Combining retirement savings accts into 1: good? bad?

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LFB
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Combining retirement savings accts into 1: good? bad?

Post by LFB » Fri Mar 03, 2017 4:09 pm

I have a 401K from a divorce settlement, and two traditional IRAs, all at Fidelity. I was thinking about combining the three into one IRA.

Regarding rules for 401k's, I'm not sure how they apply to me as far as putting the money in an IRA. I am not 59 1/2 yet, and I never worked for the company, so I never parted employment. Is it considered a rollover transfer, or a distribution? Does that matter? I know that I couldn't bring my money over from the 403B where I actually do work into the Fidelity IRA. They (brokerage that had the 403B) said the 59 1/2 and /or termination rule does apply in that case. They said it was a distribution - not a rollover.

I was told different things by the same company. One representative said that it's better to keep things separate for future concerns (don't know what those are). The other said that there isn't any reason to keep them separated - better to combine. I would have more options if I put it all in an IRA, and would qualify for I guess a better level of service or managing. And he didn't quite comment on tax advantages or disadvantages. Both IRA's are traditional IRA's - not roth. One is called rollover and the other is called traditional. But they are the same kinds of accounts.

Are these questions too boring?
Thanks

traveltoomuch
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Re: Combining retirement savings accts into 1: good? bad?

Post by traveltoomuch » Sat Mar 04, 2017 1:59 am

The primary thing to consider: what are investment options and fees like in each plan? The 401k or 403b could offer better (=lower fee) options than you can get in an IRA.

Other thoughts: if you're in an income bracket that precludes normal Roth IRA contributions, having tax-deferred IRAs gets in the way of backdoor Roth conversions - better to look at rolling the IRAs into your current-employer 403b.

If you're nearing retirement, you might be wanting to do some RothIRA conversions anyway, before starting social security, to avoid double-taxation and cut down future RMDs. IF you might do that while still working, keeping the money out of your current-employer 403b (e.g. in an IRA) has appeal.

I'm not sure what special rules may apply to accounts received in a divorce. That's a question for someone else.

cherijoh
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Re: Combining retirement savings accts into 1: good? bad?

Post by cherijoh » Sat Mar 04, 2017 6:49 am

traveltoomuch wrote:The primary thing to consider: what are investment options and fees like in each plan? The 401k or 403b could offer better (=lower fee) options than you can get in an IRA.

Other thoughts: if you're in an income bracket that precludes normal Roth IRA contributions, having tax-deferred IRAs gets in the way of backdoor Roth conversions - better to look at rolling the IRAs into your current-employer 403b.

If you're nearing retirement, you might be wanting to do some RothIRA conversions anyway, before starting social security, to avoid double-taxation and cut down future RMDs. IF you might do that while still working, keeping the money out of your current-employer 403b (e.g. in an IRA) has appeal.

I'm not sure what special rules may apply to accounts received in a divorce. That's a question for someone else.


Unless the account is TSP, chances are pretty low that the 401k offers better cheaper options than OP could find by investing in low cost index funds at Vanguard or Fidelity.

rakornacki1
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Re: Combining retirement savings accts into 1: good? bad?

Post by rakornacki1 » Sat Mar 04, 2017 8:05 am

One other consideration for you is that a 401k plan is still ultimately controlled by the enterprise that sponsored it (former employer) while an IRA is controlled by you.
Thus, you must weigh the advantages of your choices in the 401k (funds, fees, etc.) with the possibility that the enterprise could make future changes to this plan. On the other hand, you have complete control over your choices (plan admistrator, funds, fees, etc.) in an IRA.
Good luck & great profits!

LFB
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Re: Combining retirement savings accts into 1: good? bad?

Post by LFB » Sat Mar 04, 2017 10:49 am

First of all, I'm just thrilled to get responses to my post. That was my first post, ever. Thank you for taking the time to look at my questions.

I don't know what TSP is, and I don't know what income bracket would preclude normal IRA contributions. Chances are, I'm not in that bracket!

I'm trying to navigate the Fidelity site to find out about fees, and that right there is a challenge for me. But, I either learn this stuff now, or am a sorry soul in the future.

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Flobes
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Re: Combining retirement savings accts into 1: good? bad?

Post by Flobes » Sat Mar 04, 2017 11:27 am

LFB wrote:I'm just thrilled to get responses to my post... I either learn this stuff now, or am a sorry soul in the future.

Welcome to the Bogleheads. Here you can learn everything you need to know to manage your money. Many smart, savvy and knowledgeable people generously share their wisdom, every day.

Have you discovered the Wiki? It's an encyclopedic compendium of all matters financial. Spend some time exploring and reading.

