Tranfering 401(k) to IRA back to 401(k)

[dennisbaker]

Hi,

My wife has a 401(k) account through her old job. We moved across the country and did not do anything with the account. Now that I have more knowledge about retirement accounts I want to transfer it to an IRA.

We plan to move back and my wife working at her old job. The catch is we don't know when we are moving back because we are trying to sell our house. Can I transfer the 401(k) to an IRA and then transfer it back to the 401(k) once she is back at her job?

I want to add additional funds to the account, and therefore the reason for moving it to an IRA. But I also don't want my wife to start at $0 with the 401(k) when she eventually gets back to the old job.

Recommendations? Thanks.

 

[LOL!]

Some plans (like the one I am in) do not allow one to transfer in money. Check your SPD to make sure that's a possibility.

It used to be that you could not co-mingle your "rollover from a 401(k) IRA" with your other IRAs. I think the idea was that you could then roll it back into a 401(k). Once again, check with the plan to see what they allow. In any event, I would not co-mingle just in case.

And what's wrong with starting a new 401(k) at $0.00? Just add in the outside rollover IRA mentally if it bothers you.

 

[dennisbaker]

Thanks LOL.

I figured why start at $0 if when we leave the money in the account, and once she starts putting money back into it, the total increases at a higher rate due to compound interest.

My next step was contact the company that we have the 401k with. I am also thinking we might transfer it over, since we don't know when we are going to move back, and if it is a couple of years, that could be extra time & money that we can invest into the account.

 

[LOL!]

Wouldn't the total of compound interest from (IRA_from_old_401(k) + new_401(k)) give the same result as compound interest from (new_401(k) + money_added_from_IRA_from_old_401(k)_to_the_new_401(k))?

 

[kaneohe]

Yes, assuming same growth rate (Q + I)(1+r)^n = Q (1+r)^n + I (1+r)^n
Q= 401K Qualified plan, I = IRA, r= growth rate, n= yrs.

 

[Bestwifeever]

Also there are more options for an IRA--you can send the $$ to Fidelity, Vanguard, Schwab, whatever, and pick whatever funds/stocks/CDs etc. you want, not limited to the 401(k) plan's choices.

 

[Sarah in SC]

My gut reaction is to send it to an IRA, then you aren't dependent on maybe going back to the old company, plus the choices you can have.
However, if you are close to 55, there are some special options for taking withdrawals from the 401k that are not available in the IRA. That would be the only reason to leave it in the 401k.
Some plans may let you roll outside money into them, it depends on the plan. If the admin at the firm doesn't know, ask to speak to the TPA that prepares the 5500 each year--it is probably an actuarial firm.

 

[kaneohe]

However, if you are close to 55, there are some special options for taking withdrawals from the 401k that are not available in the IRA. That would be the only reason to leave it in the 401k.
.

Better creditor protection?

 

[Sarah in SC]

Nope, it is a rule that says you can take distributions from a 401k penalty free from a 401k if you separate from service at age 55 or after.

 

[kaneohe]

Sarah,

sorry for the miscommunication......should have quoted only the last sentence.
Suggesting that another reason to stay in 401K is bettter protection against creditors .

 

[Sarah in SC]

Ah, that makes more sense, thanks!

Up to $1 million in IRA assets have the same protection. After that, Bob's your uncle.

 

[kaneohe]

My understanding is that qualified corporate plans under ERISA (like 401Ks) have very strong creditor protection. IRAs, under federal law, have protection but I believe you have to file successfully for bankruptcy to get that protection (unlike the 401K). States may provide varying levels of protection for IRAs but in CA, that protection is not particularly strong.

 

[ziggy29]

Suggesting that another reason to stay in 401K is bettter protection against creditors .

In some states. Here in Texas, an IRA has unlimited asset protection from creditors and lawsuits just like a 401K plan. As do annuities and the cash value of insurance contracts.

We may have chiggers and scorpions and fire ants, but we also have the strongest asset protection laws in the country (along with Oklahoma and Florida).

 

[Martha]

That is correct kaneohe. IIf you don't file bankruptcy then protection of IRAs is a matter of state law. Some states have dollar limits on what is protected, others have limits like "amounts reasonably necessary for support." Others have no limits at all.

See my signature.

 

[figner]

If you want to have the money in a 401k, why not just leave it there and open an IRA separately while your wife is not employed by that company? Check with your 401k provider, but many will let you leave the money there after you leave the company, sometimes subject to some minimum balance. Once your wife is re-employed at the company, see if you can add the IRA money into the 401k. But at least then you don't have to worry about comingling funds and moving the majority (I assume) of the assets twice.

As LOL and kaneohe said, assuming your contributions and investment strategy within both accounts stay constant, it will make no difference to your total account value whether you keep it it one place (401k) or two (401k + IRA).