Old 401k just sitting

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GeauxBR
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Old 401k just sitting

Post by GeauxBR » Thu Sep 19, 2013 5:15 pm

My wife has an old 401k sitting (doing nothing) in a money market account. It has just under 4k in it. IIRC her new job wont start a 401k until she has been there 3-4 years. Should we do anything with this money for the time being? Or just hold onto it until it can roll into her new plan. We will have roth space this year but the way our budget/planning is going we will begin to max the roth space next year.

Thanks

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roymeo
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Re: Old 401k just sitting

Post by roymeo » Thu Sep 19, 2013 5:39 pm

You don't need "space" to roll a past employer's 401(k) or 403(b) over to a Traditional IRA. If you had $4,000,000 (somehow) you could just roll it on over.

That would address the "where it is" part of the question: You could leave it in the current location, roll it over to a tIRA, or leave it and roll it over to the current employer plan whenever that's available. Though you need to know that you can move it, that's probably not really the most important part of the question.

The second (unasked?) part of the question is independent of which 'container' you have it in: Should that money be sitting in a Money Market fund, or invested in something else? She could leave it in the old employer plan (assuming the plan has decent options with low fees) yet invest it in something that has more chance to beat inflation than tucked into the mattress where it is. If the employer plan has the perfect option, there's nothing wrong with leaving it there. Or she could roll it into a tIRA container and put it into another money market account doing nothing, or a badly thought-out investment, or the perfect investment for her (or your) portfolio.

In fact, she should probably first look at the funds available and their expenses in the old employer plan to see whether there's something there that works in her (or both of your) portfolio.

What's the overall portfolio plan? (You may want to check out Asking Portfolio Question, and remember, the more time you spend fleshing our your situation and questions, the more likely you are to get people to spend their time giving good answers.)
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JW-Retired
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Re: Old 401k just sitting

Post by JW-Retired » Thu Sep 19, 2013 8:17 pm

Whatever it's age, wife's 401k should not be "just sitting" in a money market. I agree doing a few mouse clicks to change it so she is earning something would be a good idea.
JW
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Saving$
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Re: Old 401k just sitting

Post by Saving$ » Thu Sep 19, 2013 10:12 pm

1. It is quite possible her old employer will not allow a relatively small amount to stay in their 401k indefinitely. Some plans will simply liquidate your account and send you a check after a certain time period if your balance is below a certain threshold. This could trigger unwanted taxes due. You need to look into this so you don't get caught.

2. If there is any chance your individual taxable income could ever be over $110k or combined over $173k, you will want to avoid having money in a Traditional IRA (tIRA). The reasoning for this is that having money in a tIRA will prevent you from doing a backdoor Roth. If there is no chance of EVER having that level of income, rolling to a tIRA could be a good idea.

3. If a tIRA is not a good idea for you, then the other two options are stay with the existing 401k. Per item 1, that might not be an option. The other option is to roll the funds to the current employer 401k. I'd suggest you look into this more. A 3-4 year waiting period to participate is VERY unusual. Perhaps the 3-4 years is the vesting period, which would be quite normal. Many 401k plans do have a 6 month to 1 year waiting period until the employer match begins, but at the same time, they allow employee participation/contributions without match immediately. It would be worthwhile to double check to find out if she can participate immediately. If so, you could roll the funds from the old 401k into the new 401k.

4. If it turns out you have a choice between the old 401k or the new employer 401k, you should look at the investment options in each, the fees of each, and the expense ratios of the funds in each, and the money should be in the most cost effective option.

5. The advice from posters above to think about how you invest the money, no matter which 401k or tIRA you put it in, is spot on.

GeauxBR
Posts: 113
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Location: Baton Rouge

Re: Old 401k just sitting

Post by GeauxBR » Fri Sep 20, 2013 12:14 pm

Saving$ wrote:3. If a tIRA is not a good idea for you, then the other two options are stay with the existing 401k. Per item 1, that might not be an option. The other option is to roll the funds to the current employer 401k. I'd suggest you look into this more. A 3-4 year waiting period to participate is VERY unusual. Perhaps the 3-4 years is the vesting period, which would be quite normal. Many 401k plans do have a 6 month to 1 year waiting period until the employer match begins, but at the same time, they allow employee participation/contributions without match immediately. It would be worthwhile to double check to find out if she can participate immediately. If so, you could roll the funds from the old 401k into the new 401k.
Thanks, i need to look at this and asked my wife to grab as much info from work as she can. It is in fact the "vesting period". I was unaware she could still contribute on her own, so thanks and i will check into that.

Thanks everyone.

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