need help! Whether to roll 401k?

[CSdot]

I finally pulled the plug after 20 years working for a big firm, and decided to be my own boss.

My question is what to do with my 401(k)? $150K in a Roth 401(k), with the remaining $600k is a conventional $401(k). It is invested in a handful of mutual funds mirroring Dave Ramsey's International, Growth, Growth and Income, Aggressive Growth recommended split.

Is it best to roll it out to a TD Ameritrade/Charles Schwab type self managed account; move it to a stock broker (ML, Wells, etc); or leave it where it is?

I just turned 48 and my wife is 46. We have fully funded college funds for the 3 kids, paid for beach house and nearly paid for primary residence, a $25K Roth IRA that is in some growth fund, a municipal retirement plan for my wife, and some non-retirement funds (some managed at Wells, some self directed Index Funds at Schwab, some self directed individual stock picks at TD Ameritrade).

I am active in my community (president of the chamber, elected to county office, on several boards), and my wife is a part time judge and adjunct professor, so we are not ready to retire just yet, but I do plan to retire in 7 years at age 55.

 

[Sunset]

401K's can be good if the fees are low and there are low fee funds to invest in.
You need to read the 401K information to find out these details.
The great thing about a 401K is protection from lawsuit, so if the fees are low, and choices are fine, it's worth keeping.

 

[sheldon cornped]

Shop around and explore each institutions' websites, incentives, tools, resources and fees. Give Fidelity a fair shake. I have been pleased with our experience thus far.

 

[Scuba]

I chose to roll my 401K over for a better choice of investment options with much lower fees.

 

[DrRoy]

401K's can be good if the fees are low and there are low fee funds to invest in.
The great thing about a 401K is protection from lawsuit, so if the fees are low, and choices are fine, it's worth keeping.

+1. Also, if you are retired, you can withdraw at age 55.

 

[big-papa]

I've always rolled my 401K's over into an IRA after leaving each company. The pros are that I can now invest exactly how I want without being restricted. The con would be if I wanted to do a backdoor Roth, due to the Pro-Rata rule, most of it would be taxed at conversion time.

 

[Senator]

Do not leave it where it is, unless you need to do a Roth Conversion in your personal accounts. That would only be an issue if you had after-tax money in the tIRA.

You want it where it takes one signature to get money out, and that signature is yours. I am not 100% sure how safe a 401K is from corporate raiding.

 

[2017ish]

+1 [to keeping in 401k]. Also, if you are retired, you can withdraw at age 55.

Not if you separate from service with that employer prior to age 55. See https://www.irs.gov/pub/irs-pdf/p575.pdf Reasonably good overview/explanation here: https://www.thebalance.com/what-is-the-rule-of-55-2894280

 

[pb4uski]

One thing to find out is whether your former employer's 401k offers a stable value fund and, if so, what that stable value fund pays. You can't get a stable value fund in a tIRA and if you have one that pays a decent rate of interest then that might be one reason to keep some money in there. Given the prospect of higher interest rates, a stable value fund is an attractive bond substitute since they do not have any interest rate risk.

Another thing to consider is whether IRAs in your state are protected from legal judgements.... as I recall, 401ks are universally beyond the reach of legal judgements but for IRAs it varies by state.

 

[Which Roger]

Do not leave it where it is, unless you need to do a Roth Conversion in your personal accounts. That would only be an issue if you had after-tax money in the tIRA.

You want it where it takes one signature to get money out, and that signature is yours. I am not 100% sure how safe a 401K is from corporate raiding.

Can you elaborate? This is the first time I've heard about the potential for corporate raiding of a 401k.

 

[pb4uski]

Not much of risk IMO. Funds are usually held by a fiduciary third-party (Vanguard, Fidelity, or whoever).

 

[Carpediem]

I've always rolled my 401K's over into an IRA after leaving each company. The pros are that I can now invest exactly how I want without being restricted. The con would be if I wanted to do a backdoor Roth, due to the Pro-Rata rule, most of it would be taxed at conversion time.

I thought I read something recently where mixing 401k money with existing IRA money can cause tracking/accounting nightmares. Is that not accurate?

 

[MRG]

There's a thread on Boggleheads about that subject.

https://www.bogleheads.org/forum/viewtopic.php?t=41697

 

[OldShooter]

... 401(k)? $150K in a Roth 401(k) ... $600k is a conventional $401(k). ... fully funded college funds for the 3 kids ... a $25K Roth IRA ... non-retirement funds (some managed at Wells, some self directed Index Funds at Schwab, some self directed individual stock picks at TD Ameritrade). ...

