Disadvantages from moving 401k to IRA

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joyo23
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Disadvantages from moving 401k to IRA

Post by joyo23 » Wed Jun 10, 2015 6:20 pm

I have an old 401(k) with high fees and want to transfer to a rollover 401(k) at Fidelity and wonder what disadvantages there are. Is it worthwhile to move?

mhalley
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Re: Disadvantages from moving 401k to IRA

Post by mhalley » Wed Jun 10, 2015 6:32 pm

A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike

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arcticpineapplecorp.
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Re: Disadvantages from moving 401k to IRA

Post by arcticpineapplecorp. » Wed Jun 10, 2015 6:37 pm

Can't think of any other disadvantages from moving from 401(k) to an IRA (from those above) especially if the fees are lower and fund choices are better. Just make sure if it's a traditional 401(k) (not a newer Roth 401(k) that you roll the monies into a Rollover (traditional) IRA and NOT into a Roth IRA. Make sure you're rolling from a pre-tax 401(k) to pre tax IRA, otherwise you'll have to pay tax on the conversion which could be substantial depending on the size of rollover and what other income you have for the year.

Also very important to make sure it's a trustee to trustee (direct) transfer, otherwise your employer might send you a check and withhold taxes and you only have 60 days to get the money into an IRA. Makes things more difficult if you don't transfer directly. Make sure your employer understands what you're trying to do (transfer directly to an IRA in the new institution). Your employer could send you a check if the 401(k) contains a smallish amount and not do direct transfer for smaller 401(k) balances.

Contact Fidelity (or better yet Vanguard) and ask them about the paperwork, how to do the trustee to trustee (direct) transfer. They helped me about 11 years ago and it was simple.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

jane1
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Re: Disadvantages from moving 401k to IRA

Post by jane1 » Wed Jun 10, 2015 6:44 pm

mhalley wrote:A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike
Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.

CUBuffs
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Re: Disadvantages from moving 401k to IRA

Post by CUBuffs » Wed Jun 10, 2015 6:47 pm

Hi joyo23,
One advantage of keeping your 401k is the ability to make penalty-free withdrawals at age 55 under certain conditions, e.g., if you lose your job. If you transfer from your 401k to an IRA, you would have to pay a 10% penalty on any withdrawals taken before age 59 1/2. There is an IRS exception, Section 72(t), that would allow you you take withdrawals without penalty, if you withdrew "substantially equal periodic payments." The Bogleheads Wiki has detailed information about this exception.

Not knowing your age, this is probably more than you wanted to know.

Best regards,
Mike

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Wed Jun 10, 2015 6:51 pm

jane1 wrote:
mhalley wrote:A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike
Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.
If you have a new employer 401k, they often all "reverse rollovers" into the new plan.

cherijoh
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Re: Disadvantages from moving 401k to IRA

Post by cherijoh » Wed Jun 10, 2015 6:54 pm

MikeDenver wrote:Hi joyo23,
One advantage of keeping your 401k is the ability to make penalty-free withdrawals at age 55 under certain conditions, e.g., if you lose your job. If you transfer from your 401k to an IRA, you would have to pay a 10% penalty on any withdrawals taken before age 59 1/2. There is an IRS exception, Section 72(t), that would allow you to take withdrawals without penalty, if you withdrew "substantially equal periodic payments." The Bogleheads Wiki has detailed information about this exception.

Not knowing your age, this is probably more than you wanted to know.

Best regards,
Mike
Mike - the 55-year-old exception only applies if it is the 401-k plan of your current employer. I think this would still work if you rolled your 401k from former employer into current employer's plan and then left the current employer at the earliest in the year you turned 55.

The 72(t) exception can be used by anyone.

Dasnyc
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Re: Disadvantages from moving 401k to IRA

Post by Dasnyc » Wed Jun 10, 2015 7:09 pm

Could someone explain why a backdoor Roth would be more difficult after moving 401k funds to an IRA?

Thanks in advance

Alan S.
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Re: Disadvantages from moving 401k to IRA

Post by Alan S. » Wed Jun 10, 2015 7:12 pm

joyo23 wrote:I have an old 401(k) with high fees and want to transfer to a rollover 401(k) at Fidelity and wonder what disadvantages there are. Is it worthwhile to move?
Your subject title indicates an IRA rollover, but your post indicates a 401k is the account receiving the contribution. Let's assume you meant the rollover is going to an IRA. Two disadvantages have already been stated.

