Should I rollover my 401k from old megacorp to new megacorp?

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knightrider
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Should I rollover my 401k from old megacorp to new megacorp?

Post by knightrider » Tue May 21, 2019 8:39 am

I spent 16 years at a megacorp and have around 500k in my 401k. Two years ago I started a new job at another megacorop. Now that the dust has settled, I am wondering if I should rollover my 401k? I read some blogs but feel a bit overwhelmed by the process. What are some basic questions I need to answer to know if I should do it?

My new megacorp uses Fidelity platform where I have all my other investment accounts. So that is one plus of rolling over.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Jack FFR1846 » Tue May 21, 2019 8:50 am

What are the costs and expense ratios of old megacorp vs new megacorp? You do have to watch these expenses as companies frequently decide that their employees would like to pay the costs themselves and a "management fee" suddenly shows up that wasn't there before. If the new megacorp's plan is better, why not roll over. Just understand that any company can decide anytime to increase costs. So watch for those.
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megabad
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by megabad » Tue May 21, 2019 9:31 am

knightrider wrote:
Tue May 21, 2019 8:39 am
I am wondering if I should rollover my 401k?

My new megacorp uses Fidelity
I probably would roll over (since this is Fidelity and I like simplicity and low cost), but you should definitely determine exactly what both the fund expense ratios and the administrative fees are on both plans and compare them first. Additionally, review the fund options and how they suit your investment style. If the old plan has an investment option that you use that the new plan is missing, you might not want to roll over.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Liberty1100 » Tue May 21, 2019 9:36 am

I would think rolling over the old 401k into a Traditional IRA may be a better move. It would allow you far more investment options and allow you to control the fees easier. Plus, no one from HR can snoop to see how wealthy you may or may not be.

Angst
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Angst » Tue May 21, 2019 9:37 am

Unless either the old or the new 401k accounts offered funds and/or expense ratios that were clearly superior, I would simply roll over the old 401k into a personal, rollover IRA at Fidelity. I prefer to manage my funds myself and not be limited by what is offered through my employer.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by BigMoneyNoWhammies » Tue May 21, 2019 9:42 am

Angst wrote:
Tue May 21, 2019 9:37 am
Unless either the old or the new 401k accounts offered funds and/or expense ratios that were clearly superior, I would simply roll over the old 401k into a personal, rollover IRA at Fidelity. I prefer to manage my funds myself and not be limited by what is offered through my employer.
+1. If you know enough to determine which 401k option is the better pick, you likely know enough to manage the money yourself. As mentioned above, an IRA also opens up a broader set of investment possibilities than what is in your 401k.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Wiggums » Tue May 21, 2019 9:43 am

It really comes down to the choice of funds and the expense ratios. It’s nice to have the most bet at the same place, but not if the new 401k is bad.

My company switched from vanguard to a black box, no tickers, actively managed with higher costs. They called it better than Vanguard. I moved my money out of the plan.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by CommitmentDevice » Tue May 21, 2019 10:00 am

I’m less experienced than most on this forum so I might be off here, but are there any compelling reasons to not roll over to a traditional IRA?

Benefits of the IRA, as I see them, are:
1. Full universe of investment options
2. Consolidation = simplicity
3. Not having an additional stakeholder (old megacorp) in the mix

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by ridebikeseveryday » Tue May 21, 2019 10:22 am

401ks have a few legal protections that TIRAs do not, which is one downside of TIRAs. At my current megacorp, we have very cheap 401k options, so I've rolled mine over.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by elcadarj » Tue May 21, 2019 10:33 am

ridebikeseveryday wrote:
Tue May 21, 2019 10:22 am
401ks have a few legal protections that TIRAs do not, which is one downside of TIRAs. At my current megacorp, we have very cheap 401k options, so I've rolled mine over.
+1 Here's a good summary of the different protections: https://www.investopedia.com/articles/p ... ditors.asp

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by teamDE » Tue May 21, 2019 10:37 am

Having a tIRA would interfere with doing Backdoor Roth IRAs if you are or want to do that. If the new 401k has good options, I'd roll it in there.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by ruralavalon » Tue May 21, 2019 1:26 pm

knightrider wrote:
Tue May 21, 2019 8:39 am
I spent 16 years at a megacorp and have around 500k in my 401k. Two years ago I started a new job at another megacorop. Now that the dust has settled, I am wondering if I should rollover my 401k? I read some blogs but feel a bit overwhelmed by the process. What are some basic questions I need to answer to know if I should do it?

My new megacorp uses Fidelity platform where I have all my other investment accounts. So that is one plus of rolling over.
It depends almost entirely on expenses and funds offered, information not provided in your post. There are three basic choices.

1) If the funds offered in the old 401k are good with low expense ratios, and there is no account maintenance fee charged for keeping the account there or only a small fee, then it may be best to leave the old 401k where it is.

2) If the new 401k offers better funds with lower expense ratios, and will accept a rollover from the old 401k, then it may be best to roll the old 401k over into the new 401k.

