stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

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brooksblauser
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stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by brooksblauser » Thu Jan 04, 2018 2:40 pm

Hi Everyone! You all rock btw. I searched for this but couldn't find an answer this specific.

I'm trying to decide if I should leave my money in the 401k i had with my previous employer or roll it over to a Vangaurd account traditional IRA. I am unemployed full time student and probably will be for 6-8 years. The 401k has a 0.11% fee charged on the entire account value each year. I have $128441 in the 401k. Currently that means the yearly fee will be $141 per year. The 401k is through Transamerica and I have the money in a Vangaurd Institutional Index Fund with 0.035% ER. I could rollover to a Vangaurd tIRA and put the money in TSM Index Admiral funds at 0.04% ER and have no account fees. Is it worth it to keep my money in the 401k just because of the slight superiority of the Institutional Fund given the fees associated with it? If I left it in the 401k I wouldn't be able (if its even allowed) to put it into a new employer's 401k until 6-8 years later when I am employed again. I have looked into the general downsides of a 401k to IRA rollover before, so I'm up to speed on that front. Thanks!!

JohnFiscal
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by JohnFiscal » Thu Jan 04, 2018 2:45 pm

Personally, I'd roll it to Vanguard and not look back. Last thing I want is to monkey around with another financial organization when I can deal direct (though you do have the benefit at the moment of the institutional fund).

As you know, if the funds are in a rollover IRA, and not commingled with other funds, they you can roll into a new employer's 401K (assuming they permit this). Even this seems like an unimpressive benefit to me, for most cases (unless you work for some company like Google, Apple, etc, that might match all your 401K funds with extravagant amounts of stock).

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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by TwstdSista » Thu Jan 04, 2018 2:55 pm

I'd roll it over in a heartbeat and never look back.

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NYCPete
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by NYCPete » Thu Jan 04, 2018 3:04 pm

brooksblauser wrote:
Thu Jan 04, 2018 2:40 pm
Hi Everyone! You all rock btw. I searched for this but couldn't find an answer this specific.

I'm trying to decide if I should leave my money in the 401k i had with my previous employer or roll it over to a Vangaurd account traditional IRA. I am unemployed full time student and probably will be for 6-8 years. The 401k has a 0.11% fee charged on the entire account value each year. I have $128441 in the 401k. Currently that means the yearly fee will be $141 per year. The 401k is through Transamerica and I have the money in a Vangaurd Institutional Index Fund with 0.035% ER. I could rollover to a Vangaurd tIRA and put the money in TSM Index Admiral funds at 0.04% ER and have no account fees. Is it worth it to keep my money in the 401k just because of the slight superiority of the Institutional Fund given the fees associated with it? If I left it in the 401k I wouldn't be able (if its even allowed) to put it into a new employer's 401k until 6-8 years later when I am employed again. I have looked into the general downsides of a 401k to IRA rollover before, so I'm up to speed on that front. Thanks!!
For years and years, I used to automatically say roll it over, but I've recently changed my tune on this. The expenses you cite are not exorbitant for a 401k plan, and by rolling it over to a tIRA, you potentially make a backdoor Roth contribution much more costly in the future. I made this mistake recently, thinking my partner and I were never going to have the incomes we do now. Well, years go by, careers advance, and things change. Now our incomes put us out of eligibility for Roth contributions. I had planned on doing the backdoor Roth for 2017, but I had already (stupidly) rolled a low cost, index-fund-filled 401k plan into Vanguard. It was and still is my only trad. IRA money, but it is large enough it dwarfs new yearly IRA contributions. Now the pro rata calculation makes a non-deductible IRA contribution --> Roth conversion very costly in terms of taxes. I find myself this spring debating my 2017 IRA contribution, and wondering if a non-deductible contribution is even worth it vs. sticking it in taxable. (I recognize that this is classic "first world problems.")

I know the dollar amount, $141, seems like a lot. But in terms of expenses for a 401k plan in grand scheme of things, your plan is really not that bad. I'd kill for a 401k with only 0.11% in annual expenses on top of a 0.035% ER index fund! :)

The backdoor Roth might not be around forever, and if it goes away, you could roll over to a tIRA at that point. But with current law, if it were me, I'd leave it where it is.