3) Loss of penalty free distributions before 59.5 if you separated in the year you reached 55 or later.
4) Loss of NUA potential if your 401k holds highly appreciated employer shares.
5) Loss of basis isolation benefits if you have basis in the plan and do not carefully request the distribution according to Notice 2014-54.
6) Loss of Roth conversion opportunity after your death if you designated a non spouse beneficiary on the plan
7) Loss of rollover option to new employer plan if the new plan will accept rollovers from other qualified plans, but not from IRAs

These situations are fairly uncommon......but you asked!

toblerone
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Re: Disadvantages from moving 401k to IRA

Post by toblerone » Wed Jun 10, 2015 7:21 pm

Dasnyc wrote:Could someone explain why a backdoor Roth would be more difficult after moving 401k funds to an IRA?
Because step 2 of a backdoor Roth is a conversion from Trad IRA to Roth IRA. During the conversion you have to pay tax on the pro-rata share of ALL your tax-deferred IRA money. If you had previously moved tax-deferred money from a 401k to an IRA, you will have to pay taxes if you do a backdoor Roth. Most people find paying taxes "difficult", especially when they didn't have to :wink:

jane1
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Re: Disadvantages from moving 401k to IRA

Post by jane1 » Wed Jun 10, 2015 7:50 pm

TomatoTomahto wrote:
jane1 wrote: Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.
If you have a new employer 401k, they often all "reverse rollovers" into the new plan.
Yes. In this case original 401k had low-cost (relatively) decent choice of funds. New employer has a lousy selection. We had done the rollover to consolidate/simplify portfolio. New employer offers after-tax 401k too but the hassle of reverse rollover from IRA to new 401k with not great fund options has held us back.

Or one might quit their job and not have 401k option, but still have opportunity to do non-deductible IRA to backdoor roth based on spouse's earnings.

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Wed Jun 10, 2015 8:55 pm

jane1 wrote:New employer offers after-tax 401k too but the hassle of reverse rollover from IRA to new 401k with not great fund options has held us back.
New employer offers after-tax 401k or Roth 401k? IMO, the ability to put $53k/year into after-tax 401k trumps "not great fund options." Do they allow in-service rollovers? How bad are the funds?

jane1
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Re: Disadvantages from moving 401k to IRA

Post by jane1 » Wed Jun 10, 2015 9:43 pm

TomatoTomahto wrote:
jane1 wrote:New employer offers after-tax 401k too but the hassle of reverse rollover from IRA to new 401k with not great fund options has held us back.
New employer offers after-tax 401k or Roth 401k? IMO, the ability to put $53k/year into after-tax 401k trumps "not great fund options." Do they allow in-service rollovers? How bad are the funds?
Current employer offers pre-tax, roth and after-tax 401k (all 3 types). After-tax is limited to 12% per paycheck. Pre-tax and Roth is limited to 10%.
According to the 401k administrator (at least when we checked before the IRS ruling regarding isolation of basis last year), if we have pre-tax and after-tax money in the 401k and I rollover to Roth, it will be pro-rata. i.e. I can't choose to rollover just the after-tax. So I would have to pay tax on the pre-tax contributions. Haven't asked them recently. Not sure how this whole thing will work. Have a much larger amount in Rollover IRA with another brokerage. Just checked the fund selection in current 401k - lot more options now and they are not bad, several non-public-index fund options with ER of 0.01-0.02%. Yes, that is 0.01% not 0.1%. Might as well move the Rollover IRA to this 401k. What steps will be needed to do the backdoor once I start contributing to after-tax 401k?
Instead of derailing this thread, I can post this as a new thread, if that is preferred.

joyo23
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Re: Disadvantages from moving 401k to IRA

Post by joyo23 » Wed Jun 10, 2015 11:02 pm

To followup, late forties, not currently employed so no access to 401(k). Won't need to withdraw before age 60 thanks to other assets. And I plan on moving to traditional IRA rollover, sorry for the mistake. Looks like it makes sense to move to rollover IRA as long as I don't get sued.

One person mentioned Vanguard over Fidelity, why? Yesterday I was locked out of my Vanguard online account and don't want to get a form notarized and mail it in for not knowing the answer to the security questions.(1) However, I still have access to the account via phone using an alternative authentication method so I'm planning on moving other accounts to Fidelity.

