401K to IRA transfer after retirement

[surprising]

Retiring next month at 51 and will want to transfer 401K to an IRA and have lots of questions.

I have both traditional and Roth 401K money with Fidelity, all in the same account. I really don't understand how Fidelity tracks Traditional vs Roth since it's all mixed together, but when I move to IRA I would like to have two separate accounts to track Traditional and Roth independently. Is this possible when doing the transfer?

When money is moved, will it be invested in similar investments or does it move into a cash account initially?

I have brokerage accounts with Charles Schwab and ETrade. Generally, Schwab has my risky assets play money bucket, and ETrade has my 'safe' investments that I draw from for retirement. I'm thinking of transferring the Fidelity assets to Etrade to consolidate. Any big issues with using Etrade for IRA?

Can I invest in anything in an IRA? Can I buy and write options? Are there any limits on short term trading?

 

[Flyfish1]

I don't have answers to all your questions- but in my case our 401K plan specifically allowed "in kind" transfers, meaning positions were not sold. I made sure that was the case when our practice set it up. My understanding is if it is not specified then all positions are liquidated and it goes to cash. So, check with your plan administrator or Fidelity. Not sure about option writing but I'm guessing it's allowed.

I'm sure you are aware of the Rule of 55 and that it does not apply to IRA's but only to 401K withdrawals.

 

[Mark1]

....
I have both traditional and Roth 401K money with Fidelity, all in the same account. I really don't understand how Fidelity tracks Traditional vs Roth since it's all mixed together, but when I move to IRA I would like to have two separate accounts to track Traditional and Roth independently. Is this possible when doing the transfer?
.....

I would be shocked if Fido didn't have detailed records of the exact type of monies within the account, and the gains of each type of money over the years, etc.

I doubt Fido will let you have transfer to only one account, since the money is both pre and post tax money and needs to for segregated in terms of their gains and taxes when withdrawn.

My experience is from about 10 years ago, but the money is kind of in limbo for a day during the transfer, so don't freak out. For example, the first night the money disappeared from the 401K account, but didn't yet appear within the IRAs accounts the following day. After one more night, everything final made it the IRAs. Fido warned me this would likely happen.

In my case, I also had post tax contributions to my 401K and the post tax contributions went into the Roth IRA and the gains went into the Rollover IRA along with the pretax money.

Technically, I didn't have any ROTH 401K money as it was too long ago.

 

[djsander]

Our business unit was spun out to a separate company. When that occurred the newly created company used fidelity. We could choose to move our 401k to fidelity which I did. I did not have a Roth account at that time, but did have after tax contributions with earnings. They moved the money to fidelity and it had the correct accounting for the traditional 401k, after tax and after tax earning. We then had a Roth option available and started to contributing. Net benefits tracked each account Traditional, Roth and the after tax and broke out after tax with earnings. I decided to roll over the after tax into a a Roth and the earnings in a traditional Ira. I called them and they did it, but was charged a small fee. Then after I retired I went in and did the roll overs of the Roth and traditional into the two IRAs which resulted in no fee. It was very easy. I just don’t remember if they were in kind transfer. The short answer is fidelity should be tracking each account.

 

[GrayHare]

Note that depending on your state's laws, you might lose certain protections from creditors if you move the 401k funds to an IRA. Some states offer better protection for 401ks.

 

[latexman]

I just retired, and had Fidelity “rollover” my company 401k. They put the Roth 401k parts into my Roth IRA (> 5 years old), and the traditional 401k parts into my traditional IRA. They keep track of all that stuff, and everything went smoothly. IIRC, it was all done in 2-3 business days.

 

[Koolau]

Congratulations on you impending retirement!

You may need to call the 401(k) and tIRA companies to answer your questions. They may both have rules affecting how transfers can be made. I've done "in kind" transfer from one brokerage company to another, but never from a 401(k) to a tIRA. Best luck.

 

[yhoomajor]

Can I buy and write options?

