you can do at lower tax rates.

Very helpful, thank you.

 

[PointBreeze]

If your employer allows it.
Not all do

Yes, mine didn't, which was an unpleasant surprise.