Would you/did you rollover 401k or let it stay?

[MarieIG]

I rolled. The 401(k) fees in my employer's plan are prohibitive.

 

[jim584672]

I retired and rolled it to an IRA (not a taxable event). The 401k had lame fund choices and they started with an Admin fee every quarter.

 

[Green Papaya]

Why don't you roll it over to a traditional, tax-deferred IRA (tIRA), and then convert it to Roth over time? This would give you the opportunity to levelize your income, and minimize your taxes upon conversion.

+1
My company sponsored 401K administrator had higher fees and fewer investment options. As soon as I FIREd, I rolled it over to Fidelity IRA (no taxes) and started doing partial Roth IRA conversion over time, paying levelized taxes along the way.

 

[RE2Boys]

If you have ever made non-deductible contributions to your tIRA in the past, be very careful when considering moving a 401k to an IRA. A large total tIRA value makes it very difficult to benefit from the fact that some of your tIRA has already been subject to federal taxes.

That is why my 401k will likely never bee rolled into a tIRA. For many years prior to the inception of Roths (1998), my wife and I made non-deductible contributions to a tIRA to enhance our retirement savings. I've managed to convert all of my wife's IRA to Roths some 10+ years ago but the my tIRA grew faster than I had the stomach for paying the taxes as the conversions would have pushed me into higher tax brackets.

 

[Alex The Great]

If you have ever made non-deductible contributions to your tIRA in the past, be very careful when considering moving a 401k to an IRA.

Actually it is better to avoid before and after tax money mix in tIRA all together. This is why I completely stopped backdoor Roth conversions when my employer introduced after tax 401K, and started Mega backdoor Roth conversions from 401K instead.
As regarding 401K rollover into tIRA, typically pretax money are going into tIRA and after tax into Roth IRA just in case if there are after tax money in 401K. No tax is due.

 

[pastoral]

Great comments, thanks. Yes, Alex The Great, I find it a great way to increase Roth account by rollover from retirement plan whenever eligible. I have an account that I plan to rollover in installments as soon as I can while continuing to contribute just for this reason. Fortunately I don't have tIRA which would make the matter more complicated. I'm not too worried about the tax consequence because the better investment choices in Roth will definitely more than make up for that. Out-to-Lunch: yes, that's what I mean, 401->Roth instead of via tIRA saves state taxes, thanks for interpretting for me (as for the other part, incorrect, keep digging )

P.S. I don't use dryer sheets so I'm not confused about it

 

[Ronstar]

Rolled 401k over to a tIRA and occasionally have done some Roth conversions since.

 

[OneMarcilV]

+1
My company sponsored 401K administrator had higher fees and fewer investment options. As soon as I FIREd, I rolled it over to Fidelity IRA (no taxes) and started doing partial Roth IRA conversion over time, paying levelized taxes along the way.

Looks like you got fired at the right age. What I did on my last day is leave early. So I wasn’t fired.

 

[Koolau]

I rolled some 401(k) into several rIRAs with the idea of converting them to Roth IRAs. That is in fact what I did. Now, post conversions, I'm keeping the remaining 401(k) as I like the availability of the funds (especially the GIF.) I like the protection and the ease of RMDs (one place only.) YMMV

 

[Dtail]

I have kept my 401K, the stable value fund is my biggest investment in it and is essentially the bond portion of my AA. I only use 3 other funds for which the fees are very low.

It is too big to completely convert to a Roth without jumping to a higher tax bracket. My current strategy is to first convert existing tIRAs to Roth, then when that is done is several years look at converting some of the 401K.

Also kept my 401k for the Stable Value fund, which represents half of bond allocation.

 

[lem1955]

My 401k had the lion's share of my savings. I was happy with the way it had been managed while I was an employee at that company. I left it there after I left that job for another 4 years while I worked a part-time job because I didn't need the money. But after I left that part-time job I did need to begin taking distributions and my 401k plan only allowed for keeping it intact or rolling it over to a tIRA. So I rolled it over and tried my best to duplicate the choices of mutual funds that had been in the 401k. I also changed the asset allocation from 70/30 to 65/35. That was six years ago. Now the asset allocation is at 60/40. No need to take more risk. I'm also doing ROTH conversions up to the IRMAA limit.

 

[TheWizard]

I had a 403(b) during my working years, not a 401(k), but they are similar. My 403(b) plan is managed by TIAA, and when I retired in 2013 I just left the unannuitized portion in my employer plan 403(b) and it's worked out swimmingly.

I have access to 3% minimum TIAA Traditional, as well as the fabulous TIAA Real Estate Account (TREA).
And recently, my 403(b) plan has added Vanguard Institutional Index Funds such as VINIX, with lower ERs than I could get in an IRA.
So I'm sure as heck keeping that tax-deferred money in my TIAA plan as RMDs allow.

