Roll Over my 401k plan to New Employer's 401k? or Not?

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Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Roll Over my 401k plan to New Employer's 401k? or Not?

Post by StevenNJ1 »

Hello everyone. Hope to learn from folks who know a lot more on this topic than I do.

I've been just offered to enroll into my company's 401k plan after 1 year of employment. I have a 401k from old employer which I like for the low annual fees. I will try to list as much info as I can below to get some suggestions.

About me:
In my late 30s, salary is 150k/yr. Single, own home (paying mortgage). No debt. Over 100k in savings (in a savings account accumulating 2.4% interest). I do NOT have an IRA (traditional or roth). I have 27k in my old company's 401k plan. My immediate goal is to put away more money for purchase of real estate for anything I am able to save beyond 100k.

About my old 401k plan
Currently has a balance of 27k.
BlackRock 3000 Index Fund = 50% allocation = 0.28% expense ratio
(PRNHX) T. Rowe Price New Horizons = 50% allocation = 0.78% expense ratio

About my NEW 401k plan
Below are the best fund options I found.
(OPPAX) Opp Global A = 1.15% expense ratio
(VISVX) Vanguard SmallCap Index = 0.19% expense ratio
(FRSGX) Fnkln Smallcap Gr A = 0.96% expense ratio
(TWCUX) AmCent Ultra large cap = 0.98% expense ratio
(JACTX) JnsHndrsn Frty large cap = 0.93% expense ratio
(GRMSX) NW S P 500 Index = 0.57% expense ratio

FYI, I am not interested in Bonds. Hence, not listing any, even though there are 2 options and their expense fees are at 0.65% average.
Since company provides 25% match, I plan to contribute 8% of salary, meaning $12,000 from me and company would add another $3,000.

Now comes the fine print and the help I need to understand some clause of this new plan.

"HOW THE CONTRIBUTION IS DETERMINED
We will make a Matching Contribution to the Plan (either annually or on a more frequent basis) for each
eligible Participant equal to 25% of his or her 401(k) Contributions that do not exceed 10% of
Compensation.

HOW YOU QUALIFY FOR A CONTRIBUTION ALLOCATION
Once you become a Participant in this portion of the Plan, you are eligible for a Matching Contribution for
any Allocation Period in which we make one if you satisfy the requirements (if any) described below for
that Allocation Period. Matching Contributions are allocated to your Matching Contribution Account.
● ACTIVE PARTICIPANTS. If you are still employed by us on the last day of an Allocation Period, you will
be eligible to receive an allocation.
● TERMINATED PARTICIPANTS. If you terminate employment with us for any reason before the last day of
an Allocation Period, you will be eligible to receive an allocation for that Allocation Period.

HOW YOUR VESTED INTEREST IS DETERMINED
Your Vested Interest in your Matching Contribution Account is determined by the schedule following this
paragraph, based on your credited Years of Service as of the date your Vested Interest is determined. In
determining your Vested Interest in this account, all of your Years of Service will be counted. Any part of
this account which is not vested will be forfeited when you receive a distribution of your Vested Interest (or
after you incur 5 consecutive Breaks in Service, if earlier) and will thereafter be used to reduce our other
contributions.
1 Year of Service ......................0% Vested
2 Years of Service...................20% Vested
3 Years of Service...................40% Vested
4 Years of Service...................60% Vested
5 Years of Service...................80% Vested
6 Years of Service.................100% Vested

DISTRIBUTIONS FOR REASONS OTHER THAN DEATH
If you terminate employment with us for any reason and your Vested Interest (including your Rollover
Account) is $1,000 or less, it will be distributed in a lump sum as soon as administratively feasible after
you terminate employment. The distribution will be made to you or, at your election, will be rolled over
either to another qualified retirement plan that agrees to receive the distribution or to an individual
retirement account (IRA) established by you.
If your Vested Interest (including your Rollover Account) is more than $1,000 and you terminate
employment because of retirement on or after Normal Retirement Age or because you suffer a Disability,
your Vested Interest will be distributed within an administratively feasible time after you terminate. If you
terminate employment for reasons other than your retirement or Disability, your Vested Interest will be
distributed within an administratively feasible time after the last day of the Plan Year in which you
terminate employment. Your Vested Interest will be distributed in a lump sum which can be paid to you or,
at your election, can be rolled over either to another qualified retirement plan that agrees to receive the
distribution or to an individual retirement account.
In addition to the benefit payments described above, there are rules which require that certain minimum
distributions be made from the Plan. Generally, these minimum distributions must begin no later than (a)
the April 1st following the end of the calendar year in which you reach age 70½ or (b) the April 1st
following the end of the calendar year in which you retire. However, if you are a 5% owner, you must
begin receiving minimum distributions by the April 1st following the end of the year in which you reach
age 70½ even if you are still employed by the Employer."

