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.