Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So I was with Company A for about 5 years and left for Company B. I transferred my 401k from company A to brokerage account at Fidelity. I was with Company B for 9 years and have now joined Company C. My 401k at Company B represents about 2/3 of my retirement savings. I’m debating whether to transfer the Company B 401k money to my Fidelity account or just roll it over to my new employer’s 401k plan. I like the idea of having it in the 401k should I need a 401k loan in a dire situation. I’m most likely going to put it all in a S&P 500 fund regardless of which route I go, and the costs are low on both. I’m 37. Curious if there are some factors I maybe have not considered regarding what the best way to go is.
I would roll it to a IRA at Fidelity. That way you control it.
Does not happen often, But sometimes 401K's in a former employers 401K can set 'stuck' there for months (or a year or so) if they have financial issues and the 401K administrator has to wait out the process for a while, and you don't have access to move the fund, make changes to the investments (and some Admin's will move it all to a Money Market Fund during the wait out process).
Rolling it over to a Traditional IRA is the absolute BEST option. As the previous poster mentioned, you would have control over it. You also would have many more & better investment options instead of being limited to the select few mutual funds within the 401k.
The function of moving it into an ira could complicate backdoor Roth’s/mega backdoor Roth’s.
How would it complicate it?
Once it's in a rollover IRA you can then 'roll' it into a Roth if you want to. (You need to wait for it to arrive at the new Broker) But few days later your can roll it if you want to.
Once it's in a rollover IRA you can then 'roll' it into a Roth if you want to. (You need to wait for it to arrive at the new Broker) But few days later your can roll it if you want to.
You cant roll from ira to Roth. It’s a conversion and counts as taxable income. Or if you left it in the ira and did backdoor in another ira the conversion is taxable prorata proportional to the balances across all IRAs. I’d say that complicates things. If you left it in a 401k plan or combined 401ks backdoor roths are not taxable if you have no other pretax ira monies
The workplace 401k has greater creditors, bankruptcy and lawsuits protections versus IRAs.
If you want to implement the rule of 55, they money needs to be in 401k of your current employer.
Some have said if your employer goes bankrupt, access to your 401k money may be delayed.
Just some thoughts to ponder.
I never heard of the rule of 55 but just (briefly) read up on it. Definitely something to consider. This would be just a straight traditional rollover. I have no Roth accounts.
You cant roll from ira to Roth. It’s a conversion and counts as taxable income. Or if you left it in the ira and did backdoor in another ira the conversion is taxable prorata proportional to the balances across all IRAs. I’d say that complicates things. If you left it in a 401k plan or combined 401ks backdoor roths are not taxable if you have no other pretax ira monies
Converting funds from a Traditional IRA to a Roth IRA is really not very complicated at all. It is very simple to do on the brokerage's website.
Also, these backdoor Roth conversions can be delayed till you're in a lower marginal tax bracket. For example, if you're unemployed or retired. If the OP waited till he was retired, he would not be paying high ordinary income tax rates and instead could be paying lower marginal tax rates on long term capital gain and qualified dividends.
If the OP retired today, he could convert up to the standard deduction each year. For 2021, that's $12,550 and it goes up every year.
Also, the OP could be sacrificing potential growth by keeping it in a 401k with ****ty mutual funds when it could be in an IRA with much more investment opportunities.
Quote:
Originally Posted by Lowexpectations
Or if you left it in the ira and did backdoor in another ira the conversion is taxable prorata proportional to the balances across all IRAs. I’d say that complicates things.
The simple solution to this is to just keep one IRA.
Converting funds from a Traditional IRA to a Roth IRA is really not very complicated at all. It is very simple to do on the brokerage's website.
Also, these backdoor Roth conversions can be delayed till you're in a lower marginal tax bracket. For example, if you're unemployed or retired. If the OP waited till he was retired, he would not be paying high ordinary income tax rates and instead could be paying lower marginal tax rates on long term capital gain and qualified dividends.
If the OP retired today, he could convert up to the standard deduction each year. For 2021, that's $12,550 and it goes up every year.
Also, the OP could be sacrificing potential growth by keeping it in a 401k with ****ty mutual funds when it could be in an IRA with much more investment opportunities.
The simple solution to this is to just keep one IRA.
A Roth IRA is a taxable event. Unless you want to take on that tax burden, the conversion does not make sense.
The point of a backdoor Roth is to avoid paying taxes on the money you put into the account and the growth associated with that money. Delaying it defeats the purpose as you're creating a taxable event (if you have growth) or you're missing out on growth (if you choose to delay growth for some reason).
If the OP plans on being unemployed or retired really soon, then your suggestions make sense. Otherwise, they don't.
Many 401ks have good mutual funds and some also allow you to invest directly in stocks, ETFs, etc.
It's not as simple as you make it seem. There's a lot to consider.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
