401k

[Sixguns]

If I quit my current job, what is the best thing to do with my current 401k? The place I might be going to doesnt allow you to use it until after one year so what should I do with my money for a year? And after that, can I roll it into my new 401k?

 

[xBiffx]

If I quit my current job, what is the best thing to do with my current 401k? The place I might be going to doesnt allow you to use it until after one year so what should I do with my money for a year? And after that, can I roll it into my new 401k?

Check and see if you can keep your current 401k even after you terminate employment. A lot of times, its not dependent on who you work for. You may even get lucky and its the same management company as your new one.

You could always open up a traditional IRA and roll it over to that. Then roll over again when you can get the new 401k going or even leave the IRA alone depending on the investment options between the too.

 

[Meractik]

you could look into converting it to a RothIRA once you quit your current job, if converted you'd still be liable to not being able to 'use' it without penalty but you could further contribute to it...

 

[vi edit]

I'm assuming it's in a major fund manager like Prudential, PNC, ect? If it is you should just be able to let it sit and go unfunded while you wait for your enrollment period to open at the new job. Then you should be able to cash out of the old one and roll it into the new account. That can be done electronically (hopefully) or via a check they cut to you that you then sign over to the new fund manager to deposit.

 

[CPA]

keep it where it's at. And yes, you can roll it in at any time.

 

[Dr. Detroit]

Take your 401K and request a Rollover Distribution and put it in one of the myriad of brokerage houses like. Fidelity, Merril Lynch, Charles Schwab or Wells Fargo.

You generally fill out paperwork at then submit it to you current 401K holder asking them to send/wire the funds to your new account holder.

You are not taxed for this.

Once the money hits the new account you are free to invest it in whatever you like - yes, you can even day trade it or buy bonds, or Mutual Funds. All earnings stay within your account until you draw it down in retirement.

I' advise folks to not roll it over into another employers 401K as often that limits your investment choices quite a bit.

 

[HardcoreRobot]

id roll it over into a traditional/roth IRA at a brokerage of my choosing and invest in some low fee index funds

 

[Sixguns]

Thanks! Ill have to ask if/when I put in my 2 weeks.

 

[DaveSimmons]

id roll it over into a traditional/roth IRA at a brokerage of my choosing and invest in some low fee index funds

Same. Vanguard.com offers better funds than most 401ks do.

Rollover to traditional IRA = nothing to pay now, but at retirement you pay taxes on withdrawals. Rollover to Roth (conversion) = you pay taxes on it now, but at retirement you don't pay any taxes.

 

[Gunslinger08]

https://personal.vanguard.com/us/whatweoffer/rollover

 

[CountZero]

Same. Vanguard.com offers better funds than most 401ks do.

Rollover to traditional IRA = nothing to pay now, but at retirement you pay taxes on withdrawals. Rollover to Roth (conversion) = you pay taxes on it now, but at retirement you don't pay any taxes.

If you rollover to a Roth does that count towards your regular income when determining AMT or eligibility for deductions like student loan interest? Also is it taxed at your highest marginal rate? Basically could you be surprised that a rollover pushed you into a higher (maybe much higher depending on size of 401k) bracket and end up owing a significant amount of taxes at the end of the year?

I hear a lot of people recommending rolling over to a Roth but the tax liabilities seem like they'd be significant if your 401k was even moderately large.

 

[bryanl]

If the costs are high or the 401k was invested just in company stock or an insurance product, put it in a rollover IRA. I believe putting it in a Roth will require paying taxes on the contributions, unless you had a Roth 401k.

Costs can be high with small 401k plans or plans run by insurance companies, and many employers use expensive plans since the up-front costs are less.

 

[acheron]

Rollover to Roth (conversion) = you pay taxes on it now, but at retirement you don't pay any taxes.

Assuming Congress doesn't change the rules before X decades from now. Already Obama is proposing limiting retirement accounts, and if you think a Cyprus-type tax on savings won't ever happen here, you're more optimistic than I am. Remember, if you have savings and someone else doesn't, it's unfair, and you should contribute your fair share.

Basically, I say take the tax savings now while it definitely exists, rather than a politician's promise of tax savings in the future.

(That said, don't take financial advice from some dumbass on the internet too seriously... )

Back on the original topic: roll it over into an IRA, then park it in an index fund and forget about it.

 

[DaveSimmons]

If you rollover to a Roth does that count towards your regular income when determining AMT or eligibility for deductions like student loan interest? Also is it taxed at your highest marginal rate? Basically could you be surprised that a rollover pushed you into a higher (maybe much higher depending on size of 401k) bracket and end up owing a significant amount of taxes at the end of the year?

I hear a lot of people recommending rolling over to a Roth but the tax liabilities seem like they'd be significant if your 401k was even moderately large.

Yes, it adds to your gross income and will be taxed at your highest marginal rate.

> pushed you into a higher (maybe much higher depending on size of 401k) bracket

People say this as if it has some effect on your existing taxes. It does not.

In the US, the tax you pay on the first $x,000 is ALWAYS THE SAME. Even if you make eleventy billion dollars the taxes you pay on the first $20,000 never changes. You might pay 32% on your income over $200,000 but it's only that new money that is taxed at the higher rate. The "old" money before that is NOT taxed at that rate.

What does happen is that you might hit the AMT or lose the ability to contribute to an IRA.

But when someone says they know someone who that were "pushed into a higher bracket" (usually with an addon like "... and actually got paid less!") they don't understand how marginal taxes work.