Best,
Peter
Last edited by NYCPete on Fri Jan 05, 2018 12:29 pm, edited 1 time in total.
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deltaneutral83
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by deltaneutral83 » Thu Jan 04, 2018 3:12 pm

OP stated he's in school full time. Without all the details, it seems likely a 401k rollover to a tIRA and every December make an educated decision about how much to roll to Roth. If OP is in school full time with no income, it's a slam dunk to roll up to the 15% tax bracket (or whatever that now is, 12%?) from tIRA to Roth each year he is a student with no other taxable income.

While his 401k fees are low, it was irrelevant to my earlier point, but even so, 11 basis points is 11 basis points

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Watty
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by Watty » Thu Jan 04, 2018 3:17 pm

deltaneutral83 wrote:
Thu Jan 04, 2018 3:12 pm
OP stated he's in school full time. Without all the details, it seems likely a 401k rollover to a tIRA and every December make an educated decision about how much to roll to Roth. If OP is in school full time with no income, it's a slam dunk to roll up to the 15% tax bracket (or whatever that now is, 12%?) from tIRA to Roth each year he is a student with no other taxable income.
+1

He or she might even be able to at least some of the Roth conversions in the 0% tax bracket.

TheHouse7
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by TheHouse7 » Thu Jan 04, 2018 3:22 pm

TwstdSista wrote:
Thu Jan 04, 2018 2:55 pm
I'd roll it over in a heartbeat and never look back.
+1
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by samsoes » Thu Jan 04, 2018 3:22 pm

NYCPete wrote:
Thu Jan 04, 2018 3:04 pm

For years and years, I used to automatically say roll it over, but I've recently changed my tune on this.
...
The backdoor Roth might now be around forever, and if it goes away, you could roll over to a tIRA at that point. But with current law, if it were me, I'd leave it where it is.
I agree and have recently changed my thinking for the same reason. In addition, funds in a 401(k) are protected to a much greater degree from a lawsuit than IRA funds. (INAL - YMMV). I regret rollovers I've done in the past.
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samsoes
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by samsoes » Thu Jan 04, 2018 3:32 pm

samsoes wrote:
Thu Jan 04, 2018 3:22 pm
NYCPete wrote:
Thu Jan 04, 2018 3:04 pm

For years and years, I used to automatically say roll it over, but I've recently changed my tune on this.
...
The backdoor Roth might now be around forever, and if it goes away, you could roll over to a tIRA at that point. But with current law, if it were me, I'd leave it where it is.
I agree and have recently changed my thinking for the same reason. In addition, funds in a 401(k) are protected to a much greater degree from a lawsuit than IRA funds. (INAL - YMMV). I regret rollovers I've done in the past.
OTOH, having a tIRA at your disposal will allow you upwardly manipulate your income (Roth conversions and paying the tax) to avoid the ACA/Medicaid cliff. Admittedly, that tool just got a less useful since Roth recharacterizations have been ripped from existence.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by WhiteMaxima » Thu Jan 04, 2018 4:31 pm

Perfect time to do Roth conversion into Vanguard.

brooksblauser
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by brooksblauser » Thu Jan 04, 2018 4:32 pm

Thanks for the responses! I think I'll be rolling over, based on the fact that it may be close to 12 years before I may be in a situation to need to do back door roths. Along that road (starting approx 8 years from now) I will be working again, probably moving to new employers every few years. I figure one of them will allow me to transfer the IRA i set up to their 401k, which will free up the tIRA to do back doors. Thanks again.

deltaneutral83
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by deltaneutral83 » Thu Jan 04, 2018 4:42 pm

brooksblauser wrote:
Thu Jan 04, 2018 4:32 pm
Thanks for the responses! I think I'll be rolling over, based on the fact that it may be close to 12 years before I may be in a situation to need to do back door roths. Along that road (starting approx 8 years from now) I will be working again, probably moving to new employers every few years. I figure one of them will allow me to transfer the IRA i set up to their 401k, which will free up the tIRA to do back doors. Thanks again.
Your contributions to any IRA are capped at 5500 per year under 50 years of age as far as I know. The amount you can roll over from a tIRA to a Roth to my knowledge has no cap and I did one for $20k myself not to long ago, it's just the amount is fully taxable. You would be wise to explore the option of rolling tIRA monies into a Roth over several years while you have little income at very little to no tax burden. If you are indeed bringing in zero earned income the next few years on your tax return, there is no better time for a Roth conversion. If you have 4-6 years with no earned income and your health ins is through the university, I can't see a scenario where this isn't a home run as you will be reducing your tax burden substantially.

brooksblauser
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by brooksblauser » Thu Jan 04, 2018 5:07 pm

Ok. So based on the advice given I'll be doing direct rollover of my 401k to a vangaurd tIRA in the next week or so. After that I'll have to decide which years to do tIRA to Roth rollovers based on my tax bracket. Any idea if I should consider married filing separately instead of jointly to make this work better (since I'm assuming my wife's income would not affect my tax bracket then)? She may start making decent money soon and I feel that then filing jointly would make the IRA to Roth not worth it.