(1) not relevant to this question but I called Vanguard with a question and asked to skip the security questions. They did so (using an alternative authentication method) and it went fine. 30 minutes later my online access was revoked and cannot get it back without mailing in the notarized form.

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Wed Jun 10, 2015 11:09 pm

Timing isn't my forte, but I believe that the balance in your tIRAs (whether rollover or not) at the end of last year will determine whether you can do a clean backdoor Roth or have the pro-rata nightmare. Check, but you might have to skip a year of backdoor.

Afaik, Post-tax and backdoor are independent.

OP: Re Vanguard vs Fidelity, VG is my preference also, because they have (generally) lower ER, don't market aggressively (although Fido backed off when I told them to), and IME are better at following directions (the one time I asked Fido to do something semi-complicated but with explicit instructions, they goofed). That said, there are probably people with the opposite experience. I have not had security issues with either.

mhalley
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Re: Disadvantages from moving 401k to IRA

Post by mhalley » Wed Jun 10, 2015 11:39 pm

Vanguard won't let you reset your password over the phone? I was thinking that I did that several years ago. While that would be annoying, the same thing could happen at any financial institution. It is almost like what they would say when there was a problem with Windows: Its a feature, not a bug! Would you rather have to fill out some paperwork or have your account hacked?
mike
PS, I have accounts at Schwab, Fidelity and Vanguard, and am happy with each. They all have their quirks, their plusses and minuses. If you held a gun to my head and made me pick one, it would be hard to do.

joyo23
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Re: Disadvantages from moving 401k to IRA

Post by joyo23 » Wed Jun 10, 2015 11:55 pm

mhalley wrote:Would you rather have to fill out some paperwork or have your account hacked?
The funny thing to me is that the security question was, "what is your favorite hobby?" How can that be considered taking security seriously? Using social media people could easily find one's favorite hobby. Certainly my friends, family and acquaintances would know my favorite hobby. I'm sure I used a made up hobby in the past because it is so INsecure. The other question was, "what is your favorite book?" I opened my Vanguard account 20 years ago, how am I supposed to remember what my favorite book was sometime in the mid-nineties? I have been using Vanguard exclusively online for years and years so no longer remember my security questions. I have all my statements and use 2 factor authentication so I believe sending an email to my registered account plus a 2 factor code sent to my phone plus an additional question about my accounts etc would be more secure than asking for my favorite hobby that anyone can find out easily. And if it's locked online for my safety, why is not locked via the phone? I can access my account through the phone already using an alternative method.
mhalley wrote: PS, I have accounts at Schwab, Fidelity and Vanguard, and am happy with each. They all have their quirks, their plusses and minuses. If you held a gun to my head and made me pick one, it would be hard to do.
Good to know. I have one account with Fidelity and they seem fine.

JW-Retired
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Re: Disadvantages from moving 401k to IRA

Post by JW-Retired » Thu Jun 11, 2015 8:33 am

joyo23 wrote:
mhalley wrote:Would you rather have to fill out some paperwork or have your account hacked?
The funny thing to me is that the security question was, "what is your favorite hobby?" How can that be considered taking security seriously? Using social media people could easily find one's favorite hobby. Certainly my friends, family and acquaintances would know my favorite hobby. I'm sure I used a made up hobby in the past because it is so INsecure. The other question was, "what is your favorite book?" I opened my Vanguard account 20 years ago, how am I supposed to remember what my favorite book was sometime in the mid-nineties? I have been using Vanguard exclusively online for years and years so no longer remember my security questions. I have all my statements and use 2 factor authentication so I believe sending an email to my registered account plus a 2 factor code sent to my phone plus an additional question about my accounts etc would be more secure than asking for my favorite hobby that anyone can find out easily. And if it's locked online for my safety, why is not locked via the phone? I can access my account through the phone already using an alternative method.
I can't remember any of this stuff but I do have some software that remembers it. There are plenty of password lockbox applications you can get where you encrypt and store all your passwords... you unlock the lockbox using just one master password. (So far I have been able to remember that one password.) I store my security question answers there too.

Google password manager or password lockbox or password safe and you should find oodles of this sort of software.
JW
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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Thu Jun 11, 2015 8:51 am

JW Nearly Retired wrote:I can't remember any of this stuff but I do have some software that remembers it. There are plenty of password lockbox applications you can get where you encrypt and store all your passwords... you unlock the lockbox using just one master password. (So far I have been able to remember that one password.) I store my security question answers there too.