Thank you.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by StevenNJ1 »

One more item to note.
For the year 2018, I have not contributed to any 401k and IRA. I assume that one of the things to consider is doing a Traditional IRA contribution? The once I have my 401k active in 2019, convert Trad IRA to Roth and continue adding to it at least a bit?

thank you.
scubadiver
Posts: 1193
Joined: Sun May 04, 2008 9:48 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by scubadiver »

Unless I missed something, the only partially articulated question that I saw in your posting was in the subject line, "Roll Over my 401k plan to New Employer's 401k? or Not?" My response, based upon the stated expense ratios for the funds in your current employer's 401k offering is, "good Lord, no!"

A few unsolicited comments:
(1) Consider transitioning your former employer's 401k to a rollover IRA at Vanguard or some other discount brokerage firm where you will have a wider range of investment options at a significantly reduced expense ratio. Across our entire portfolio, my wife and I have a weighted expense ratio of ~0.07%. Paying 0.2% seems insane to me, never mind 0.7% or more.
(2) Consider maxing out your 401k contributions with current employer. Yes, the investment options are horrible, but you can roll those funds into a rollover IRA when you separate from the firm and you can take a noticeable bite out of your 2019 federal income tax bill. Absolutely nothing wrong with saving your money for real estate investments --- I have multiple family members and friends who have various sorts of investment properties --- but I wouldn't pass up the opportunity to reduce your tax bill now and tax free growth in the future.

Good luck,
Scubadiver
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by StevenNJ1 »

scubadiver wrote: Mon Dec 31, 2018 6:24 pm Unless I missed something, the only partially articulated question that I saw in your posting was in the subject line, "Roll Over my 401k plan to New Employer's 401k? or Not?" My response, based upon the stated expense ratios for the funds in your current employer's 401k offering is, "good Lord, no!"

A few unsolicited comments:
(1) Consider transitioning your former employer's 401k to a rollover IRA at Vanguard or some other discount brokerage firm where you will have a wider range of investment options at a significantly reduced expense ratio. Across our entire portfolio, my wife and I have a weighted expense ratio of ~0.07%. Paying 0.2% seems insane to me, never mind 0.7% or more.
(2) Consider maxing out your 401k contributions with current employer. Yes, the investment options are horrible, but you can roll those funds into a rollover IRA when you separate from the firm and you can take a noticeable bite out of your 2019 federal income tax bill. Absolutely nothing wrong with saving your money for real estate investments --- I have multiple family members and friends who have various sorts of investment properties --- but I wouldn't pass up the opportunity to reduce your tax bill now and tax free growth in the future.

Good luck,
Scubadiver
Thank you so much for your comment.
So, here is what I understood./

Rolling over my old 401k into new 401k is a NO go. However, if I do participate in new employers 401k plan, which I definitely should, I will have to roll over my old 401k into IRA. Would that be a Roth or Traditional? Also, since I did not have 401k in 2018 ... makes sense to contribute/open up IRA?

So what would happen is, I would roll over my old 401k into IRA AND contribute to IRA up to allowed maximum which is about $6,000. And this would be traditional IRA?

P.S. I know that folks really pay attention to the expense ratio of these funds, and I have seen calculators that show just how much money is wasted due to high fees, however, if I see a fund with 14% 5yr return at 0.80% expense ratio versus fund in same category with 11% 5yr return at 0.30%, wouldn't you wish you contributed to that former fund?

Thank you.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Help, Best route to get the most out of 2018 ?

Post by StevenNJ1 »

[Thread merged into here, see below. --admin LadyGeek]

I am trying to see the best route.

I have a 401k with old company that I left about a year and a half ago.

I am now being offered new 401k plan from my current employer. I do not have an IRA. Trying to figure out the best route in my situation.

A few questions; (apologies if these are dumb, but hope to get some clarification)

1) How do I roll over my old 401k into IRA and make a contribution to IRA for 2018 (since I did not have a 401k in 2018). Will it be Traditional IRA for both roll over and 2018 contribution? My yearly salary is around 150k.

2) Can a person have both, Traditional IRA and Roth IRA? I usually don't qualify for Traditional IRA when I contribute to 401k with my salary..

3) A bit confused on this one... if a person constantly rolls over their 401k from employer they leave into IRA, at the end of their career, one would have very little in their 401k?

Thank you.
mhalley
Posts: 8687
Joined: Tue Nov 20, 2007 6:02 am

Re: Help, Best route to get the most out of 2018 ?

Post by mhalley »

We don’t have quite enough info for all your questions, such as your age and marital status.
You can make a contribution to an Ira up until tax day. Simply go to vanguard, fidelity or schwab and open the account and fund it. Sounds like you might need to open both a traditional and a Roth IRA in order to do a backdoor Roth.

