Retiring soon.....401K vs rollover to IRA?

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rvflyer
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Retiring soon.....401K vs rollover to IRA?

Post by rvflyer » Sat Feb 10, 2018 11:08 am

Will officially retire at the end of the year and have a very good 401K plan that lets us direct just about all money as we see fit (PCRA). I prefer to let my 600K stay in the 401K but am willing to listen to arguments on why I should roll it over to an IRA instead. Appreciate any wisdom or direction to previous threads on the topic.

akron1977
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Re: Retiring soon.....401K vs rollover to IRA?

Post by akron1977 » Sat Feb 10, 2018 11:13 am

Look at the ER's; our 401K's buy institutional shares, so the cost is less---why we decided not to rollover (plus the former company subsidizes admin costs)

Neutron
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Neutron » Sat Feb 10, 2018 11:17 am

If you are under 59 1/2 leaving it in your 401k may allow you to withdraw money penalty free provided you are 55 or older. IRA will not.

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Watty
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Watty » Sat Feb 10, 2018 11:34 am

In some states a 401k may have better legal protection if you lose a lawsuit.

I have had a company suddenly change a 401k plan to a new and worse company during a merger.

Unless there is a compelling reason to stay with the 401k then my personal preference would be to roll the money into an IRA just to have better control or it and not have to deal with unexpected changes when you are 85.

Chip
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Chip » Sat Feb 10, 2018 11:50 am

You might want to keep it in the 401k if you already have a traditional IRA to which you have made non-deductible contributions. The reason is the "pro-rata rule" that determines the amount of non-deductible contributions allocable to any given conversion. It's discussed in the wiki here.

ionball
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Re: Retiring soon.....401K vs rollover to IRA?

Post by ionball » Sat Feb 10, 2018 11:55 am

The pros and cons already mentioned are most important depending upon your profile. After those considerations you may also want to check into the details of the withdrawal options from the 401k to see if they may be more restrictive than an IRA account. If it's a tie, consider moving half or some portion of the 401k balance to an IRA.

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Rob54keep
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Rob54keep » Sat Feb 10, 2018 1:03 pm

I kept my 401k intact when I retired because of a Stable Fund and low ER’s and it was at Vanguard. One drawback that I have is that to make any changes on withdrawal rates or tax withholding, I have to talk to a Vanguard 401k specialist rather than doing online as I could with an IRA. Not a big deal but an extra step that delays transactions a few more days.

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rob
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Re: Retiring soon.....401K vs rollover to IRA?

Post by rob » Sat Feb 10, 2018 1:16 pm

Neutron wrote:
Sat Feb 10, 2018 11:17 am
If you are under 59 1/2 leaving it in your 401k may allow you to withdraw money penalty free provided you are 55 or older. IRA will not.
While more involved - You can access the money via a SEPP. I believe that 55 rule is also plan dependent... so confirm with the plan admins.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

MathIsMyWayr
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Re: Retiring soon.....401K vs rollover to IRA?

Post by MathIsMyWayr » Sat Feb 10, 2018 1:31 pm

My large company 401(k) offers all I want: Vanguard 500 index, mid cap index, small cap index, and total international, and total bond market funds with lower institional ERs than comparable Vanguard admiral shares by 0.01-0.02%, not significant, but still lower. It does not have total stock market index fund. Actually that will be to my advantage - I can do TLH in taxable account. It also allows partial withdrawls. I plan to stay in the 401(k) plan after leaving or retiring because
1) lower ER
2) stronger creditor protection
However, it will leak through RMD and Roth conversion. As you know, only Roth IRA is not subject to RMD.

Alan S.
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Alan S. » Sat Feb 10, 2018 1:36 pm

rob wrote:
Sat Feb 10, 2018 1:16 pm
Neutron wrote:
Sat Feb 10, 2018 11:17 am
If you are under 59 1/2 leaving it in your 401k may allow you to withdraw money penalty free provided you are 55 or older. IRA will not.
While more involved - You can access the money via a SEPP. I believe that 55 rule is also plan dependent... so confirm with the plan admins.
The age 55 separation rule is not plan dependent. It is an IRS rule that a plan cannot override. If a plan codes the 1099R with code 1, you just file a 5329 to override the early distribution code with exception code "01".

That said, what IS plan dependent are the distribution options. If a plan requires a lump sum distribution, that effectively erases the benefit of the penalty waiver, because the 10% you save can be lost to the higher tax rates on the LSD. A requirement of set periodic distributions that can only be changed once a year can be adjusted to by some people, but not by others.

cherijoh
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Re: Retiring soon.....401K vs rollover to IRA?