Google password manager or password lockbox or password safe and you should find oodles of this sort of software.
JW
Yup, there is no way that I could possibly remember my 20-character, upper case, lower case, numbers, special characters password without one (I use RoboForm because it's easy to synch between PC, Mac, iPad, and phone). I probably don't change them as often as I should, but if I remember to do so, that's a piece of cake also.

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Re: Disadvantages from moving 401k to IRA

Post by yosef » Thu Jun 11, 2015 8:59 am

joyo23 wrote: The funny thing to me is that the security question was, "what is your favorite hobby?" How can that be considered taking security seriously? Using social media people could easily find one's favorite hobby. Certainly my friends, family and acquaintances would know my favorite hobby. I'm sure I used a made up hobby in the past because it is so INsecure. The other question was, "what is your favorite book?" I opened my Vanguard account 20 years ago, how am I supposed to remember what my favorite book was sometime in the mid-nineties? I have been using Vanguard exclusively online for years and years so no longer remember my security questions.
Sorry, this is not Vanguard's problem. You almost certainly chose these questions as well as the answers. The reason they are a bit obscure is to make it harder for someone else to readily obtain the answers, as they most certainly could with the old-school "mother's maiden name". My guess is you wouldn't be too happy if your dictionary-word password was cracked and unauthorized transactions were made on your account.

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Thu Jun 11, 2015 9:03 am

All true, but I would think that 2-factor authentication is stronger than any security password. For example, if you know my wife's name and look her up on FB, you'd have no trouble figuring out her favorite hobby/sport, or the names of our pets. Names of nieces and nephews a bit tougher, but not impossible. Favorite book is more difficult. OTOH, having access to her phone would be really difficult, and then you'd have to break through the fingerprint signon to gain access.

yosef
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Re: Disadvantages from moving 401k to IRA

Post by yosef » Thu Jun 11, 2015 9:50 am

TomatoTomahto wrote:All true, but I would think that 2-factor authentication is stronger than any security password. For example, if you know my wife's name and look her up on FB, you'd have no trouble figuring out her favorite hobby/sport, or the names of our pets. Names of nieces and nephews a bit tougher, but not impossible. Favorite book is more difficult. OTOH, having access to her phone would be really difficult, and then you'd have to break through the fingerprint signon to gain access.
Agree 100%, and I use 2 factor auth for pretty much every service that offers it. But many folks frankly aren't willing to (I'm sure this group overlaps heavily with those that use very weak passwords). It's a compromise.

joyo23
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Re: Disadvantages from moving 401k to IRA

Post by joyo23 » Thu Jun 11, 2015 9:57 am

yosef wrote:
TomatoTomahto wrote:All true, but I would think that 2-factor authentication is stronger than any security password. For example, if you know my wife's name and look her up on FB, you'd have no trouble figuring out her favorite hobby/sport, or the names of our pets. Names of nieces and nephews a bit tougher, but not impossible. Favorite book is more difficult. OTOH, having access to her phone would be really difficult, and then you'd have to break through the fingerprint signon to gain access.
Agree 100%, and I use 2 factor auth for pretty much every service that offers it. But many folks frankly aren't willing to (I'm sure this group overlaps heavily with those that use very weak passwords). It's a compromise.
I also use 2-factor authentication and requested to use that instead of a security question. Unfortunately, that's not possible.

joyo23
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Re: Disadvantages from moving 401k to IRA

Post by joyo23 » Thu Jun 11, 2015 10:07 am

yosef wrote:You almost certainly chose these questions as well as the answers.
Yes I did. In the late nineties.
yosef wrote:The reason they are a bit obscure is to make it harder for someone else to readily obtain the answers
How is "what is your favorite hobby?" in the least bit obscure? That's the opposite of obscure. It's obvious, especially with social media so popular. In order to override this insecure way to verify one's account I purposely made it obscure by using an obscure "hobby" that I no longer remember because I never need it when logging in online. Is it my fault for not writing it down? Yes. But I figured there'd be an alternative way to recover access which I was banking on rather than having to physically mail in a notarized letter.
yosef wrote:My guess is you wouldn't be too happy if your dictionary-word password was cracked and unauthorized transactions were made on your account.
I'm using a non-dictionary, strong password with 2 factor authentication. I have made account access even stronger by using fake answers to easy-to-guess security questions. If you actually use real answers to security questions you are most certainly not secure and this is Vanguard's problem.

