What to do with my 401K?

[pony mom]

When I left my old job, I left my 401K with the company because my new job didn't offer one. Another company took over my old company and now they are dissolving (A&P). So now I have to decide what to do with the money (about $30K) that has been sitting there.

I definitely won't cash it in; I'll be 50 yrs. old this year. The account is with Fidelity and I guess I'll just move it to an IRA or Roth IRA. But which? Is there anything I should know to decide between the two? I've rad about avoiding fees with trustee-to-trustee transactions. They sent me a booklet but it's a bit wordy for me and I'm clueless. Currently don't have a job that offers an IRA. I also can't remember if I contributed before or after taxes, if that matters. And at the moment I'm not in a position to contribute anything to either IRA.

[Williamsmith]

I've got three years to go before I can withdraw without penalty. My personal convictions have me plotting taking it all out and investing it in rural real estate, precious metals and durable goods. Given the choice I would participate in Roth and get my taxes paid up front. But there are better financial minds here than me.

[kally]

I might take mine out and buy a cauliflower up here in the rural parts of Canada.

[ApatheticNoMore]

Someone can correct me if I'm wrong but I think you'll pay taxes on it if you convert it to a Roth. I'm not saying that's a good or bad idea, it's usually said to depend on if you think your income after retirement will be more or less than before retirement.

But yea if you want to go with a Roth prepare to pay a bunch of taxes depending on tax bracket - x% (does such a rollover increase one's income that year, so as to possibly even put them in a higher bracket than usual?) of 30k which can add up to quite a lot. And add on state income taxes as well if your state has an income tax. That's assuming it's a normal 401k which are before tax contributions. I think Roth 401ks (after tax contributions) are pretty rare and definitely not what most companies seem to offer as far as 401ks, but if you happened to have one of those rare plans you've already paid the taxes, so never mind, so yes it does matter whether it's before or after tax contributions. None of this is penalty fees which you would pay if you decided to cash in and spend the money for most things with a few exceptions (yes cashing out is generally a very bad idea for this reason), it's just taxes involved in converting a before tax retirement plan to a Roth. That's my understanding.

Just rolling over to a regular IRA would seem to be the simplest thing to do, unless there are compelling reasons not to. I don't know.

[freshstart]

but she could only put this year and last year's (you have until taxes are due to invest last year's contribution) Roth amounts in, correct?

I thought all 401ks are pre-tax

I would put the rest in a Rollover IRA. I just did this process with a 403B, it's easy. And you don't have to pay your employer's fund fees anymore. If you know what brokerage firm you want to move your money to, just call them, they do the leg work with your old company and you just have to get papers notarized and sent back.

[ApatheticNoMore]

but she could only put this year and last year's (you have until taxes are due to invest last year's contribution) Roth amounts in, correct?

I don't think so, I think you have the option to roll over the entire thing to a Roth, but in say the 25% bracket you are looking at losing $7500 in taxes right off the bat. You are however going to pay the taxes either now or when you retire anyway though.


I thought all 401ks are pre-tax

it mostly seems that way in practice. But in the laws governing potential retirement vehicles, there are post-tax 401ks called Roth 401ks I think, though I've never seen them, but some company somewhere might offer them.


If you know what brokerage firm you want to move your money to, just call them, they do the leg work with your old company and you just have to get papers notarized and sent back.

yes they (vanguard, fidelity etc.) are always offering to take your rollover :) though they aren't really financial advisors of course, they will help you through the *process* but their interest is in getting your money, not giving the best possible tax or investment advice. If the old company is going kaputs though it's probably a good idea to get your money out ASAP.

[jp1]

yes they (vanguard, fidelity etc.) are always offering to take your rollover :) though they aren't really financial advisors of course, they will help you through the *process* but their interest is in getting your money, not giving the best possible tax or investment advice.

No kidding. I recently had to contact the broker that manages my deceased father's IRA because I needed to do the minimum required distribution for 2015. I had hoped to do it online, but no such luck. I had to call them to do it and had to repeatedly shut down the guy's efforts to "help" me manage my money, first dad's IRA which only has about $3,000 left in it, and then all my other money.