Post by cherijoh » Sat Feb 10, 2018 1:59 pm

ionball wrote:
Sat Feb 10, 2018 11:55 am
The pros and cons already mentioned are most important depending upon your profile. After those considerations you may also want to check into the details of the withdrawal options from the 401k to see if they may be more restrictive than an IRA account. If it's a tie, consider moving half or some portion of the 401k balance to an IRA.
+1
Many people just assume that they have the same flexibility on withdrawals with their employer plans as with an IRA. This is often not the case. In addition, if the money is still in the 401k plan when you die, your workplace plan may also limit the ways it can be paid out to your heirs.

From this article:
By law, a spouse must be the beneficiary of a 401(k) unless he or she signs a waiver. If your spouse does, you can then designate anyone you wish to receive the money—children, friends, a trust, or a charity.

In general, money from an inherited 401(k) can be distributed in a number of ways, including a lump sum, over 5 years, or, potentially, stretched out over many years based on the beneficiary’s life expectancy. It is important to consult with a tax professional before making a decision.

Another fact that surprises many people is that some workplace savings plans impose more restrictions than others. Some may require heirs to take the money all at once or limit how the money is handled. Some governmental retirement plans, church plans, and 403(b) plans may be subject to state laws regarding beneficiaries. Your plan’s restrictions may have significant tax consequences, so be sure to check with the plan administrator to get your plan’s rules. Smaller payments stretched out over many years are generally better from a tax and investment growth standpoint, says Weaver.
Finally, when you get to the point of RMDs, it might be easier to have all your money in an IRA. The IRS allows you to take your RMD for all your traditional IRAs from any one of them as long as you withdraw enough to cover the sum of all the RMDs. But if you have RMDs from one more workplace retirement plans, then you have to take the RMD from each plan separately. This could be an issue for someone who had several employers and has multiple 401ks with former employers. It is not unheard of for people to lose track of old 401ks and for the custodian to change. If your old company is out of business it might not be that easy to track down.

Lynette
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Lynette » Sat Feb 10, 2018 2:05 pm

There is probably no reason why you should be in a hurry to roll over a 401K if the funds are good and low cost. I had no intention of rolling mine over and I took my first RMD from my 401K. What persuaded me to roll it over was so that I could take QCDs and reduce my AGI (and more specifically MAGI) to reduce Medicare IRMAA.

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Ged
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Ged » Sat Feb 10, 2018 2:14 pm

If your former employer should run into financial difficulties, be acquired and even perhaps enter bankruptcy money in a 401K could be frozen for some period of time.

There are some horror stories out there.

https://thelawdictionary.org/article/im ... -bankrupt/

cherijoh
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Re: Retiring soon.....401K vs rollover to IRA?

Post by cherijoh » Sat Feb 10, 2018 2:18 pm

rob wrote:
Sat Feb 10, 2018 1:16 pm
Neutron wrote:
Sat Feb 10, 2018 11:17 am
If you are under 59 1/2 leaving it in your 401k may allow you to withdraw money penalty free provided you are 55 or older. IRA will not.
While more involved - You can access the money via a SEPP. I believe that 55 rule is also plan dependent... so confirm with the plan admins.
Technically, the "55 rule" is an IRS rule - it is simply an exception to having to pay the 10% early withdrawal penalty. Any one who separates from their employer gets access to the 401k plan assets and if they retired in the year that they hit 55 (or later) they are exempt from the penalty.

However, the "55 rule" may be moot if your plan doesn't offer flexibility in its rules for withdrawals. I will be retiring from my Megacorp employer without meeting the minimum "age + years of service" rule to be considered a retiree. So my only options will be (1) leave it in place, (2) roll it over to an IRA, or (3) withdrawal the balance in full. Those that meet the retiree definition can also choose to have the money paid out monthly over 5, 10, or 15 years. (That still isn't very flexible in my opinion :annoyed). I don't need to have access to my 401k, but I expect this may come as shock to the many people who never bothered to even skim through the plan documents and either retire or get laid off before hitting 59.5.

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Earl Lemongrab
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Earl Lemongrab » Sat Feb 10, 2018 2:27 pm

As the others have said, it depends on your plan options. I recently retired. Megacorp's plan is good, but the choices are limited. However, the withdrawals are very flexible, so I can take some out and leave some. A new feature even allows rolling IRAs in after retirement.

I like the stable-value fund, so I'll definitely keep the allocation there. Similarly, whatever I decide to keep in bond index will stay there. But if I decide to get TIPS exposure, I'll need to roll out some to an IRA.

One thing rollovers can do for you is generate transfer bonuses. See: The Final, Definitive Thread on Brokerage Transfer Bonuses
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

nodenuff2
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Re: Retiring soon.....401K vs rollover to IRA?

