Rolling over a 401k

[LuckyTaxi]

I currently have a Roth IRA with T-Rowe price as well as a 401k w/ my employer.
So i called T-Rowe and they told me I would need to roll over my 401k into a Traditional IRA. If I wanted to dump it into my Roth IRA, I would need to convert them, hence would have to pay taxes on it. I didn't realize this!

Anyways, so the dilemma is if I dump it into a Rollover IRA w/ T-Rowe price, I don't want the money to just sit there. I would like to continue to contribute to it, hence me wanting to put it into my Roth IRA. Anyways, my new job says I won't be eligible until 6 months so maybe I should just leave it with the current 401k holder until I'm ready.

What have some of you done in the past?

 

[kranky]

They are correct - you can't dump a 401k into a Roth. You can only roll it over into a Traditional IRA.

What do you mean by "I don't want the money to just sit there. I would like to continue to contribute to it, hence me wanting to put it into my Roth IRA" ? You should be safe if you keep making contributions to your Roth IRA.

 

[Capt Caveman]

Just leave it with your current 401k and then roll it over into your new employer's 401k when you're eligible.

And rolling it into a Rollover IRA is a good option as it will give you a much larger selection of funds to roll it into.

 

[maddogchen]

if you dump it into a Rollover w/T-Rowe price you can still invest in the same funds that your Roth is in. So it won't be just sitting there.

 

[kranky]

Originally posted by: Capt Caveman
Just leave it with your current 401k and then roll it over into your new employer's 401k when you're eligible.

I would not recommend that.

And rolling it into a Rollover IRA is a good option as it will give you a much larger selection of funds to roll it into.

Because of this.

I can't think of one good reason to roll one 401k into another one. You limit your investment choices unnecessarily, and could be paying higher fees for no good reason.

 

[olds]

Originally posted by: kranky

Originally posted by: Capt Caveman
Just leave it with your current 401k and then roll it over into your new employer's 401k when you're eligible.

I would not recommend that.

And rolling it into a Rollover IRA is a good option as it will give you a much larger selection of funds to roll it into.

Because of this.

I can't think of one good reason to roll one 401k into another one. You limit your investment choices unnecessarily, and could be paying higher fees for no good reason.

I am not clear on what you are saying but if you pull the money out, doesn't the IRS get 20% right off the top?

 

[maddogchen]

Originally posted by: oldsmoboat

Originally posted by: kranky

Originally posted by: Capt Caveman
Just leave it with your current 401k and then roll it over into your new employer's 401k when you're eligible.

I would not recommend that.

And rolling it into a Rollover IRA is a good option as it will give you a much larger selection of funds to roll it into.

Because of this.

I can't think of one good reason to roll one 401k into another one. You limit your investment choices unnecessarily, and could be paying higher fees for no good reason.

I am not clear on what you are saying but if you pull the money out, doesn't the IRS get 20% right off the top?

when you rollover you should not be penalized. And its not right off the top, you get taxed later.

 

[kranky]

I'm saying when you have the opportunity to roll over a 401k, roll it over to an IRA and not another 401k. You will have more investment choices with an IRA.

With a direct rollover, you do not pay any tax. It's not "pulling the money out" - it's just transferring the existing IRA/401k to another custodian.

 

[olds]

Originally posted by: kranky
I'm saying when you have the opportunity to roll over a 401k, roll it over to an IRA and not another 401k. You will have more investment choices with an IRA.

With a direct rollover, you do not pay any tax. It's not "pulling the money out" - it's just transferring the existing IRA/401k to another custodian.

Thanks

 

[thomsbrain]

OP, you can still make your usual contributions to your existing Roth IRA and your new employer's 401k. Yes, the money in your new Rollover IRA will just "sit there," but it will be accumulating compound interest while it does, just like it would in any other retirement account. As long as you get another job with a 401k, then it's not like you're losing any chances to contribute towards your retirement. It's just getting spread out over one extra account (and one that you have more control over!). The end result is the same, assuming identical investments/fees/etc.

It *might* be possible to contribute to the Rollover IRA after the initial deposit, but you can only contribute $5,000 total to all IRA accounts you have per year, so any money you put in the Rollover would be subtracted from the amount you can put in the Roth. Since most economists agree that a Roth will give a slightly better return in the long run, that would be a bad idea. You would be better off maxing your Roth and letting the other account continue without additional contributions than to spread it out.

So roll it into a Rollover IRA, make your investments, and go back to doing what you were doing before at your next job.

 

[DaveSimmons]

Remember with mutual funds the dividends can be automatically reinvested, so your traditional IRA account will be adding new shares at least 1-2 times a year.

When you change jobs again you add that 401k money into the same rollover IRA.

I prefer Vanguard myself for their index funds, but if you're happy with T. Rowe Price they can walk you through doing the rollover IRA so you don't pay any taxes. The key point is to have the 401k money transferred directly to them, or to you but as a check made out to them (not you).

 

[LuckyTaxi]

thx guys ... i didn't take into consideration the horrible funds some of these companies have in regards to 401ks. I know my current employer's plan suck, hence why I opened a Roth IRA in addition to the 401k.
I'll take everyone's advice and dump it into a rollover ira.

 

[Mday]

Originally posted by: LuckyTaxi
thx guys ... i didn't take into consideration the horrible funds some of these companies have in regards to 401ks. I know my current employer's plan suck, hence why I opened a Roth IRA in addition to the 401k.
I'll take everyone's advice and dump it into a rollover ira.

Just make sure the plan does not write you a check to deposit. The fund should be transferred directly to the new account, or you get fucked until tax time.

 

[kranky]

Originally posted by: Mday

Originally posted by: LuckyTaxi
thx guys ... i didn't take into consideration the horrible funds some of these companies have in regards to 401ks. I know my current employer's plan suck, hence why I opened a Roth IRA in addition to the 401k.
I'll take everyone's advice and dump it into a rollover ira.

Just make sure the plan does not write you a check to deposit. The fund should be transferred directly to the new account, or you get fucked until tax time.

If they write you a check AND withhold taxes from the check, that's the worst case scenario. You have to deposit the full amount within 60 days into a rollover IRA to avoid early withdrawal penalties but you have to cough up the amount that was withheld as taxes too. If you only roll over the net amount of the check, you owe taxes on the amount of the withheld taxes (since that money was part of your 401k and you didn't put it into the rollover IRA).