• We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.

401K: Previous Employer - Move to IRA?

S

StarsFan4Life

Golden Member
I was wondering if you guys could help me out.

I have roughly $4500 in a 401k from my previous employer. For the past 9 months, I stopped contributing to my 401k due to some economic hardships. I am back to the point where I can contribute more each month.

I am 26 years old and have a great IT career ahead of me. I plan to invest as much as possible into a retirement plan, same goes for my wife.

What should I do with my 401k? Should I move it over to an IRA and diversify the investments? Do I move the 401k elsewhere?

What are the benefits and risks in an IRA?
 
StarsFan4Life said:
I was wondering if you guys could help me out.

I have roughly $4500 in a 401k from my previous employer. For the past 9 months, I stopped contributing to my 401k due to some economic hardships. I am back to the point where I can contribute more each month.

I am 26 years old and I think I have a great IT career ahead of me. I plan to invest as much as possible into a retirement plan, same goes for my wife.

What should I do with my 401k? Should I move it over to an IRA and diversify the investments? Do I move the 401k elsewhere?

What are the benefits and risks in an IRA?
Click to expand...

Edited
 
The main reason to move to an IRA is the choice of mutual funds, 401k funds often are weak and have high management expenses.

I'd move it to Vanguard as a trad IRA then since you're young you might do the conversion to a Roth IRA.

Once that's done, immediately put in some money for the 2010 Roth IRA contribution since I think Vanguard charges a fee if you have less than $5K in the account.

At Vanguard you can get almost perfect diversification just by getting their Target (year) fund. It includes a set of index funds that covers the US and foreign stock markets, plus a bit of bonds.
 
DaveSimmons said:
The main reason to move to an IRA is the choice of mutual funds, 401k funds often are weak and have high management expenses.

I'd move it to Vanguard as a trad IRA then since you're young you might do the conversion to a Roth IRA.

Once that's done, immediately put in some money for the 2010 Roth IRA contribution since I think Vanguard charges a fee if you have less than $5K in the account.

At Vanguard you can get almost perfect diversification just by getting their Target (year) fund. It includes a set of index funds that covers the US and foreign stock markets, plus a bit of bonds.
Click to expand...

I'd second this advice. I will be doing a rollover to a Roth IRA with a 401k I have from a previous employer in a few months.
 
i have 100% in wellesley right now.. i want to do a 50/50 with wellington...star for now
 
DaveSimmons said:
The main reason to move to an IRA is the choice of mutual funds, 401k funds often are weak and have high management expenses.

I'd move it to Vanguard as a trad IRA then since you're young you might do the conversion to a Roth IRA.

Once that's done, immediately put in some money for the 2010 Roth IRA contribution since I think Vanguard charges a fee if you have less than $5K in the account.

At Vanguard you can get almost perfect diversification just by getting their Target (year) fund. It includes a set of index funds that covers the US and foreign stock markets, plus a bit of bonds.
Click to expand...

I would also recommend rolling it over to Vanguard. The only thing I would caution you on is that typically a 401k rollover involves the 401k brokerage mailing you a physical check, and then you have to physically mail that check on to Vanguard (or whatever institution you want to hold the rollover IRA at). Your money could be out of the market for 2+ weeks during this process. With the way the markets have been moving lately, you stand to lose 0.5-1%/day (compounded) you are out of the market. Obviously no one can predict the future, but we seem to be in the middle of a good rally right now and I would be wary of having money out of the market.
 
The Roth idea is good - you pay taxes at today's rates rather than a future, likely higher the way things are going, rate, but be sure you can cover the taxes. (Your 401k money wasn't taxed, and if you turn it into a Roth you'll need to pay income tax on all that money.)
 
You need to read the rules on a rollover IRA and personal contributions. IIRC you have to keep track of the 401k dollars separately if you add your own money.
 
Last year I rolled mine over to a roth, and I don't know whether my financial consultants screwed me, but it sucked, bad.

He told me that in order for me to not be penalized with early withdrawal fee, I had to "match" the 401k amount for the rollover. Meaning I had to pay taxes on the money, then place the same dollar amount after taxes into the roth. I didn't have the extra 3 grand on me to do that, so I lost money with a penalty fee for the difference.

This confused me, and I might not be explaining it well, so here are some numbers.

401K had 10000
Taxes paid were 3000, leaving me with 7000 to put in roth.
Because I didn't have the required 10000 to place in roth, I got charged early withdrawal penalty on the 3000 difference.

This happened on 2 different accounts, 2 different jobs, 2 different consultants, one going to vanguard, the other to hsbc. The checks were being sent directly from one account to the other. I tried arguing this, as I know others have done this with no issues, but still ended up getting the shaft.

Good luck to you if you choose to do this.
 
Dirigible said:
The Roth idea is good - you pay taxes at today's rates rather than a future, likely higher the way things are going, rate, but be sure you can cover the taxes. (Your 401k money wasn't taxed, and if you turn it into a Roth you'll need to pay income tax on all that money.)
Click to expand...

I think Roth IRAs are a scam that they'll find a way to tax later. Then what? You've lost your tax break today for nothing.

I vote for traditional IRA because it offers a tax break now. That's cash money in the bank and increased buying power today. This can lead to compounded gains down the road.
 
aren't you limited to how much you can contribute to Roth IRA, something like a measly $5k?

and doesn't your income have to be below a threshold, iirc $105k?

or do the limits not apply if rolling over?
 
BlahBlahYouToo said:
aren't you limited to how much you can contribute to Roth IRA, something like a measly $5k?

and doesn't your income have to be below a threshold, iirc $105k?

or do the limits not apply if rolling over?
Click to expand...
dont apply if you roll over. you still wont be able to contribute if you are above the income threshold.

@wyndru, you definitely need to pay the tax to do the conversion, but you never should have done the rollover if you were going to have to pay a penalty for minimal balance. i believe previous employers must allow you to keep your 401k with them if you choose (with some rules). or, find a place you can roll over too that doesnt have that minimum amount
 
HardcoreRobot said:
dont apply if you roll over. you still wont be able to contribute if you are above the income threshold.

@wyndru, you definitely need to pay the tax to do the conversion, but you never should have done the rollover if you were going to have to pay a penalty for minimal balance. i believe previous employers must allow you to keep your 401k with them if you choose (with some rules). or, find a place you can roll over too that doesnt have that minimum amount
Click to expand...

so if i make more than $105k (AGI i'm assuming?), i will be able to roll over but not contribute further?
 
HardcoreRobot said:
@wyndru, you definitely need to pay the tax to do the conversion, but you never should have done the rollover if you were going to have to pay a penalty for minimal balance. i believe previous employers must allow you to keep your 401k with them if you choose (with some rules). or, find a place you can roll over too that doesnt have that minimum amount
Click to expand...

The way that I understood it is that it's required to convert the whole amount over to the roth, not just the after tax part. So it wasn't really a penalty for converting below a minimum amount, it was because amount that the gov took out (taxes)was considered an "early withdrawal" of the money, so I had to pay the penalty on that taxed amount.

The only way around it they said was to roll it over into a traditional, then convert into the roth. I don't know much about this stuff, so I just took my $500 penalty.
 
You must log in or register to reply here.

TRENDING THREADS

Back
Top