Whether to roll over a 401k into an Ira depends on several factors. If the 401k has great funds and low administrative expenses it is fine to leave it there. A 401k has better creditor protections than an Ira.
If the expenses are high, then you can roll it into an Ira, OR you might be able to roll it into your new 401k if the expenses are low and the funds are good. Call your hr department, they will know whether you can roll it over and tell you how to do it.
You might want to avoid rolling the funds into an Ira if your income is high and you want to do backdoor Roth contributions to avoid a complicated tax situation called the pro rata rule.
You can have both a traditional and a Roth IRA, you just can’t contribute more than the maximum amount to all IRAs. The limit for 2018 is $5.5k. You could contibute it all to a traditional, all to a Roth, half to each, but the total cant exceed 5.5k
You still have the money after you roll it over, whether it is in a 401k or an Ira doesn’t matter, it retains its tax status. (Well, there are some other specific rules, but I am talking generalities here].
If you don’t qualify for the trad Ira deduction and you are maxing out the 401k, you might consider doing the back door roth if you desire to put more money into retirement.
https://www.whitecoatinvestor.com/backd ... -tutorial/
This article talks about some pros and cons of 401k rollovers.
https://www.nerdwallet.com/blog/investi ... over-401k/
Last edited by mhalley on Tue Jan 01, 2019 1:27 pm, edited 2 times in total.
Flyer24
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Re: Help, Best route to get the most out of 2018 ?

Post by Flyer24 »

Why did you start a new thread? You just asked about a rollover yesterday.

viewtopic.php?f=1&t=268195&p=4292038#p4292038
mhalley
Posts: 8687
Joined: Tue Nov 20, 2007 6:02 am

Re: Help, Best route to get the most out of 2018 ?

Post by mhalley »

Dang, I need to start looking at other threads by the poster before replying. But looking at the post, I would say keep the old 401k in the s and p fund and do a backdoor Roth.
mhalley
Posts: 8687
Joined: Tue Nov 20, 2007 6:02 am

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by mhalley »

If wishes were fishes we could have a fish fry. Might as well wish you bought google at the IPO, or Apple at 18. The problem with looking at the returns of funds with great returns and high expenses is that you never know what could happen next year, the manager might decide to make a bet on ge and sears, and the next thing you know the fund has blown all those years of great returns. But if you buy low cost, passive index fund, you know the expenses will always be low and you will get market returns.
It is generally thought that contributing to an Ira that is not deductable is not as good as just contributing to a taxable account.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Help, Best route to get the most out of 2018 ?

Post by StevenNJ1 »

mhalley wrote: Tue Jan 01, 2019 1:02 pm We don’t have quite enough info for all your questions, such as your age and marital status.
You can make a contribution to an Ira up until tax day. Simply go to vanguard, fidelity or schwab and open the account and fund it. Sounds like you might need to open both a traditional and a Roth IRA in order to do a backdoor Roth.

Whether to roll over a 401k into an Ira depends on several factors. If the 401k has great funds and low administrative expenses it is fine to leave it there. A 401k has better creditor protections than an Ira.
If the expenses are high, then you can roll it into an Ira, OR you might be able to roll it into your new 401k if the expenses are low and the funds are good. Call your hr department, they will know whether you can roll it over and tell you how to do it.
You might want to avoid rolling the funds into an Ira if your income is high and you want to do backdoor Roth contributions to avoid a complicated tax situation called the pro rata rule.
You can have both a traditional and a Roth IRA, you just can’t contribute more than the maximum amount to all IRAs. The limit for 2018 is $5.5k. You could contibute it all to a traditional, all to a Roth, half to each, but the total cant exceed 5.5k
You still have the money after you roll it over, whether it is in a 401k or an Ira doesn’t matter, it retains its tax status. (Well, there are some other specific rules, but I am talking generalities here].
If you don’t qualify for the trad Ira deduction and you are maxing out the 401k, you might consider doing the back door roth if you desire to put more money into retirement.
https://www.whitecoatinvestor.com/backd ... -tutorial/
This article talks about some pros and cons of 401k rollovers.
https://www.nerdwallet.com/blog/investi ... over-401k/
Thank you for your feedback.
One thing that I am con fused about is, what if I do want to contribute to current company 401k, doesn't that mean that I have to roll over my old 401k into new one or to IRA? Meaning, once can not have two 401k account, even though one of them is with an old company that you can not continue to contribute to?
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Help, Best route to get the most out of 2018 ?