Come back to the Forum to ask questions, seek clarification, clear confusion, and get advice. And, perhaps offers some answers.

radagast
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Re: Combining retirement savings accts into 1: good? bad?

Post by radagast » Sat Mar 04, 2017 11:54 am

I am not an expert in this field and so I will defer to others. But here is my understanding:

(1) So long as the 401(k) plan from the divorce (let's call this your "Old 401(k) Plan") is not your current employer's plan, you can roll it into an IRA(s). Sometimes this is advantageous because (a) the options in that 401(k) plan may be really bad, whereas an IRA has far fewer limitations on investment options; and (b) there may be ongoing administrative fees associated with the 401(k), whereas IRAs are typically cheaper.

(2) Assuming that the Old 401(k) is composed purely of pre-tax contributions, rolling this Old 401(k) into IRA(s) should not be a taxable event so long as you meet the relevant deadlines. For example, say that the method for rolling this Old 401(k) is for the administrator of the Old 401(k) plan to give you a check; you have to submit the check to the IRA custodian within a certain time period, or you would be treated as withdrawing money from the Old 401(k) and thus be subject to penalties and tax. [If the Old 401(k) is a Fidelity plan and you are moving those assets to an IRA, then maybe this is an automatic process but please check with Fidelity].

(3) There are subtle distinctions between the 401(k) and IRA accounts when it comes to, among other things, inheritance and asset protection from creditors, and the latter may vary from state to state. You may want to investigate further to see which is better for you.

(4) Regarding your IRAs, sometimes there is a bonus for putting IRAs in certain brokerages. This is probably not a material concern but if you like to collect a bit of cash and you were going to move your IRAs to a broker anyway, this might be a little bonus.

(5) Consolidating traditional IRAs into one account could be advantageous in certain contexts if there are fixed fees associated with each account.

(6) For those who use margin accounts, consolidating traditional IRAs is also advantageous in that the risk in a consolidated account could, in some circumstances, be lower than the risk in two separate IRAs holding equivalent positions. Suppose for example that you are long 100 shares of SPY in IRA #1, 1/4th the value of which is based on borrowed money; you are also long 100 fully-paid shares of U.S. treasuries ETFs in IRA #2. Assuming that these positions don't move in tandem, consolidating these two account could reduce risk of liquidation during market downturn compared to having those positions in two different accounts at different BDs.

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Kenkat
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Re: Combining retirement savings accts into 1: good? bad?

Post by Kenkat » Sat Mar 04, 2017 12:27 pm

I would keep money funded from different places separate. Money funded from employer type accounts like 401(k), 403(b), pension payouts, etc. could all go into the same IRA, called a rollover IRA, while money funded by you would go into a traditional IRA that is separate from the rollover IRA. You can combine multiple IRAs of the same type so you might end up with one rollover IRA and one traditional IRA.

It is possible to mix everything together but that might prevent you from doing certain things such as rolling everything into a new employer's 401(k). You may never want to do this, but why lose the option by combining everything. This is my understanding at least.

There are plenty of good options at Fidelity, including lots of index choices with very low Vanguard like costs.

LFB
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Re: Combining retirement savings accts into 1: good? bad?

Post by LFB » Sun Mar 05, 2017 9:31 am

Wow, what thoughtful, thorough responses! Thank you all. I can't believe I can ask a question and get all this information for free. :) I have been looking at the wiki, and it's been helpful. I really have a great place to start in researching outcomes of decisions! Thanks again.

HIinvestor
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Re: Combining retirement savings accts into 1: good? bad?o

Post by HIinvestor » Sun Mar 05, 2017 12:29 pm

I ended up examining my assorted IRAs and my 401k accounts for awhile before figuring out how to simplify. For me, there was a tax advantage in rolling my small traditional IRA into my 401k account, even tho it meant slightly higher admin fees. It means that I'm able to make contributions to have a backdoor IRA without having to apportion. Of course, I left my Roth IRA as a separate account.

I'd say consider and examine the pros and cons carefully before deciding what you want to do with your accounts. Once you merge them or convert them you can't re-separate them. Consider admin fees, investment choices available, tax advantages of being able to do Blackfoot Roth conversions (if applicable). Good luck--take your time and do your research.

pkcrafter
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Re: Combining retirement savings accts into 1: good? bad?

Post by pkcrafter » Mon Mar 06, 2017 10:55 pm

Here is some information on you situation. You should be able to transfer to an IRA as long as this transfer was done correctly. Double check everything if you have any questions.

http://www.investopedia.com/articles/re ... 060403.asp


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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