Post by nodenuff2 » Sat Feb 10, 2018 3:53 pm

When I retired my company had no Vanguard funds so I moved my 401k to Vanguard. Now they have large selection of Vanguard funds so if I was retiring now I would probably stay with the 401k.
2014 No. 42 2015 No.342 2016 No. 6 2017 238 what do I know? "Good bless America land that I love..."

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TeamArgo
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Re: Retiring soon.....401K vs rollover to IRA?

Post by TeamArgo » Fri Feb 16, 2018 10:54 pm

My ex-mega company employer has a 401K plan with Fidelity, and I kept and I am continuing to keep it there in retirement (five years now). The company subsidizes some costs, plus Fidelity is easy to work with, have good index funds and low rates, flexible withdrawals and in fund transfers, and they even made it easy to roll a pension lump sum over into the same fund. They have also helped out with 401K to Roth IRA direct rollover transfers.
Does it bother anyone else that non-hyphenated is spelled like that, or that abbreviation is such a long word?

inbox788
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Re: Retiring soon.....401K vs rollover to IRA?

Post by inbox788 » Mon Jul 09, 2018 3:48 pm

rvflyer wrote:
Sat Feb 10, 2018 11:08 am
Will officially retire at the end of the year and have a very good 401K plan ...
https://www.cbsnews.com/news/when-an-ir ... t-savings/

Any decisions yet? I saw the above linked article today and searched for recent thread discussions on the topic, and this thread seems to be on topic.

It's another decision (not so close in my case) that I wasn't aware of or cared much to have to learn about, but there do seem to be differences. I've come to grips with the mutual funds vs ETF decisions, and I hope the differences between employer 401k vs (Vanguard/Fidelity/Schwab) IRA in retirement are similar. My plan was to simply keep it all in the 401k, and like OP, "have a good plan", but hadn't worried about a change in plan status (i.e. merger). My default is still keeping it all in 401k, but as I'm learning more, I'm considering splitting it up so there's more risk diversification, but that goes against my simplification goals. I've resisted brokerage risk diversification that some folks here like to have (i.e. Fidelity, Vanguard AND Schwab accounts).

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Re: Retiring soon.....401K vs rollover to IRA?

Post by Stinky » Mon Jul 09, 2018 4:37 pm

I'm retiring soon. Decided to keep about one-half in 401K, and roll remainder to Vanguard IRA.

Vanguard advantage - extremely wide choice of ultra low-cost funds.

401(k) advantage - availability of stable value option

May roll more to VG as time goes on.
Actuaries have interaction with all parts of an insurance company. That allows them to annoy EVERYONE simultaneously.

jkirkmd
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Re: Retiring soon.....401K vs rollover to IRA?

Post by jkirkmd » Mon Jul 09, 2018 5:12 pm

Recently retired, and moved all my 401K funds to my Vanguard IRA, for 2 primary reasons: 1-I detested paying the admin fees to the 401K administrator; and 2-ease of moving funds around Vanguard funds, and arranging periodic withdrawals. Availability of funds that you like (and equivalent ones at Vanguard) may factor into your decision, but I was very pleased to get out of the 401K.

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Peter Foley
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Peter Foley » Mon Jul 09, 2018 5:18 pm

Perhaps a few years after you retire.

When you get to Required Minimum Distributions, Qualified Charitable Distributions in lieu of some or all of an RMD can be made from an IRA but not from a 401k. At some point it may be a good idea to hold some retirement funds in both types of accounts.

InvestorThom
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Re: Retiring soon.....401K vs rollover to IRA?

Post by InvestorThom » Mon Jul 09, 2018 5:40 pm

I’m curious, what are folks being charged in admin fees for their 401k’s?

Mine is $42/yr, charged quarterly.

inbox788
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Re: Retiring soon.....401K vs rollover to IRA?

Post by inbox788 » Mon Jul 09, 2018 9:08 pm

Peter Foley wrote:
Mon Jul 09, 2018 5:18 pm
Perhaps a few years after you retire.

When you get to Required Minimum Distributions, Qualified Charitable Distributions in lieu of some or all of an RMD can be made from an IRA but not from a 401k. At some point it may be a good idea to hold some retirement funds in both types of accounts.
If you hold half in each, where do you draw RMDs? half and half or predominantly from one account or the other? Do you have to worry about turning off automatic RMDs in any accounts? Or making sure the tax agencies know you're taking out from one account and counting RMD on another?

RetiredAL
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Re: Retiring soon.....401K vs rollover to IRA?

Post by RetiredAL » Mon Jul 09, 2018 10:22 pm

Stinky wrote:
Mon Jul 09, 2018 4:37 pm
I'm retiring soon. Decided to keep about one-half in 401K, and roll remainder to Vanguard IRA.