One more thing, for the "favorite book" question that I answered in the nineties which I reasonable don't remember (why would I remember my favorite book back then?) I bet you could guess "bible" and get the answer correct for quite a few Vanguard customers. How is that secure?

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Thu Jun 11, 2015 10:13 am

Joyo23, I guess the fact is that most humans can't track their passwords and security questions without using a password manager. I'm sure that Vanguard and other companies didn't sit around at a staff meeting and discuss making logins as much of a PITA as they could. It is unfortunately a sign of the times.

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Re: Disadvantages from moving 401k to IRA

Post by yosef » Thu Jun 11, 2015 11:14 am

joyo23 wrote: I'm using a non-dictionary, strong password with 2 factor authentication. I have made account access even stronger by using fake answers to easy-to-guess security questions. If you actually use real answers to security questions you are most certainly not secure and this is Vanguard's problem.
And yet you didn't store your fake answers somewhere secure? I'm not unsympathetic; I get that it was a long time ago and stuff happens. I just don't buy that any of this is Vanguard's problem, much less a reason to leave them. This is where we are with internet security right now. But to each their own.

joyo23
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Re: Disadvantages from moving 401k to IRA

Post by joyo23 » Thu Jun 11, 2015 11:51 am

yosef wrote:And yet you didn't store your fake answers somewhere secure?
No, because I thought I could authenticate an alternative way other than mailing in a notarized form. On top of that, had I known that this would happen I would have never called in. But no, I was let in the alternative way, and then my online access was revoked. If the phone rep had said, if you do agree to be authenticated alternatively, your account access will be revoked, that would be a reasonable warning.
yosef wrote:I just don't buy that any of this is Vanguard's problem, much less a reason to leave them. This is where we are with internet security right now. But to each their own.
There are two issues, me personally, and Vanguard customers in general. For me personally, I understand why this isn't Vanguard's problem. It's my problem. Since I still have phone access, it's actually easier for me to transfer my accounts to Fidelity than mailing out a notarized form. And I now get to reassess my investment allocations which I needed to do anyway. Maybe this is a blessing in disguise.

For customers in general, they should not be asking security questions that can be easily looked up by anyone. Pre-internet days these security questions made a lot more sense. In this day and age with social media prevalent, these are insecure questions. The majority of Vanguard customers who answer these questions honestly think they are being protected but are not. The phone reps say this is "for your protection", but it's only protecting people at a very basic level. That is Vanguard's problem. In my case it is secure only because I made it up, and hence got locked out without a simpler way to get in (ie via 2-factor code etc).

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Re: Disadvantages from moving 401k to IRA

Post by furwut » Thu Jun 11, 2015 2:41 pm

Another possible advantage to keeping your funds in a 401k versus an IRA is if the 401k gives you access to even lower cost funds than you can get individually.

My 401k at my former employer allows me to invest in Vanguard Institutional class shares. The ER is less than the Admiral class.

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Re: Disadvantages from moving 401k to IRA

Post by Oliver » Thu Jun 11, 2015 6:29 pm

If your 401k has only pretax dollars, you might consider transferring to a solo 401k.

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Re: Disadvantages from moving 401k to IRA

Post by JohnF » Fri Jun 12, 2015 11:39 am

My 401K provides the ability to specify State (Georgia) withholding on withdrawals. I believe some firms do, but Vanguard does not provide the capability with IRA’s.

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ray.james
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Re: Disadvantages from moving 401k to IRA

Post by ray.james » Fri Jun 12, 2015 12:15 pm

jane1 wrote:
mhalley wrote:A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike
Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.
I don't think this is true anymore.
http://www.irs.gov/pub/irs-drop/n-14-54.pdf
2014-14 clarified that post-tax amount basis can be separated and rolled over into roth separately. The infrastructure might not be there yet. I would just open an second IRA account, and roll over the back-door amount. Since it was not tax deductible, the taxes will be minimum. Opening second account, removes the hassle of specifying which ratio of amounts was rolled to Roth.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Fri Jun 12, 2015 1:20 pm

ray.james wrote:
jane1 wrote:
mhalley wrote:A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike
Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.
I don't think this is true anymore.
http://www.irs.gov/pub/irs-drop/n-14-54.pdf
2014-14 clarified that post-tax amount basis can be separated and rolled over into roth separately. The infrastructure might not be there yet. I would just open an second IRA account, and roll over the back-door amount. Since it was not tax deductible, the taxes will be minimum. Opening second account, removes the hassle of specifying which ratio of amounts was rolled to Roth.
Danger! Danger! It does not work that way, if I understand you correctly. Your tIRAs are all considered as one tIRA to the IRS. "Just open a second IRA account" will not do anything useful.