Yes, but only "covered" calls and puts

 

[jazz4cash]

My 401k at Fidelity had a screen that listed “sources” that broke out Roth funds vs non-Roth and included the 5 year clock for Roth. That screen was kinda hard to find. When I transferred this to a Fidelity IRA they were careful to separate Roth funds from traditional

 

[MarieIG]

When I established IRAs at Fidelity, first I set up a Rollover (traditional) IRA and then a Rollover Roth IRA - before I had then funds transferred.

With regard to rolling my 401k into traditional and Roth, the company did keep track of which funds were traditional and which were Roth. It was listed on my statement. When I transferred the money into an IRA, I did it in two steps, first transferring the Roth funds into a per-existing Roth, and secondly transferring the traditional into a per-existing traditional. I was not able to transfer in kind as the funds in my 401k were not available at Vanguard.

DH's 401k was held at Vanguard and we ended up rolling into an IRA because at that time, the 401k would not allow you to choose which particular funds you wanted to withdraw, it took any withdrawal equally from all funds. We were able to transfer the funds in kind as Vanguard had all the funds available.

I don't know what Fidelity allows for options in IRAs, but IIRC Vanguard allowed covered options.

I would call Fidelity and discuss before you begin the process.

 

[armor99]

I don't have answers to all your questions- but in my case our 401K plan specifically allowed "in kind" transfers, meaning positions were not sold. I made sure that was the case when our practice set it up. My understanding is if it is not specified then all positions are liquidated and it goes to cash. So, check with your plan administrator or Fidelity. Not sure about option writing but I'm guessing it's allowed.

I'm sure you are aware of the Rule of 55 and that it does not apply to IRA's but only to 401K withdrawals.

I was going to ask the same. Being so close to 55, is it not worth it to stick around till 55 to be able to get at all that money without penalty? Currently I am laid off, and that is the only reason I need 1 more job before retiring.

 

[PappaChris]

There may be some advantages to leaving your money in the 401k plan. K-Shares on certain Fidelity Funds, Institutional MM (currently 5.31%)? Also, there are certain protections from creditors that 401k's provide that IRA's don't.

 

[lucky2030]

My 401K account, at Vanguard, has sub accounts for pre and post tax money. It’s a bit hard to find, but if I look hard enough in the website, I can find the place where they split it out into source.

 

[Dash man]

There may be some advantages to leaving your money in the 401k plan. K-Shares on certain Fidelity Funds, Institutional MM (currently 5.31%)? Also, there are certain protections from creditors that 401k's provide that IRA's don't.

If the funds are not commingled with other IRA funds, and kept in a separate account, the funds will retain ERISA protection under Federal law. The same is true with pension and social security funds.

 

[ILikeStarTrek]

I was going to ask the same. Being so close to 55, is it not worth it to stick around till 55 to be able to get at all that money without penalty?

Yes, that may work for your situation, but only OP can answer that question for his situation He said he is 51, so another 3-4 years may not be "so close to 55" but rather so far away from 55 if he hates his job!

One other thing to keep in mind about the Rule of 55 and 401k plans: While most 401k plans allow regular withdrawals, some plans will only allow a single lump sum withdrawal (though generally a partial amount may be rolled to an IRA instead). If you need to withdraw 4.5 years of expenses to get you from 55 to 59.5 when you can access other retirement funds, such a large one-time withdrawal may take you to a higher tax bracket. E.g., if you go from the 24% to the 35% tax bracket due to the large withdrawal in one year, you may be no better off than if you had paid the 10% penalty for an IRA withdrawal but stayed at the lower tax bracket. So, make sure you understand the withdrawal rules of your 401k plan if you are planning to use the Rule of 55.

Finally, I do agree with what others have said about Fidelity. I have a 401k with them, and I can drill down into my plan online and see how much is traditional vs Roth. Fidelity definitely keeps track of the breakdown.

