What to do with 401k from old job?

Casually Hardcore

Any advice on what to do with 401k from previous employers? I keep hearing all this and that rolling it over and stuff, but what are the cons and pros of doing this?

Kakodaimonos

Rolling over a 401k into an IRA transfers the balance from your employer's 401K management company to a management company of your choice.

Some advantages: If you have a few different 401ks out there from different companies you can consolidate them all into one account. You can also pick a company that has investment choices more in line with what you want and you can usually find funds with a lower fee structure.

The downside is you lose access to the 401k choices and funds you transfered from.

If you do a direct rollover there will be no tax issues. If you do a 401K -> Roth or vice versa there's some tax you may owe.

DO NOT TAKE A DISTRIBUTION! You want to do a direct rollover. If you take a distribution the amount will be taxed and you'll also have the early withdrawal penalty taken out. You can get that money back if you transfer the distribution into an IRA but it's a pain in the ass and you lose the returns on the money until next tax period.

Elvenshae

All a rollover is, is taking money from one 401k and putting it into another.

It simplifies the paperwork if you've only got one, makes it easier to track what your money is doing, etc.

Otherwise, there's no real reason you have to roll it over.

Depending on the fee structures of both 401ks, it might make sense to leave it where it is or roll it into your new one.

azith28

Put it all on black!

(Hey, its got the same return potential and no wait!)

tinwhiskers

In the short term, female entertainment contractors(NYSE: HOOKERS) and artificial energy(NYSE: BLOW) are extremely attractive investments.

ASimPerson

Kakodaimonos wrote: »

Rolling over a 401k into an IRA transfers the balance from your employer's 401K management company to a management company of your choice.

Some advantages: If you have a few different 401ks out there from different companies you can consolidate them all into one account. You can also pick a company that has investment choices more in line with what you want and you can usually find funds with a lower fee structure.

The downside is you lose access to the 401k choices and funds you transfered from.

If you do a direct rollover there will be no tax issues. If you do a 401K -> Roth or vice versa there's some tax you may owe.

DO NOT TAKE A DISTRIBUTION! You want to do a direct rollover. If you take a distribution the amount will be taxed and you'll also have the early withdrawal penalty taken out. You can get that money back if you transfer the distribution into an IRA but it's a pain in the ass and you lose the returns on the money until next tax period.

Another upside is that if you rollover to someone like Vanguard their fees are probably a lot lower.

(I've never found the company 401k choices to be that great, except at my current place whose 401k administrator is Vanguard.)

zepherin

ASimPerson wrote: »

Kakodaimonos wrote: »

Rolling over a 401k into an IRA transfers the balance from your employer's 401K management company to a management company of your choice.

Some advantages: If you have a few different 401ks out there from different companies you can consolidate them all into one account. You can also pick a company that has investment choices more in line with what you want and you can usually find funds with a lower fee structure.

The downside is you lose access to the 401k choices and funds you transfered from.

If you do a direct rollover there will be no tax issues. If you do a 401K -> Roth or vice versa there's some tax you may owe.

DO NOT TAKE A DISTRIBUTION! You want to do a direct rollover. If you take a distribution the amount will be taxed and you'll also have the early withdrawal penalty taken out. You can get that money back if you transfer the distribution into an IRA but it's a pain in the ass and you lose the returns on the money until next tax period.

Another upside is that if you rollover to someone like Vanguard their fees are probably a lot lower.

(I've never found the company 401k choices to be that great, except at my current place whose 401k administrator is Vanguard.)

Vanguard is pretty good, when I worked for the fed. The TSP had the best choices with the lowest fees, so if your coming from that world leave it, but most companies it is a good idea to roll it to an IRA, or if you are going to have a lot of tax deductions a Roth IRA.

You can go from one employer to another, so all your retirement is one place and easy enough to find, especially for people who job hop, but it is generally a worst investment option than an IRA.

zekebeau

azith28 wrote: »

Put it all on black!

(Hey, its got the same return potential and no wait!)

While the above is clearly a joke, I have heard similar statements of "I could loose it all anyway, why not just withdraw/why put any in it" that I need to respond.

Don't ever stop putting money away for retirement if you can afford it.

In the short term, 401k usually has a match, which is free money from your boss in addition to your salary that doesn't get taxed until you start taking your money out. If you go IRA, keep putting money in it each year for tax deductions. If you go Roth, put money in and when you finally hit retirement you will have a nice sized chunk you can pull out with literally zero taxes.

