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

[pastoral]

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.

 

[Safire]

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 be the above two factors override this con.

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

You can usually only rollover a 401K to an IRA once you've separated from your employer.

My H had an old 401K with Fidelity that he left with a previous employer for 9 years. Couple of years ago, we received a notice in the mail that if we didn't "rollover the 401K" into an IRA, then it would be transferred by the employer to a 3rd party company that did NOT have good reviews online. So H called Fidelity and told them he wanted to roll over his old 401K to an IRA and they told him how he could do it all online. Since part of the 401K was ROTH, he had to open both a traditional IRA AND a ROTH and transfer the assets accordingly.

Since we could not afford the large amount of taxes that would be due had we attempted to convert the entire pre-tax dollar amount into a ROTH, we have been transferring funds annually to the ROTH from the traditional IRA. We calculate the amount to transfer by checking our tax bracket, and subtracting his income from whatever the maximum amount for that tax bracket is for the year. This ensures that we don't unwittingly bump ourselves into a higher tax bracket. While this can be a slow process, over several years, everything will be in a ROTH by the time he retires. You may want to consider this, too, especially if you are concerned that you may not have enough money to pay taxes on the conversion -- it may not "advisable" to pay taxes with account assets.

As for greater choice - we kept the money in the same mutual funds (the non-401K version) initially and then began to buy newer funds and then eventually individual stocks. Thanks to the great bull market of 2020, H is very pleased with the results (and so am I).

We both also have a "regular" IRA account with TD Ameritrade. However, he made the conscious decision to not rollover his IRA into the TD Ameritrade account because individual IRAs have no real protection from creditors in California, whereas 401Ks and IRAs / ROTH IRAs that are the result of 401Ks rollovers do. So, God forbid, if we're ever sued, we'd be able to prove the origin of these funds to his old 401K and hopefully that will give it the same protection that 401Ks have in California.

Just thought I'd share.

Good luck!

 

[pastoral]

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).

 

[Out-to-Lunch]

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.

 

[OneMarcilV]

I also had Fidelity. I took mine out cause I needed the monies to pay bills.

 

[homestead]

I kept my 401k until age 59 and went to take a distribution but they wanted to withhold 20% so I rolled it all over to my ira and waited unit 59.5 and took the distribution with no withholding.

 

[OneMarcilV]

I paid taxes on mine when I took monies from the balance.

 

[tulak]

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.

You either know or you don’t. Have you run the numbers? If you had poorer performance in the retirement account, was it due to what investments were available or your allocation?

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.

The con is quantifiable. It sounds like you’ve identified your options. Did you calculate which options is best in your case?

From reading your post, it sounds like you want to rollover the funds. There are other options and I would recommend you sit down and calculate each option to see which works best.

 

[Safire]

I kept my 401k until age 59 and went to take a distribution but they wanted to withhold 20% so I rolled it all over to my ira and waited unit 59.5 and took the distribution with no withholding.

Yiu still had to pay taxes on that distribution when you filed for the year, correct?

 

[old medic]

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.

 

[EastWest Gal]

I rolled a 401K and 403B from previous employers into a rollover IRA about 15 years ago. I added my other 401K to the rollover IRA not long after leaving full time employment in 2014.

I started making Roth conversions last year and intend to continue most years to even out future taxes. I expect no more than half of the tIRA to be converted until RMDs start. I hope the Roth will be part of the estate DS inherits.

 

[mrfeh]

Whenever I've exited a former employer's 401K plan I've always rolled it into a traditional IRA.

As others have said, that's what I would do, and then convert over the years when it makes sense.

 

[PaunchyPirate]

Like others, I rolled multiple 401ks over to an IRA almost as soon as I left the employer for another job. I've always preferred to not have any financial linkage to a former employer. I don't have any pensions to factor in.

I always rolled each 401k into the same Rollover IRA account for simplicity. I don't think they actually call them that anymore -- or at least it isn't tracked like it used to be.

So I have one traditional IRA account that is comprised of money from 4 or 5 different 401ks. I have not yet done any Roth Conversions, but might at some point.

 

[MRG]

I had two accounts one a 401k the other a profit sharing account, both held similar investments including Megacorp stock and the "magic fund" most of my profit sharing was invested in. I decided to leave the profit sharing alone so I could utilize rule of 55 withdrawal and for the juicy magic fund returns.

The magic fund was a fund you could buy but Megacorp had a version that was much better. Megacorp picked up the 1% fee and the fund manager tweaked the investments per Megacorp's directions; the fund beat everything most years. Megacorp's original CEO was a really good stock picker.