 

[jazz4cash]

From the home page of the Netbenefits app I can select my 401k account and scroll down to a pie chart labeled “Sources” that shows pre-tax and aftertax details.

 

[surprising]

From the home page of the Netbenefits app I can select my 401k account and scroll down to a pie chart labeled “Sources” that shows pre-tax and aftertax details.

Yep I played around with it and can see sources. Some time ago I moved all my ROTH 401k balance to the BrokerageLink account to give me more investment options. What's weird is that there is a small amount of money in BrokerageLink that is coming from '401(k) Match' which appears to be pre-tax. Not sure how that got there, and drilling into the BrokerageLink account doesn't seem to show any breakdown. I routinely buy and sell in BrokerageLink, so I have no idea how Fidelity is tracking the ROTH part vs. the '401(k) Match' part in here.

 

[surprising]

Yes, that may work for your situation, but only OP can answer that question for his situation He said he is 51, so another 3-4 years may not be "so close to 55" but rather so far away from 55 if he hates his job!

One other thing to keep in mind about the Rule of 55 and 401k plans: While most 401k plans allow regular withdrawals, some plans will only allow a single lump sum withdrawal (though generally a partial amount may be rolled to an IRA instead). If you need to withdraw 4.5 years of expenses to get you from 55 to 59.5 when you can access other retirement funds, such a large one-time withdrawal may take you to a higher tax bracket. E.g., if you go from the 24% to the 35% tax bracket due to the large withdrawal in one year, you may be no better off than if you had paid the 10% penalty for an IRA withdrawal but stayed at the lower tax bracket. So, make sure you understand the withdrawal rules of your 401k plan if you are planning to use the Rule of 55.

Finally, I do agree with what others have said about Fidelity. I have a 401k with them, and I can drill down into my plan online and see how much is traditional vs Roth. Fidelity definitely keeps track of the breakdown.

Not an option as my last day is Sep 30 I have a plan in place to to handle spending for the next 8 years from after tax investments until I can withdraw from 401K (soon to be IRA) at 59.5. I am assuming that the roth contribution information is also transferred to the IRA so that, if necessary, I can withdraw from basis penalty-free?

 

[BradC]

I did exactly this last year. Piece of cake!

One other thing is to ask Fidelity if they have any rollover bonus. I was shocked that they gave me a nice bonus for rolling my Fidelity 401(k) to a Fidelity IRA/Roth. I was told by my advisor that they don't advertise this much, so you have to ask.

 

[imbatman]

Minor element but if you typically do a backdoor roth....wait until the first full year after you retire to move the 401k into the IRA as that will make the basis tracking a lot easier (unless you are already dealing with that headache).

@BradC I cannot believe they gave you a bonus to transfer money from one account they have to another they have - that is wild.

 

[surprising]

Minor element but if you typically do a backdoor roth....wait until the first full year after you retire to move the 401k into the IRA as that will make the basis tracking a lot easier (unless you are already dealing with that headache).

@BradC I cannot believe they gave you a bonus to transfer money from one account they have to another they have - that is wild.

Can you elaborate? I am hoping/assuming the basis for existing roth transfers correctly and I don't need to do any separate tracking.

 

[imbatman]

I am sure if you are only doing roth transfers, it will be fine. Just saying if you are going from a 401k into a TIRA during the same year you retire and want to/ already did do a backdoor Roth IRA contribution.....then your calculations will be more complicated as the backdoor conversion requires you to prorate among ALL your IRAs (you can't just pick one).

 

[pdxgal]

Note that depending on your state's laws, you might lose certain protections from creditors if you move the 401k funds to an IRA. Some states offer better protection for 401ks.

+1. This is why I have not rolled over my 401k. The Fidelity rep said that in practice the courts have treated IRAs like 401ks in lawsuits, but in the last few years the courts (notably SCOTUS) have shown that legal precedents can be reversed. So I view keeping my 401k as insurance. Luckily my investment choices are good and plan is solidly rated.