Post by StevenNJ1 »

Flyer24 wrote: Tue Jan 01, 2019 1:20 pm Why did you start a new thread? You just asked about a rollover yesterday.

viewtopic.php?f=1&t=268195&p=4292038#p4292038
To be honest, I wanted to modify my question to be shorter and now a bit clearer as surprisingly, I didn't receive the amount of feedback I've been receiving on some other topics I started. In fact, this forum has been amazing at helping me change my previous company's 401k plan and prepping me for a high stakes meeting with HR, CFO and our 401k administrator. All those threads I started have provided me with a wealth of info, however, this question did not, aside from a few people that contributed, for which I am grateful.
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LadyGeek
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Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by LadyGeek »

^^^ Yes, but you lose continuity of the discussion - which is important. Otherwise, it's very difficult to know what was discussed before. For that reason, I merged your update back into the original thread.

I would also suggest to ask all of your portfolio related questions in a single thread (like this one). We might spot something that you've missed.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by StevenNJ1 »

LadyGeek wrote: Wed Jan 02, 2019 4:30 pm ^^^ Yes, but you lose continuity of the discussion - which is important. Otherwise, it's very difficult to know what was discussed before. For that reason, I merged your update back into the original thread.

I would also suggest to ask all of your portfolio related questions in a single thread (like this one). We might spot something that you've missed.
Not a problem, I agree.
One problem, still not clear on points mentioned above.

1) If I do want to contribute to current company 401k, doesn't that mean that I have to roll over my old 401k into IRA, if I don't plan to roll it into new 401k? Meaning, once can not have two 401k account, even though one of them is with an old company that you can not continue to contribute to.

2) Since I did not have 401k in 2018, that means I can do Traditional IRA to save on Taxes a bit? However, in 2019 I will have new 401k and salary will be over 150k for a single filing person, meaning, I will not be allowed to do Traditional IRA?

Thank you.
needadvise1
Posts: 53
Joined: Wed Feb 07, 2018 9:58 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by needadvise1 »

You'll probably want to do a 2018 TiRA contribution, but I would post a new post and question at this point. Your original request has mostly been lost in the noise.
miriamele
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Joined: Mon Sep 24, 2018 3:52 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by miriamele »

You can certainly have more than one 401(k). If you have one with a former employer, you cannot contribute but you can maintain it there so long as you have more than 5K in it.

One reason might be to keep your backdoor Roth options open without entangling a traditional IRA in the mix.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by StevenNJ1 »

miriamele wrote: Thu Jan 03, 2019 1:00 pm You can certainly have more than one 401(k). If you have one with a former employer, you cannot contribute but you can maintain it there so long as you have more than 5K in it.

One reason might be to keep your backdoor Roth options open without entangling a traditional IRA in the mix.
that is a good point. I just didn't know if I could have multiple 401k accounts. So I can go ahead and start contributing to the new 401k and not do anything with the old 401k? As time comes to retire, one can consolidate all their 401k accounts ?

Regarding IRA. Since I did not contribute to 401k in 2018, it would make sense to do Traditional IRA, but your advice is not to do that if I plan to continue contributing to IRA in the future where due to my salary, I will not be allowed to do Trad IRA, instead do a backdoor roth IRA? But what if down the line, I have another job where I don't have 401k, Traditional IRA is the next best thing, no?

Thank you.
miriamele
Posts: 17
Joined: Mon Sep 24, 2018 3:52 pm

Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by miriamele »

My understanding is if you are eligible for a 401(k) even if you choose not to contribute, your IRA contribution is non-deductible so it depends on your W-2 Box 13. I would also be wary of starting up a traditional IRA if you ever intend to do a backdoor ROTH.

I know definitively that you can keep your old 401(k) where it is for as long as you like so long as you meet the 5k minimum. Some employees may pass along more of the cost than they do for active employees so check that out. Certainly at some point in your life it will make sense to consolidate. You could roll the old 401(k) into the new one but make sure the choices and costs are as good or better before you do it. Otherwise it will sit there and gain/lose according to your investments but of course you cannot contribute further.

Good luck!
Bacchus01
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Re: Roll Over my 401k plan to New Employer's 401k? or Not?

Post by Bacchus01 »

StevenNJ1 wrote: Fri Jan 04, 2019 3:31 pm
miriamele wrote: Thu Jan 03, 2019 1:00 pm You can certainly have more than one 401(k). If you have one with a former employer, you cannot contribute but you can maintain it there so long as you have more than 5K in it.

One reason might be to keep your backdoor Roth options open without entangling a traditional IRA in the mix.
that is a good point. I just didn't know if I could have multiple 401k accounts. So I can go ahead and start contributing to the new 401k and not do anything with the old 401k? As time comes to retire, one can consolidate all their 401k accounts ?

Regarding IRA. Since I did not contribute to 401k in 2018, it would make sense to do Traditional IRA, but your advice is not to do that if I plan to continue contributing to IRA in the future where due to my salary, I will not be allowed to do Trad IRA, instead do a backdoor roth IRA? But what if down the line, I have another job where I don't have 401k, Traditional IRA is the next best thing, no?

Thank you.
My wife and I have 5 active or old 401ks.
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