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Re: Disadvantages from moving 401k to IRA

Post by wfrobinette » Fri Jun 12, 2015 1:58 pm

jane1 wrote:
mhalley wrote:A couple of mild disadvantages.
1. Less protection from lawsuits, creditors, etc. (depends on state)
2. Makes doing backdoor roth more difficult.
Most of the time it is worthwhile to move if fees are high.
Mike
Want to reiterate what mhalley has said. If you plan on doing backdoor roth at some point, you should weigh that appropriately before you decide to move your 401k to IRA. We still regret the move.
I regretted that move as well until I found out that you can roll the IRA back into another QRP and open the backdoor back up.

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ray.james
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Re: Disadvantages from moving 401k to IRA

Post by ray.james » Fri Jun 12, 2015 2:03 pm

I might have got this wrong, but the IRS notice clarified we can roll over only post tax amount separately.
I assume the above, since the holding company like Vanguard have no clue whether a specific amount is tax_advantaged or not? The burden is on us to track and update IRS about the contribution. As per notice we can update the cost basis as non tax deductible IRA on the roll over amount?
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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TomatoTomahto
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Re: Disadvantages from moving 401k to IRA

Post by TomatoTomahto » Fri Jun 12, 2015 2:12 pm

@ray.james,
We are in the middle of a rollover/reverse-rollover, and for each step, the financial institution required some form of proof of what was coming in to them

We rolled Fidelity post-tax contributions to a Vanguard Roth and via a separate trustee-to-trustee check, earnings on those funds to a tIRA. We submitted Fidelity's paperwork that identified the source and nature of those funds.

We are now reverse-rolling the tIRA portion to NewEmployer's 401k that, among other things, requires a signature that the IRA being transferred is pre-tax.

And, finally, we will resume the backdoor Roth for my wife.

RetireGood
Posts: 191
Joined: Tue Oct 07, 2014 2:02 am

Re: Disadvantages from moving 401k to IRA

Post by RetireGood » Sat Jun 13, 2015 2:28 am

Hi

Is below possible/allowed.

Current 401K at FIDO - Have position in below funds among others
VIIIX-VANG INST INDEX PLUS

Old 401K at FIDO - Have only below positions
VINIX-VANGUARD INST INDEX
VSCIX-VANG SM CAP IDX INST

I want to rollover (trustee-to-trustee and in-kind) only VINIX-VANGUARD INST INDEX from old to new?
Just want to leave 'VSCIX-VANG SM CAP IDX INST' at old 401K itself, and maybe do a rollover to tIRA sometime in future?

Thanks

furwut
Posts: 1324
Joined: Tue Jun 05, 2012 8:54 pm

Re: Disadvantages from moving 401k to IRA

Post by furwut » Sun Jun 14, 2015 9:44 am

RetireGood wrote: Is below possible/allowed.
...
I think it unlikely. Each 401k plan is governed by its own rules and regulations. Contact the retirement plan specialist at FIDO for your old 401k and ask. My guess is that any rollover must be 100%.

BillyG
Posts: 398
Joined: Sat Nov 17, 2012 9:02 pm
Location: Maryland, USA

Re: Disadvantages from moving 401k to IRA

Post by BillyG » Sun Jun 14, 2015 10:13 am

Another potential disadvantage -- your 401(k) may offer access to a stable value fund that you would not have access to in an IRA.

I will echo the sentiments about having an IRA to facilitate setting up backdoor ROTHs. When we had kids my wife dropped out of the workforce to raise them. We converted her 401(k) to an IRA. I've made IRA contributions for her over the years but now the taxes would be too heavy to convert her IRA to a ROTH. If she still had the 401(k) it would be easy to transfer the pre-tax portion of the IRA to the 401(k) and roll over the rest to a ROTH and take advantage of the backdoor ROTH every year, but we cannot do that.

When I encourage her to go back to work so we can take advantage of a backdoor ROTH for her I get a blank stare...

Billy

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