I do have Roth IRA and taxable accounts at Vanguard as well...

 

[38Chevy454]

I rolled my various 401k and 403b accounts from several employers into one IRA so it was greatly simplified to monitor and review. Plus of course a lot more investment choices. But mostly for reduction of number of accounts.
Also been doing Roth conversions last few years out of the IRA.

 

[wildsun]

Like Safire, I'm rolling my 401K into a IRA, and then converting that into a Roth up to the max in our tax bracket.

You should be able to convert money from the 401K directly into the Roth IRA, unless the rules on the employer's particular 401K say otherwise.. Why put it in a tIRA first?

I have an Individual K (401K), so I can make any rules I want as long as they don't violate laws or IRS regulations.

 

[sroby2020]

I am surprised that you don't have state tax if you go 401K >> Roth. One concern is that a very large conversion may push you into a very high Fed Tax bracket that outweighs the benefits on no state tax. Also try to keep your conversion + any income for the year under the magical $400,000 limit. Congress seems fixated on that number and anything above will suffer. If you are allowed partial conversion from the 401K that would be the best route.

 

[d.davis]

Good thread.
From experience:
Prior to age 59.5 ROTH conversions were from IRAs. After 59.5 conversions are done directly from the 401k. I'm older than my xyl so my conversions were first so they become accessible w/o the 10% penalty.
I wrote a program 10 years ago ( before retiring) to model when to take SS, Roth conversions, RMD impacts, inflation, etc. and if tax rates don't increase IRA growth vs ROTH conversions modeled fairly close when both were at the working tax bracket. ROTH conversion advantage comes when you contribute to the 401k in a high tax bracket, retire early and perform ROTH conversions to the limit of a lower tax bracket before taking SS and requiring RMDs.

If you have any influence on the next generations, get them in a ROTH habit while their tax bracket is low.
Likewise, instead of just leaving your estate after you pass, consider giving funds now up to the limit of their earned income, yearly, on condition they fund ROTHS with it. If you've funded 529 plans this is a similar gift.

 

[Cerys]

First off, I believe I made more money from my small roth account than from the larger employer sponsored retirement account because I have so many great investment choices in the brokerages.

So obviously this is one reason I plan to rollover all the money in my employer sponored tax deferred retirement to Roth IRA (I do understand there is tax consequence).

Another reason is that Roth IRA is not subject to any withdrawal rules once you are over 59.5 and the account is more than 5 years old. You don't have to consider withdrawal rate, limits, minimum distributions, etc, etc. You withdraw when you need it, without tax.

Again, I understand when rolling over to Roth, there can be a lot of taxes (depending on the amount in a year), but it seems to me the above two factors override this con.

I would like to hear thoughts and experiences from other members. Thanks.

We did roll over our old 401(k)s, but we rolled them over into rollover Ira‘s. Not Roth‘s. I may be wrong but I don’t think we have that option at the time. I did it because we both had the same company managing the 401(k) even though we work for two different companies. And they sucked. They offered three portfolios and a money market and each portfolio only had two funds to choose from. Crap and crappier.

It was 2000 by the way. So I moved it into Schwab and self-directed everything and did way better. But we went from jobs, into our own business. And once we knew that that business was viable, I took control. We were allowed to save so much more money using a SEP Ira, that it just made sense to do that. And every year we dumped everything we could into it. And funded our IRAs. Not putting things into Roth‘s made more sense for taxes — it lowered what we paid more than what we’ll probably get back at the other end.

 

[meleana]

Right now my husband has left his with the company because it is invested in a Stable Value fund, which you can’t get outside of a 401k. ( 10% is in company stock.)

Not that it gets a great return but we have stock and bond funds in our IRA’s.

 

[Jkstrudwick]

“Pay me now or pay me later.”

The decision for me was to rollover from my 401 K to a traditional IRA. Just couldn’t bear of thought of paying that tax bill and losing 1/3 of my retirement fund.

A Roth IRA conversion would have been far simpler and certainly offers a number of longer term benefits.

I would say if you’re you g enough to recover from the upfront tax hit, it may make worth your while.

 

[target2019]

First off, I believe I made more money from my small roth account than from the larger employer sponsored retirement account because I have so many great investment choices in the brokerages.

So obviously this is one reason I plan to rollover all the money in my employer sponored tax deferred retirement to Roth IRA (I do understand there is tax consequence).

Another reason is that Roth IRA is not subject to any withdrawal rules once you are over 59.5 and the account is more than 5 years old. You don't have to consider withdrawal rate, limits, minimum distributions, etc, etc. You withdraw when you need it, without tax.

Again, I understand when rolling over to Roth, there can be a lot of taxes (depending on the amount in a year), but it seems to me the above two factors override this con.