(end rant )

 

[Sixguns]

If the costs are high or the 401k was invested just in company stock or an insurance product, put it in a rollover IRA. I believe putting it in a Roth will require paying taxes on the contributions, unless you had a Roth 401k.

Costs can be high with small 401k plans or plans run by insurance companies, and many employers use expensive plans since the up-front costs are less.

50% into company stocks and the other 50% into two others. I know its bad but I am not sure what they are.

 

[CountZero]

Yes, it adds to your gross income and will be taxed at your highest marginal rate.

> pushed you into a higher (maybe much higher depending on size of 401k) bracket

People say this as if it has some effect on your existing taxes. It does not.

In the US, the tax you pay on the first $x,000 is ALWAYS THE SAME. Even if you make eleventy billion dollars the taxes you pay on the first $20,000 never changes. You might pay 32% on your income over $200,000 but it's only that new money that is taxed at the higher rate. The "old" money before that is NOT taxed at that rate.

What does happen is that you might hit the AMT or lose the ability to contribute to an IRA.

But when someone says they know someone who that were "pushed into a higher bracket" (usually with an addon like "... and actually got paid less!") they don't understand how marginal taxes work.

(end rant )

It isn't the getting paid less crap, that I'm well aware of and know that is never true. So maybe doing a Roth makes sense but the tax implications of rolling over 100k+ would be significant. How do they determine what tax bracket to use, do you give them an estimate of this years AGI?

What I mean is if I'm at the top of the 28% bracket and I rollover 100k that should be taxed at 33% but if they do it at 28% or the 25% the government so loves when it has no idea what to use then you will owe 5-8k at the end of the year. It isn't a huge deal but I'd imagine it would be a shock. The tax implications are trickier since it is taxes on income you can't readily access so anything wrong that isn't in your favor is going to cost you cash and anything wrong that is in your favor will cost you the compound interest you lose in the retirement account.

 

[dr150]

As others have said, roll it over to a ROTH IRA, IF you qualify for it (depends on your income).

If your income doesn't qualify you, you can do the backdoor method. You first, roll it into a Traditional IRA, then convert it to a ROTH. Any broker will help you with the conversion. All it usually takes is one piece of paper with a signature on it and faxed back to them.

Remember that you will pay the taxes on that money next year when eventually put into a ROTH, but the money will then grow tax free and be worth markedly more than if you left it in a dormant 401k account or Traditional IRA.

I would not advise, to leave it dormant in your old 401k...even if allowed by your old company, because:
1.) An IRA at a brokerage will give you many more CHEAPER alternatives (i.e. index funds with .05% expense ratio like VOO or VYM with higher dividend yields). This can mean thousands of dollars you're not forking over to the fund to pay their expenses..
2.) 401k plans generally suck with their investment options and high expense ratio fees.
3.) A brokerage will give you a bonus and free trades when rolling over to them. Check out the following offers:
http://thefinancebuff.com/huge-bonu...schwab-td-ameritrade-etrade-merrill-edge.html
http://investorjunkie.com/11562/optionshouse-promotion-code/#ira1
http://www.retailmenot.com/view/sharebuilder.com
http://content.sharebuilder.com/mgdcon/core/home/pros/sb/tiles/redirect_pros_sb_tiles.htm?goto=8
4.) A ROTH will save you taxes in the long run.

It's a no brainer to get that money invested in better investments (i.e. ETFs) and in plans that'll save you taxes (ROTH). Call Fidelity, Etrade, or Ameritrade and ask for an IRA expert. Q&A them to death until you realize there are better ways to use that money.

What I mean is if I'm at the top of the 28% bracket and I rollover 100k that should be taxed at 33% but if they do it at 28% or the 25% the government so loves when it has no idea what to use then you will owe 5-8k at the end of the year. It isn't a huge deal but I'd imagine it would be a shock. The tax implications are trickier since it is taxes on income you can't readily access so anything wrong that isn't in your favor is going to cost you cash and anything wrong that is in your favor will cost you the compound interest you lose in the retirement account.

Talk to your tax consultant and call a free IRA advisor at your favorite brokerage to nail down your tax burden. You can break your tax burden over years if you do a conversion in one shot or you can convert pieces of that 401k every year and pay the tax on that (which is what Suze Orman advises if you're hard-up on cash). I don't know the specifics of breaking down the tax burden over years, as I paid the whole tax bill in one shot when I did the old 401k or when I do the yearly IRA to ROTH conversion (as I'm forced to do the backdoor method due to my income).

 

[Sixguns]

Ameritrade

Currently through them so it might make it easier for me.

 

[dr150]

Currently through them so it might make it easier for me.

Ameritrade is really easy with the conversions (just a faxed paper after the rolled-over money is put into your account).

Ameritrade is funky in that they'll want you to have a new username/password for EACH flavor of IRA. So if you do a Traditional to ROTH conversion, you'll need to open/have to new user IDs--one for the ROTH, the other for the Traditional.

If your income is lower, where you don't have to worry about conversions, then obviously you only have to open one new username (for the ROTH) with Ameritrade.

Use their promo links in my previous post to get some bonuses when you sign up for EACH shell IRA account(s).

 

[Sixguns]

If your income is lower, where you don't have to worry about conversions, then obviously you only have to open one new username (for the ROTH) with Ameritrade.

What is this level of income so I can get a better idea of what to do?

 

[dr150]

What is this level of income so I can get a better idea of what to do?

http://roth-ira-contribution-limits.com/roth-ira-income-limits-2013/