[Williamsmith]

Pl
No kidding. I recently had to contact the broker that manages my deceased father's IRA because I needed to do the minimum required distribution for 2015. I had hoped to do it online, but no such luck. I had to call them to do it and had to repeatedly shut down the guy's efforts to "help" me manage my money, first dad's IRA which only has about $3,000 left in it, and then all my other money.

Exactly......there is this mythical place where you take all your hard earned discretionary money and when you arrive people you don't know and don't really trust tell you they have this neat place that they can put your money where it will be well taken care of and it will grow.

And they further explain what a bountiful life you will live off the interest if you only entrust that blood sweat and tears to them. And they point out how impossible it is to put your money in a safe place other than their place and they tell all kinds of nightmare stories about people who thought they could manage on their own, only to lose the money in the end and their freedom that goes with it.

Oh yes, and they promise that if you just leave the money to them for a long long time that all the risky adventures it will go through will eventually pay off but if you take your money back they will punish you for losing faith in them. No, you must have faith and you must allow them to guide your money through the storms of life. And they let you look into a room where millions of other people have left behind their hard earned dollars and they say, "See, others have trusted us too."

And you walk away without anything and look back every once in awhile. You say to yourself, yes they are still there and so is my money. You look back as you walk further away and it gets harder and harder to see but you convince yourself, "Yes, they are still there."

Then one day, you go back and ask for the money. They say, we are not sure where we put it, it is here somewhere. And when you finally get it, it has shrunk and I does not look like it is,very useful. You turn to ask what happened to it and the door slams in your face.

You take what is left and you stick it under your mattress and that is the first good nights sleep you have had since you left it in that mythical place many many years ago. The End.

[ApatheticNoMore]

I think extreme distrust and extreme trust in "the system" applied to investing will get you the same nowhere.

- Extreme distrust and your putting it all in shiny rocks that have never yet thrown off a dividend or an interest because the FDIC insured banks can't be trusted (right they can't fully but odds are probably good ...) and the Fed gov can't be trusted with it's 10 years and t-bills etc. (but actually the fed gov is probably the one thing that CAN 100% be trusted to pay interest on the debt pretty much. To provide for the common welfare otoh ... not so much so unfortunately).

- Extreme trust and your investing it all in stocks many of which haven't ever thrown off a dividend either! (depends on the stock of course, but I don't think Amazon for instance ever has) because everyone says to invest for capital appreciation and the long run ...

Although none of this is really the original question which was about fees and taxes I think.

[rosarugosa]

My employer has always offered both before & after tax options for our 401k, and starting this year will offer a Roth. So it is worth checking to see if it's before or after tax. I think your pay slip might show you. Mine groups before and after tax deductions separately. If it's after tax, I would think it would only make sense to put it in a Roth. If it's before tax, it sounds like your best bet would be to roll it into a traditional 401k. Unless you are expecting to have really high income after retirement, I wouldn't see any advantage to converting it all to a Roth and taking that big tax hit now. I rolled my DH's 401k over to Vanguard. They were helpful and straightforward and didn't try to offer any more assistance than I was requesting. He could have left the money where it was, but Vanguard had similar funds with lower fees. I used tools on Vanguard and info I learned on Mr Money Mustache forum and Bogleheads to determine asset allocation.

[freshstart]

I rolled my DH's 401k over to Vanguard. They were helpful and straightforward and didn't try to offer any more assistance than I was requesting. He could have left the money where it was, but Vanguard had similar funds with lower fees. I used tools on Vanguard and info I learned on Mr Money Mustache forum and Bogleheads to determine asset allocation.

I was just going to say the same thing, Vanguard has never pushed me. My portfolio has saved my bacon now that I am not able to work. Without the usual almost 15% contributions invested aggressively, riding out the storms (seeing them as a "sale" on mutual funds so I actually would invest more) and money earned from interest, I would have no back up to disability should I need it. Had I not done the 403B and Roths, I'd be dead in the water right now.

