Roth 401k - directing payments to a different custodian

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ross6
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Joined: Fri Jan 11, 2019 1:28 pm

Roth 401k - directing payments to a different custodian

Post by ross6 » Fri Jan 11, 2019 2:00 pm

Hi all,

I am trying to convert funds from a previous employer in a roth 401k to a self directed account; however the catch is I would be interested in taking those interest payments and stick them in a index fund. Is it possible/legal to take these original funds and split them between two custodians, one that is self directed and the other of an index fund? I would then want to take the interest payments from the self directed account and contribute them to the index fund.

Conceptually, this makes sense to me; however it is worry some that the interest payments are not staying with the same custodian that the principal is being held with. Has anyone had any experience with doing anything like this? The other possibility is to simply have all payments to to the SD custodian and have them disburse funds to another custodian that manages another Roth 401k account.

Thanks

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David Jay
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Re: Roth 401k - directing payments to a different custodian

Post by David Jay » Sat Jan 12, 2019 2:06 pm

Ross:

Welcome to the forum!

Sorry, your issue may be a bit too esoteric to get an answer, but my post will “bump” your thread for the weekend crowd.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Earl Lemongrab
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Re: Roth 401k - directing payments to a different custodian

Post by Earl Lemongrab » Sat Jan 12, 2019 3:43 pm

If the current plan rules allow taking multiple distributions and from different accounts within the 401(k), then sure. Otherwise, you roll the entire thing to one custodian, then transfer money to the other.

Alan S.
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Re: Roth 401k - directing payments to a different custodian

Post by Alan S. » Sat Jan 12, 2019 7:26 pm

ross6 wrote:
Fri Jan 11, 2019 2:00 pm
Hi all,

I am trying to convert funds from a previous employer in a roth 401k to a self directed account; however the catch is I would be interested in taking those interest payments and stick them in a index fund. Is it possible/legal to take these original funds and split them between two custodians, one that is self directed and the other of an index fund? I would then want to take the interest payments from the self directed account and contribute them to the index fund.

Conceptually, this makes sense to me; however it is worry some that the interest payments are not staying with the same custodian that the principal is being held with. Has anyone had any experience with doing anything like this? The other possibility is to simply have all payments to to the SD custodian and have them disburse funds to another custodian that manages another Roth 401k account.

Thanks

If you have a Roth 401k balance and there was any matching contributions, then there is a pre tax 401k balance with it, so you might have two direct rollovers from the 401k. A self directed IRA in its generic sense is just held at any retail brokerage firm where you choose the investments and you may be able to set up reinvestments in different holdings in the same account. In a more specific sense it is for alternate investments like real estate, privately held shares, or other holdings you cannot purchase elsewhere. In the latter case, you would need two IRA accounts at different custodians. If you will have two IRA custodians, it seems like unnecessary complexity to have several non reportable transfers between those accounts every year.

krow36
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Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Roth 401k - directing payments to a different custodian

Post by krow36 » Sat Jan 12, 2019 8:27 pm

ross6 wrote:
Fri Jan 11, 2019 2:00 pm
I am trying to convert funds from a previous employer in a roth 401k to a self directed account; however the catch is I would be interested in taking those interest payments and stick them in a index fund.
It's not clear to me why you don't just roll over the Roth 401k to a Roth IRA at a vendor of your choice. If the problem is that your Roth 401k does not have any index funds that you can use, then why not roll it out? And if the 401k also contains any traditional contributions from you or your employer, roll that to a traditional IRA.

What do you mean by a "self directed account"? As Alan S. explained, a Self Directed Brokerage Account (SDBA), allows employees to select mutual funds not available in their 401k. Is that what you are interested in? Rolling it to an IRA would be an easier and less expensive way to get index funds into your Roth 401k.

It doesn't seem likely that you are interested in a Self Directed IRA, which is a special type of an IRA that is allowed to hold real estate, works of art and other valuables.

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