In the long term, the stock market will continue to give you returns and is probably your best hedge against inflation. 30 years from now, unless actual societal collapse occurs, your investments will have kept pace with inflation and produced some amount of gain/income, way above if you had kept it in a bank. If your funds are mostly mutual funds, you are almost guaranteed to have a greater wealth as they are lower risk. If your funds are mostly individual stocks (which is bad unless you have a lot of capital to play with and can take the extra risk) you will still likely have greater wealth unless you were so unlucky you put over half your wealth in companies that flat out failed.

Investing for retirement is always better than pulling it out and putting it on black and it is how you adult, don't let anyone tell you different.

Casually Hardcore

zepherin wrote: »

ASimPerson wrote: »

Kakodaimonos wrote: »

Rolling over a 401k into an IRA transfers the balance from your employer's 401K management company to a management company of your choice.

Some advantages: If you have a few different 401ks out there from different companies you can consolidate them all into one account. You can also pick a company that has investment choices more in line with what you want and you can usually find funds with a lower fee structure.

The downside is you lose access to the 401k choices and funds you transfered from.

If you do a direct rollover there will be no tax issues. If you do a 401K -> Roth or vice versa there's some tax you may owe.

DO NOT TAKE A DISTRIBUTION! You want to do a direct rollover. If you take a distribution the amount will be taxed and you'll also have the early withdrawal penalty taken out. You can get that money back if you transfer the distribution into an IRA but it's a pain in the ass and you lose the returns on the money until next tax period.

Another upside is that if you rollover to someone like Vanguard their fees are probably a lot lower.

(I've never found the company 401k choices to be that great, except at my current place whose 401k administrator is Vanguard.)

Vanguard is pretty good, when I worked for the fed. The TSP had the best choices with the lowest fees, so if your coming from that world leave it, but most companies it is a good idea to roll it to an IRA, or if you are going to have a lot of tax deductions a Roth IRA.

You can go from one employer to another, so all your retirement is one place and easy enough to find, especially for people who job hop, but it is generally a worst investment option than an IRA.

Are IRAs that good? Should I consider rolling it into a IRA? Would there be fees involved?

Djeet

IRAs don't have the limited investment options that 401Ks typically have. However your 401K may have investment options that don't carry load when they would if done through an IRA. Here (http://www.marketwatch.com/story/the-pros-and-cons-of-rolling-over-a-401k-to-an-ira-2014-01-24) you can find some of the other pros and cons of 401K to IRA rollover.

Elvenshae

I thought that you couldn't do a traditional IRA if you had a 401k available to you?

Orogogus

Elvenshae wrote: »

I thought that you couldn't do a traditional IRA if you had a 401k available to you?

Huh? You totally can. A 401(k) is your company retirement plan which gets money from paycheck deductions and employer matches, an IRA is your personal retirement plan which gets money that you put in yourself (there is kind of IRA, SIMPLE, for employers). Traditional vs. Roth IRA doesn't have any bearing, I don't think, and as far as I know you can have both kinds if you want.

Savge

I highly recommend Vanguard, I've had the majority of my portfolio with them for many years and they've treated my money well.

If there is room for speculation in your portfolio, you can pick individual stocks on a long term time horizon.

localh77

Orogogus wrote: »

Elvenshae wrote: »

I thought that you couldn't do a traditional IRA if you had a 401k available to you?

Huh? You totally can. A 401(k) is your company retirement plan which gets money from paycheck deductions and employer matches, an IRA is your personal retirement plan which gets money that you put in yourself (there is kind of IRA, SIMPLE, for employers). Traditional vs. Roth IRA doesn't have any bearing, I don't think, and as far as I know you can have both kinds if you want.

He actually kind of right. You can certainly own both types of accounts, and do rollovers from 401(k) to IRA without problem. But if you have a retirement plan offered at your job (401(k), 403(b), SIMPLE IRA, etc.), and your income is over a certain threshold, then you don't get a deduction for contributing to a traditional IRA.

Roth IRA's don't have the same restriction, but on the other hand you can't contribute at all if your income is over a certain threshold (higher than the threshold mentioned above).

Reference: https://www.irs.gov/retirement-plans/ira-deduction-limits

Elvenshae

Thanks, @localh77 - that's what I thought!

And I should have specified by "can't do" that I meant "receive no tax benefit for."