And once I reached a certain threshold, I got a free session with a CFP. He looked at everything, not just what I had at Vanguard, he helped me plan for college, found that I could easily retire at 55, when wouldn't it be in their best interest to keep me working and dumping money into the funds according to Williamsmith's logic? knew I wanted index funds from Vanguard in my 403b, he helped me set up diversification that fit my risk tolerance (high) when that was not his job at all to help manage my 403B. It was a great experience and because I just had a large Rollover, I'm entitled to that level of help again, I'm just waiting to see where I land financially with disability.

they were also great when I panicked about not being able to contribute to retirement vehicles and what if I needed some of the money sooner, they told me what I could spend without ever touching principle.

Now, work had a guy who was supposed to do this kind of stuff for employees. So I met with him just like in the above paragraph, he pushed products in the 403b line up until he finally got it that I was only interested in Vanguard index funds. he then agreed I had a good plan in place and he also brought up retiring at 55. So he kinda confirmed to me that the Vanguard guy was decent.

yes to Bogle books, Boglehead forums- immensely helpful

[rodeosweetheart]

"When I left my old job, I left my 401K with the company because my new job didn't offer one. Another company took over my old company and now they are dissolving (A&P). So now I have to decide what to do with the money (about $30K) that has been sitting there.

I definitely won't cash it in; I'll be 50 yrs. old this year. The account is with Fidelity and I guess I'll just move it to an IRA or Roth IRA."

Exactly right. The very easiest thing to do is move it to a traditional IRA (assuming it is in a regular 401k and not a Roth 401k) right there at Fidelity. If you call them, they can set it up for you in about 20 minutes. I did this by phone when I turned 59 1/2, as you can take what is in your 401k at that time and convert it to a regular IRA. I thought about moving it to Vanguard, but I decided to leave it with Fidelity as that was the easiest and fastest. By the following day, I believe, I had the account funded. They gave me option of leaving it invested in what it was already invested in or cashing out;I went with cash because I wanted to do my own investing with it, and I wanted to use it as a cash source with my semi retirement, if need be.

So you can have Fidelity do it, and it will be completed fairly immediately.

Or, you could call Vanguard or Schwab or anybody else and have them set up an IRA and then have them do the transfer for you. That will take longer. When I switched years ago, an IRA, from another brokerage to Fidelity, it took about 6 weeks. But all those things are probably much faster now.


But which? Is there anything I should know to decide between the two? I've rad about avoiding fees with trustee-to-trustee transactions. They sent me a booklet but it's a bit wordy for me and I'm clueless. Currently don't have a job that offers an IRA. I also can't remember if I contributed before or after taxes, if that matters. And at the moment I'm not in a position to contribute anything to either IRA.

If you do a Roth conversion, you will pay taxes on it, but no early penalty. You should read up on which makes more sense, and that depends on your income this year, but most people would probably prefer the Roth. If you decide that it won't disrupt your taxes that much this year, then you could certainly go ahead and do that. Again, you would set up the account with either Fidelity or someone else and have them do the transfer.

So read up on Roths vs. traditional, consider you tax situation, and liberate your money from your old employer! Congratulations, it's a great feeling to do so.

[Williamsmith]

For freshstarts situation the investments in the stock market make so much sense. What other choices do you have if you are retired and/or can't work.

Depends on your reason for having the money set aside in the first place. For me, I want to minimize risk and preserve. I'm not hell bent or reliant on growth.

My primary target is my credit union savings account. The interest rate may surprise you, it is secure and liquid...available at any time without penalty. I like that in an uncertain world economy environment.

Another possibility is treasury department savings bonds. Again little risk, but also much easier to get ahold of after just five years of investment.

Real Estate......we aren't producing any more land. It is a finite resource and also a valued inheritance for your heirs.

How about investing in a trusted entrepreneur or family member.

Or a side business for yourself.

Im just not into the allure of the risky part of the stock market. Lacking control.....bugs me.

[rodeosweetheart]

I totally get where you are coming from, Williamsmith, and you raise many great points for Pony Mom to think about.

If she wants to get the money into her own control, she can either roll it over into a Traditional IRA while she figures out her long term plans for the money, convert it into a Roth IRA, or cash it out as you are suggesting. If she cashes it out (takes an early distribution) then that is a taxable event, and she will pay taxes on the money, and she will also pay a 10% early withdrawal penalty.