Vanguard advantage - extremely wide choice of ultra low-cost funds.

401(k) advantage - availability of stable value option

May roll more to VG as time goes on.
If you have any post-tax in your 401K upon retirement, that's a good time to roll it over into a Roth. An alternate action could be just plain withdrawing the taxable part before you do the roll-over to an IRA. Either will clean up future bookkeeping hassles relating to having a basis cost in an IRA when you make withdrawals.

I retired just two years ago. Everything was at and stayed at Fidelity. First, I rolled over the 401K post-tax $ into my existing Roth. Next I rolled over the 401K pre-tax money ( the remainder of the 401K ) to my existing Roll-Over IRA. Lastly, I took my pension as a lump-sum and rolled those $ over to a separate new Roll-Over IRA. Those 401K closing steps prevented my IRA withdrawals from have a 1% basis cost assigned that would need to be tracked forever. I used a separate new IRA for the pension $ because I'm basically running that IRA as a self created/directed annuity and that simplifies my tracking of those $. The pension funded IRA is the bulk of my withdrawals and it is expected to hit zero in 25+ years. In the meantime, the 401K funded IRA will grow, as will my Roth. IRA conversions from the 401K funded IRA to my Roth have occurred, which I expect to continue for 2 more years, stopping when RMD's kick in.

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Re: Retiring soon.....401K vs rollover to IRA?

Post by InvestorThom » Tue Jul 10, 2018 6:24 pm

RetiredAL wrote:
Mon Jul 09, 2018 10:22 pm
Those 401K closing steps prevented my IRA withdrawals from have a 1% basis cost assigned that would need to be tracked forever.
What does this mean? Why would you have otherwise had a 1% basis cost assigned?

RetiredAL
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Re: Retiring soon.....401K vs rollover to IRA?

Post by RetiredAL » Tue Jul 10, 2018 8:30 pm

InvestorThom wrote:
Tue Jul 10, 2018 6:24 pm
RetiredAL wrote:
Mon Jul 09, 2018 10:22 pm
Those 401K closing steps prevented my IRA withdrawals from have a 1% basis cost assigned that would need to be tracked forever.
What does this mean? Why would you have otherwise had a 1% basis cost assigned?
About 1% ( $10,000 ) of my 401K balance at retirement was post tax $. If the entire 401K had been just rolled into the Roll-Over IRA, I would have had a 1% basis to track each withdrawal year. Yeah, I could have walked away from those accounting gyrations and over paid taxes, but I personally have this thing against paying any higher taxes than I'm require to. I've spent a lot of effort modeling how keep the most $ --- read that as paying less taxes.

On top of that, those post-tax dollars basically resulted in a free extra Roth contribution on top of what I contributed that year.

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Peter Foley
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Re: Retiring soon.....401K vs rollover to IRA?

Post by Peter Foley » Tue Jul 10, 2018 11:00 pm

inbox788 wrote:
If you hold half in each, where do you draw RMDs? half and half or predominantly from one account or the other? Do you have to worry about turning off automatic RMDs in any accounts? Or making sure the tax agencies know you're taking out from one account and counting RMD on another?
My understanding is that if you have multiple IRAs they are treated as one. Your RMD can come from any mix. However, if you hold an IRA and a 401k you must take required minimum distributions from each. They are not aggregated. If you have an IRA and a 401k and a 403b you have three separate RMD's.

If I am wrong please post a correction. My personal planning is based on my understanding of the rules as I have posted them above.
Last edited by Peter Foley on Wed Jul 11, 2018 1:14 pm, edited 1 time in total.

InvestorThom
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Re: Retiring soon.....401K vs rollover to IRA?

Post by InvestorThom » Wed Jul 11, 2018 11:45 am

RetiredAL wrote:
Tue Jul 10, 2018 8:30 pm
InvestorThom wrote:
Tue Jul 10, 2018 6:24 pm
RetiredAL wrote:
Mon Jul 09, 2018 10:22 pm
Those 401K closing steps prevented my IRA withdrawals from have a 1% basis cost assigned that would need to be tracked forever.
What does this mean? Why would you have otherwise had a 1% basis cost assigned?
About 1% ( $10,000 ) of my 401K balance at retirement was post tax $. If the entire 401K had been just rolled into the Roll-Over IRA, I would have had a 1% basis to track each withdrawal year. Yeah, I could have walked away from those accounting gyrations and over paid taxes, but I personally have this thing against paying any higher taxes than I'm require to. I've spent a lot of effort modeling how keep the most $ --- read that as paying less taxes.

On top of that, those post-tax dollars basically resulted in a free extra Roth contribution on top of what I contributed that year.
Thanks. I now follow. :)

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