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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by Trev H » Thu Jan 04, 2018 5:21 pm

The company I had worked for for 20 years, was bought by a competitor in 2003 (the company I work for today).

I had the option to roll my retirement savings to the new company plan, or to go anywhere else that I wanted (like Vanguard)... and that is when I found my way to Vanguard and became a Vanguard Investor.

I have a Rollover IRA now at Vanguard, and a Roth for myself and my wife, and a couple of ESA's and Taxable Investments there too.

When I do retire from current employer, I will roll those funds to Vanguard so I will have everything in one place then.

In my case the decision was very easy... the new company plan investment options (at that time) had ER's like 1.8% and such... so I did the no brainer and moved to Vanguard.

Good Luck with your decision.

Trev H

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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by retiredjg » Thu Jan 04, 2018 5:31 pm

Throwing a wife in the mix changes things. But you might still want to do Roth conversions. There is not really enough information to know what to suggest.

What is "decent money"? What is "soon"?

If she'll be making enough alone to take you out of range of contributing directly to Roth IRA, you'd want to leave the money in the 401k so that you too can use the back door based on her salary.

Can you take a partial withdrawal from the 401k over several years? If yes, near the end of each year, you could see how much space you have in a lower tax bracket (if any) and roll that much out of the 401k and convert it to Roth. Doing this enough years may just get your entire 401k into Roth status at low rates.

More information might help.

brooksblauser
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by brooksblauser » Thu Jan 04, 2018 9:00 pm

Sorry for the non detailed info.
Wife will make 60-80k per year starting September (subject to getting a position)
I wasn't thinking about her income with regards to Roth contribution limits based on income level, I was considering how much room in the 15% tax bracket would be left after her wages. I figure if I went IRA to Roth, there would be anywhere between $0 to $20k left in the 15% tax bracket range that I would be able to convert and be taxed at 15%. (married filing jointly tax bracket 15% is 18,650 to $79,500). I worked at my previous job until may this year (85K annual salary). Because of my salary for part of the year and my wife's $36k she will make this year total I figure next year would be my time to do IRA to Roth, but as I just mentioned, I think the 60-80K she would make next year would leave only small to no room to get in on that 15% tax bracket sweetness. This is why I was asking if filing separately would be feasible to get around this.

retiredjg
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by retiredjg » Fri Jan 05, 2018 9:23 am

For 2018, the top of the 12% bracket will be $77,400 taxable income if you file jointly. Taxable income is after you subtract the $24k standard deduction (assuming you use the SD). So there may be some room to convert at 12% depending on how much you made in 2017.

If you file separately, the limit is $38,700 taxable income (after you subtract the $12k standard deduction).

Whether you file jointly or separately is often decided at or near the time you file. You would probably have to put both scenarios through some tax software or do it by hand to determine which is best. You might need to do this each year because what is best might change from year to year. But if you wait until tax time to figure it out, it is too late to do a conversion for the previous year, so you would have to figure this out no later than December for any tax year.

One caution - if you file separately, it may affect your ability to make Roth IRA contributions. Your wife will not be able to make any Roth IRA contribution because her salary will be over $10k and I think you will have a reduced contribution since you will have no income but could contribute based on your wife's salary.

https://www.irs.gov/retirement-plans/pl ... e-for-2018

The bottom line is that no contributions to Roth IRA should be made until you know whether you are filing jointly or separately (although it could be fixed if you do).

I do not think (but am not sure) your ability to make tIRA contribution is affected - something you need to find out. If you can still make tIRA contributions, you could use the back door to get the money into Roth. However, if you roll the 401k into IRA, it will be in the way of the back door method.

I see no way to figure this out other than plugging your actual numbers into a tax return, doing it both ways.