The plan was to leave the money in place until 59.5 and that's what I did. The fund was doing its normal and running till around age 59. Then it started pulling back quickly. In the next 6 months the fund dropped 20%. I ate my losses and moved on.

A few of my former peers mentioned a lawsuit against Megacorp and how they handled this situation. I had moved from the area but when a friend mentioned she had attended a meeting about the lawsuit and said the former CEO, CFO and more of the C suite were in attendance. I decided to join. So far I've collected about 10k from the fund managers. Megacorp is fighting a couple groups of people, a few hundred of us are getting money, the thousands of others who were hurt will probably get a $50 check.

Megacorp had the fund manager tilt the fund to include a biotechnology that utilized the same tactics as "pharma bro". The biotech started as 2% of the fund before it started running. It became over 50% of the fund and despite the fund managers warnings Megacorp did nothing. Eventually the feds shut down the biotech.

If I had to do it again I'd move the money.

 

[Gumby]

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.

Our plan as well. That way, we only need to deal with the 401k custodian once - for the rollover. The subsequent Roth conversions can be done with a click of mouse if both accounts are at the same place (Vanguard, Fidelity, Schwab, etc.)

 

[pastoral]

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.

 

[homestead]

Yiu still had to pay taxes on that distribution when you filed for the year, correct?

No , I wasn't working and the distribution was small enough that I didn't have to pay any taxes. In fact I sized the distribution so I wouldn't have to pay any.

 

[Gumby]

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.

You don't pay federal taxes on a 401k to tIRA rollover if it is done directly from custodian to custodian.

 

[jazz4cash]

I had two 401ks at Fido. Both had great fund choices plus Company A had a stable value fund. Company B started charging nuisance fees once I was no longer active. I rolled Company B 401k into traditional and Roth IRAs at Fido and maintained Company A 401ki

 

[OneMarcilV]

Yiu still had to pay taxes on that distribution when you filed for the year, correct?

I did. One gets sent a form from the company that handles the investments.

 

[jollystomper]

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.

 

[OldShooter]

... Company B started charging nuisance fees once I was no longer active. ...i

401k custodians charging their own AUM wrap fees to participants seems to be increasingly popular. Whenever I get into a conversation like this one I suggest that the account holder contact his/her HR department to get a statement of fees and who pays them. I have seen as much as 1.5% (!).

Here's the reporting requirement: https://www.law.cornell.edu/cfr/text/29/2550.404a-5 Text searching for "expenses" is probably a worthwhile effort.

 

[Andre1969]

I've been in the same career for 29 years, but I'm in a field where the contract goes up for renewal every 5 years, more or less. If the incumbent doesn't win the contract, whomever does takes on all the current employees, although they'll sometimes use that as an excuse to eliminate job positions, and lay off some people that they wanted to get rid of. But even then, I can only think of one person that they seriously wanted to get rid of, and used that as an excuse.

Anyway, with a new employer, we'd always get to keep our seniority and the perks that come with it (greater amounts of vacation and such), but would have to start a new 401k and health insurance. I've always left my old 401ks alone, though, so I have four of them.

At least, I just refer to them as "401k's". I think my first one is still a 401k, but the second and third ones, they made me move them into rollover IRAs. But, they're still four separate entities.

I've thought about perhaps merging some of them, to simplify things a bit. But they've all been doing pretty well, and I've been too lazy to mess with it, so I've just left them alone.

 

[OldShooter]

... I've thought about perhaps merging some of them, to simplify things a bit. But they've all been doing pretty well, and I've been too lazy to mess with it, so I've just left them alone.

The usual way to merge them is to transfer assets "in kind," aka not selling them just moving them. No tax consequences, no need to change the aggregate portfolio at all except if there are assets that cannot transfer in kind.

You might want to thread search here for "Stable Value Fund," which is sometimes available only in 401ks and is a reason that some people stay instead of rolling.

 

[Out-to-Lunch]

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.

You don't pay federal taxes on a 401k to tIRA rollover if it is done directly from custodian to custodian.

I believe that the OP meant he would have to pay federal and state taxes if he went 401(k) -> tIRA -> Roth IRA. But that he would only have to pay federal taxes (i.e., not state) if he went 401(k) -> Roth IRA.

This surprised the heck out of me, so I dug a tiny bit. OP, let me guess: You live in Pennsylvania but you are younger than 59.5. Am I right?