Ack! How could you possibly keep track of all of that? It would drive me nuts.

I would consolidate all that stuff in the absolute minimum number of accounts at either Fido or Schwab. I omit TDAmeritrade because their historical strength has been supporting individual traders. They have only recently become a Schwab/Fido wannabe. So I don't think they offer anything that the two more experienced houses don't offer in greater depth.

I would stay away from the traditional full service brokers like ML or a bank. Places like ML and Morgan Stanley, are playing catch-up to the Schwab/Fido model while trying to keep their bottom lines healthy. Morgan Stanley just reported "Wealth Management" revenue of over four billion with almost 27% taken to the bottom line. Is donating to that attractive to you? Banks, even banks that have built or bought brokers, are still banks and the brokerage business is a sideline. So why become a sideline for them?

I'd suggest interviewing a couple of brokers each at Fido and Schwab, starting by describing your situation to each branch manager and asking them to suggest suitable candidates.

 

[pb4uski]

I thought I read something recently where mixing 401k money with existing IRA money can cause tracking/accounting nightmares. Is that not accurate?

Not if existing t-IRA money was all deductible contributions... in that case then the basis is zero and all withdrawals of contributions or growth would be ordinary income.

If some or all of your t-IRA contributions were non-deductible, then you do have an accounting headache.... that is why I purposefully chose not to make non-deductible t-IRA contributions.

 

[2017ish]

I thought I read something recently where mixing 401k money with existing IRA money can cause tracking/accounting nightmares. Is that not accurate?

Not if existing t-IRA money was all deductible contributions... in that case then the basis is zero and all withdrawals of contributions or growth would be ordinary income.

If some or all of your t-IRA contributions were non-deductible, then you do have an accounting headache.... that is why I purposefully chose not to make non-deductible t-IRA contributions.

The other aspect concerns federal protections in the event of a bankruptcy. IRA funds that are traceable to rollover/transfers from employer plans benefit from unlimited protection without regard to state law. Funds traceable to IRA contributions are protected to 1.3 million or thereabouts. Easy explanation here: https://www.irahelp.com/slottreport/your-ira-protected-creditors-you-may-be-surprised

That is the reason we keep our traditional IRAs separate from rollover/transfers. Hopefully, we will never be in bankruptcy, but just in case....

 

[pb4uski]

I guess that risk is so remote that I'll take my chances on it.

 

[bobandsherry]

Not sure I understand the risk of any corporation raiding a 401K fund. I retired 2 years ago, left my 401K for myself and wife with our prior employer. Low fees, great service. Plus I retired at 55 so I can now tap my 401K if needed without any penalty. If I moved those funds I would have lost that option.

 

[pb4uski]

Yeah, that would be right up there with not remitting employee taxes withheld... or not remitting employee 401k contributions to the 401k administrator..... things that they send people to jail for!

I have heard of the above but never heard of a company raiding 401k monies after they had been deposited with the 401k adminirator.

 

[OldShooter]

Yeah, that would be right up there with not remitting employee taxes withheld... or not remitting employee 401k contributions to the 401k administrator..... things that they send people to jail for?

I have heard of the above but never heard of a company raiding 401k monies after they had been deposited with the 401k adminirator.

Yup. No 401K trustee is ever going to give money received back to the employer. The only opportunity for the employer is to delay payments to the trustee, which does happen from time to time with a cash-short employer. The beneficiary can check this on his/her statements or by contacting the trustee.

Not remitting tax withholding is A Very Big Deal. The feds can pierce the corporation and hold individuals responsible. Not sure if the 401K funds are protected that viciously or not.

 

[always_learning]

The other aspect concerns federal protections in the event of a bankruptcy. IRA funds that are traceable to rollover/transfers from employer plans benefit from unlimited protection without regard to state law. Funds traceable to IRA contributions are protected to 1.3 million or thereabouts. Easy explanation here: https://www.irahelp.com/slottreport/your-ira-protected-creditors-you-may-be-surprised

That is the reason we keep our traditional IRAs separate from rollover/transfers. Hopefully, we will never be in bankruptcy, but just in case....

Well, this saves me a bunch of research. I was about to undertake a several-state investigation as to the rules on IRAs & protection. We plan to move once DH retires and there are several states on the list of possibilities. All I have to do now is confirm as opposed to searching and researching.