As for your original question, $128k is a lot to convert but it looks like you have 6 to 8 years to get it done. You could get a lot of it done in that time, especially if you slopped over into the 22% tax bracket some. I'd give that consideration. It sounds like you expect to have a high income after this education. Getting money into Roth at 22% might be very attractive.

Again, I think the answer may be to see if you can make more than 1 withdrawal from this old 401k. Get a decent estimation of how much space will be available in the 12% bracket each year and take that amount out and send it directly to Roth IRA. If some slops over into the 22% bracket, no big deal.

One thing....where will you get the money to pay the tax? You cannot just withhold it from the 401k (or IRA). That would be an early withdrawal. If you don't have savings or income to pay the extra tax, you will not be able to do the Roth conversions unless you are willing to pay the early withdrawal penalty tax (10%).

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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by jharkin » Fri Jan 05, 2018 9:46 am

NYCPete wrote:
Thu Jan 04, 2018 3:04 pm
For years and years, I used to automatically say roll it over, but I've recently changed my tune on this. The expenses you cite are not exorbitant for a 401k plan, and by rolling it over to a tIRA, you potentially make a backdoor Roth contribution much more costly in the future. I made this mistake recently, thinking my partner and I were never going to have the incomes we do now. Well, years go by, careers advance, and things change. Now our incomes put us out eligibility for Roth contributions. I had planned on doing the backdoor Roth for 2017, but I had already (stupidly) rolled a low cost, index-fund-filled 401k plan into Vanguard. It was and still is my only trad. IRA money, but it is large enough it dwarfs new yearly IRA contributions. Now the pro rata calculation makes a non-deductible IRA contribution --> Roth conversion very costly in terms of taxes. I find myself this spring debating my 2017 IRA contribution, and wondering if a non-deductible contribution is even worth it vs. sticking it in taxable. (I recognize that this is classic "first world problems.")


+1 to this. My wife has about 45k left behind at TIAA-CREF from an old job, and I have left it there on purpose so that when our incomes get to the point we have to use the backdoor I dont have to deal with all the pro-rating rules.

My current employers 401k is at Transamerica. Been their since it was Diversified. Never had any problems dealing with them, FWIW. Compared to a lot of 401k providers they are really not that bad on fees and fund selections and I have those same Vanguard institutional class shares you do.

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Earl Lemongrab
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by Earl Lemongrab » Sat Jan 06, 2018 2:55 pm

There are others options. With that amount, you could get a nice bonus by rolling somewhere besides Vanguard. At Merrill Edge you could buy Vanguard ETFs.
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by Howie » Sat Jan 06, 2018 6:11 pm

NYCPete wrote:
Thu Jan 04, 2018 3:04 pm


For years and years, I used to automatically say roll it over, but I've recently changed my tune on this. The expenses you cite are not exorbitant for a 401k plan, and by rolling it over to a tIRA, you potentially make a backdoor Roth contribution much more costly in the future. I made this mistake recently, thinking my partner and I were never going to have the incomes we do now. Well, years go by, careers advance, and things change. Now our incomes put us out of eligibility for Roth contributions. I had planned on doing the backdoor Roth for 2017, but I had already (stupidly) rolled a low cost, index-fund-filled 401k plan into Vanguard. It was and still is my only trad. IRA money, but it is large enough it dwarfs new yearly IRA contributions. Now the pro rata calculation makes a non-deductible IRA contribution --> Roth conversion very costly in terms of taxes. I find myself this spring debating my 2017 IRA contribution, and wondering if a non-deductible contribution is even worth it vs. sticking it in taxable. (I recognize that this is classic "first world problems.")

I know the dollar amount, $141, seems like a lot. But in terms of expenses for a 401k plan in grand scheme of things, your plan is really not that bad. I'd kill for a 401k with only 0.11% in annual expenses on top of a 0.035% ER index fund! :)

The backdoor Roth might not be around forever, and if it goes away, you could roll over to a tIRA at that point. But with current law, if it were me, I'd leave it where it is.

Best,
Peter
Great advice here. I'm in the same boat...

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whodidntante
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Re: stay with old employer 401k with fees or rollover to a Vangaurd account tIRA?

Post by whodidntante » Sat Jan 06, 2018 8:39 pm

Sometimes a 401k will offer a good stable value fund and you cannot buy that in an IRA. Also, a 401k allows penalty free distribution at an earlier age, and has better protection from creditors in some states.

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