I would like to hear thoughts and experiences from other members. Thanks.

Thanks for sharing. I never thought about protection from creditors, and didn't know even after the rollover that part could still be treated differently (favorably).

Thanks for sharing. I'm for the idea to move money out of former employer's plan, too. In my case a rollover to Roth instead of tIRA can avoid state taxes; OTOH if I first rollover to tIRA, I would have to pay not only federal but also state taxes, so it's a nobrainer. Interesting story, MRG.

In 2014 I was in a position of being able to rollover a 401(k) and asked a similar question:
https://www.early-retirement.org/forums/f28/401-k-rollover-decision-to-be-made-72128.html

For several reasons I let that decision ride until this year:
https://www.early-retirement.org/forums/f28/401-k-consolidation-and-rollover-complete-109552.html

Usually there are more choices when you move, and they are better. Keep in mind that the asset allocation of each account largely determines the performance. So it is probable that your Roth is invested with more equity.

I decided to rollover, and work on converting to Roth as it makes sense for our future. Each year I'll decide how much to convert, and where the taxes will come from. We have a 10-year plan spreadsheet to help us along with decisions like this.

Each state may be different about paying tax when converting, I just don't know. In NJ we would exceeed any exclusion limits with a conversion, and tax would be due.

There are plenty of posts on the 401(k) conversion theme. Try an advanced search with 401 in the title.

 

[pjigar]

OP,


It depends on your marginal tax rate (federal as well as state). Significant taxes may be owed if you do 401K -> Roth conversion which will make the conversion less beneficial in a long run. People typically do Traditional IRA/401K -> Roth IRA conversion when their marginal tax rate is LOWER that when they contributed in the first place. I have always rolled over my old 401K account to new employer 401K account. I do this so that I can make backdoor IRA contributions (6K+6K for FMJ). If you really want to build Roth IRA balance then I would look into backdoor IRA and mega-backdoor IRA contributions.

 

[scrinch]

OP,
People typically do Traditional IRA/401K -> Roth IRA conversion when their marginal tax rate is LOWER that when they contributed in the first place.

I can't say what people usually do, but what they should do is convert to Roth IRA when their marginal rate is lower than what they think their marginal rate will be under RMDs. Once the pre-tax money is in an IRA, going-forward decisions should have nothing to do with past tax rates. The advisability of converting tIRA funds this year is not impacted at all by whether I contributed them when I had a 10% or a 49.6% marginal tax bracket. That old tax bracket is water under the bridge!

 

[OldShooter]

I can't say what people usually do, but what they should do is convert to Roth IRA when their marginal rate is lower than what they think their marginal rate will be under RMDs. Once the pre-tax money is in an IRA, going-forward decisions should have nothing to do with past tax rates. The advisability of converting tIRA funds this year is not impacted at all by whether I contributed them when I had a 10% or a 49.6% marginal tax bracket. That old tax bracket is water under the bridge!

Yes, the decision is a sunk cost problem. (https://en.wikipedia.org/wiki/Sunk_cost). The tIRA/Roth decision is basically a tax rate arbitrage decision with some hair on it due to side effects (IRMAA, etc.) when the conversion is considered.

 

[pjigar]

I can't say what people usually do, but what they should do is convert to Roth IRA when their marginal rate is lower than what they think their marginal rate will be under RMDs. Once the pre-tax money is in an IRA, going-forward decisions should have nothing to do with past tax rates. The advisability of converting tIRA funds this year is not impacted at all by whether I contributed them when I had a 10% or a 49.6% marginal tax bracket. That old tax bracket is water under the bridge!

You are right but I tried to give a simple answer. Tax torpedo at RMD and future tax rate are also factors but they are guesswork at best. In fact, I created a spreadsheet to forecast just that. See if you can use this for Roth conversion decision.


PS: Tax torpedo due to RMD is concern for a HNI or extreme savers. I ran the numbers for couple of modest income retirees and they were unscathed by RMD tax torpedo.

 

[scrabbler1]

I had a tricky procedure when I left my company at this time in late 2008. In my 401k I also had company stock with pretax contributions, after-tax contributions, and pretax earnings on all the contributions. I wanted to cash out the company stock using NUA (Net Unrealized Appreciation) to greatly lessen its tax bite while casing out the after-tax contributions (non-taxable event) while doing a direct, trustee-to-trustee rollover of everything else into a tIRA. Because I was using NUA, I had to liquidate the entire account per plan rules (or maybe it was IRS rules).

I spelled out everything to the plan administrator and they got it all right. My ER began with my greatly altered portfolio and has been doing fine ever since. I had some tax bills in 2009 (for the 2008 year) but they turned out to be lower than I had anticipated due to something in my employer's literature about NUA being vague (and incorrect), a pleasant surprise.