I think getting the money under her own control in a traditional IRA would be a good first step, unless she is sure she want a Roth and has carefully considered the tax implications.

Were she to cash it out with an early distribution, that would become a taxable event, and she doesn't seem to want to do that, since she brought up the penalty.

But yeah, you correctly identify many problems with the current retirement system,and no doubt she will want to consider her options here.

[Williamsmith]

Yes paying a 10% penalty would be foolish. Exactly why my plans are on hold for three more years. After that I am free to withdraw without penalty which at ten percent is a considerable chunk of change. I agree.

[Rogar]

No kidding. I recently had to contact the broker that manages my deceased father's IRA because I needed to do the minimum required distribution for 2015. I had hoped to do it online, but no such luck. I had to call them to do it and had to repeatedly shut down the guy's efforts to "help" me manage my money, first dad's IRA which only has about $3,000 left in it, and then all my other money.

I inherited my dad's IRA which he had at a local bank. I wanted to transfer this to Fidelity, which has some of my other investments. The transfer was one of the most frustrating financial transactions I've made, with the bank claiming they had lost the paper work or some other bogus excuse that complicated to process. I was assigned a Fidelity rep who dogged things to make sure the transfer went through, although it ended up taking a few months. I was so pleased with Fidelity's customer service that I wrote a personal letter to the rep and his boss with compliments. It has been effortless ever since.

Most everything else I know agrees with Rodeo Sweetheart's post. Whether you roll over into a traditional IRA or a Roth IRA depends on you personal philosophy and your anticipated tax situation, since you will pay taxes on the Roth upon transfer rather than when you start withdrawals. I get help from my accountant with that. However I do believe if you have money in a traditional IRA, you can then transfer to a Roth in smaller increments over more than one year or at any time to spread out the income you would have to pay taxes on.

I'm anticipating my income to increase significantly when I start social security, so I've been transferring small increments from my traditional IRA to my Roth every year to avoid a larger income tax burden in a higher tax bracket when I start social security. It's a plan my accountant has suggested and every year he comes up with a maximum amount to transfer from traditional to roth that will still keep me in a lower tax bracket.

[rodeosweetheart]

However I do believe if you have money in a traditional IRA, you can then transfer to a Roth in smaller increments over more than one year or at any time to spread out the income you would have to pay taxes on.

Exactly right, Suze Orman writes about doing just that.

I thought about it, but decided it was too complicated for my situation, and just left mine in traditional IRA.

[freshstart]

I thought about it, but decided it was too complicated for my situation, and just left mine in traditional IRA.

this was me exactly. I figure I'll look into it down the road when I don't have so much financial upheaval going on

[pony mom]

Thanks all. The traditional IRA sounds appealing to me, especially as it won't affect my income, which has been very low last year and so far this year as well. My 401K money is there for me for the future or a dire emergency so I've just left it alone when I left that job. I have no interest in learning about stocks and that sort of thing. The account I have is invested according to the time I retire--aggressive now and more conservative closer to retirement.

My mom's cousin has a financial advisor. I am his sole heir and have POA. My cousin trusts him but he is usually taken advantage of in most things he does so I don't know if I'd trust him with my own money. When he dies, I'll probably let him continue to manage my inheritance and see what happens.

[freshstart]

Thanks all. The traditional IRA sounds appealing to me, especially as it won't affect my income, which has been very low last year and so far this year as well. My 401K money is there for me for the future or a dire emergency so I've just left it alone when I left that job. I have no interest in learning about stocks and that sort of thing. The account I have is invested according to the time I retire--aggressive now and more conservative closer to retirement. .

you do know you can pick a Target Date retirement fund when/if you roll the money into the IRA? You can probably even find the exact same fund you are already invested in. But you'll avoid paying the employer layer of fees from now until retirement and that adds up.

[pony mom]

you do know you can pick a Target Date retirement fund when/if you roll the money into the IRA? You can probably even find the exact same fund you are already invested in. But you'll avoid paying the employer layer of fees from now until retirement and that adds up.

Nope, didn't know that. Thanks.