3) If neither 401k offers good funds with low expense ratios then it may be best to roll the old 401k over to an IRA at a low cost provider like Vanguard or Fidelity.

Wiki article, 401k, ”Rollover to IRA".

Additional considerations include:

1) the convenience of having one fewer account to keep track and manage, if you move the old 401k into the new plan or an IRA;

2) depending on your state, a 401k plan may have greater protection from creditors than does an IRA;

3) a rollover to an IRA may impede ability to do a Backdoor Roth IRA for higher income individuals, and

4) a 401k allows distributions penalty free starting at age 55 if no longer employed, and has other provisions for withdrawals earlier than age 59.5. Wiki article, 401k, "Move to new 401k".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by bradpevans » Tue May 21, 2019 2:42 pm

Angst wrote:
Tue May 21, 2019 9:37 am
Unless either the old or the new 401k accounts offered funds and/or expense ratios that were clearly superior, I would simply roll over the old 401k into a personal, rollover IRA at Fidelity. I prefer to manage my funds myself and not be limited by what is offered through my employer.
this is what i have done (mine and spouse). the "menu" is so much bigger in the IRA account

At RMD time I believe the IRAs are treated as single account, so take the required % from one or many accounts,
while each 401K (should you have > 1), is considered separate, i.e you need to pull the requisite % RMD from each 401K at that time

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Tue May 21, 2019 4:20 pm

teamDE wrote:
Tue May 21, 2019 10:37 am
Having a tIRA would interfere with doing Backdoor Roth IRAs if you are or want to do that. If the new 401k has good options, I'd roll it in there.
THIS^^^^^^

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knightrider
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by knightrider » Wed May 22, 2019 1:49 pm

Jack FFR1846 wrote:
Tue May 21, 2019 8:50 am
What are the costs and expense ratios of old megacorp vs new megacorp?
I logged into my 401k accounts and poked around to get this info:

Old 401k
========
$5 administration fee per month

Fund -- Allocation - Expense ratio
=============================
Capital Preservation 21% 0.079%
Bond 22% 0.020%
Large US Equity 25% 0.010%
Small/Mid U.S. Equity 22% 0.075%
International Equity 10% 0.050%

New 401k
========
$1.40 administrative fee ( depends on balance and can fluctuate ) - Current balance is ~90k

Fund -- Allocation - Expense ratio
=============================
Vanguard Target Retirement 2020 Trust Select 100% 0.05%

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ruralavalon
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by ruralavalon » Wed May 22, 2019 2:14 pm

knightrider wrote:
Wed May 22, 2019 1:49 pm
Jack FFR1846 wrote:
Tue May 21, 2019 8:50 am
What are the costs and expense ratios of old megacorp vs new megacorp?
I logged into my 401k accounts and poked around to get this info:

Old 401k
========
$5 administration fee per month

Fund -- Allocation - Expense ratio
=============================
Capital Preservation 21% 0.079%
Bond 22% 0.020%
Large US Equity 25% 0.010%
Small/Mid U.S. Equity 22% 0.075%
International Equity 10% 0.050%

New 401k
========
$1.40 administrative fee ( depends on balance and can fluctuate ) - Current balance is ~90k

Fund -- Allocation - Expense ratio
=============================
Vanguard Target Retirement 2020 Trust Select 100% 0.05%
Both plans offer funds with very low expense ratios.

The administrative fees are not high enough to impact the decision in my opinion.

You mentioned only a target date fund for the new employer's 401k plan. If that is the fund you wish to use, or if the new plan offers other very low expense Vanguard funds that you wish to use, then it's probably best to roll the old 401k over into the new employer's 401k plan.
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by MathIsMyWayr » Wed May 22, 2019 4:22 pm

If the old plan has good fund(s) with low ER, I would keep it there for a while. If you take it out, then you cannot go back. If you move it to the current employer plan, you cannot roll it over until you separate from the employer. After you reach age 70 1/2, only the current employer plan is exempt from RMD. If you roll it over to IRA and it is in the way for a backdoor Roth, it may be rolled over to your current employer plan if the plan allows.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by DVMResident » Wed May 22, 2019 4:32 pm

lakpr wrote:
Tue May 21, 2019 4:20 pm
teamDE wrote:
Tue May 21, 2019 10:37 am
Having a tIRA would interfere with doing Backdoor Roth IRAs if you are or want to do that. If the new 401k has good options, I'd roll it in there.
THIS^^^^^^
I would add even if you don’t plan on Roth conversions now, you may later (e.g. layoffs). I would discourage the IRA rollover unless you *know* the Roth conversation will not happen (and assuming the fees are reasonable, which they are in this case).

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by madbrain » Wed May 22, 2019 4:34 pm

One of the biggest problems with this is the time it takes to liquidate the funds, get a check from the old 401k custodian, send it to the new 401k custodian, have it deposited, and invested. This is a process that can take weeks or more. During that time, you will be uninvested. The market can move a lot, up or down, depending on your asset allocation. For me, it has moved up significantly several times while I was uninvested, costing tens of thousands of dollars.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Wed May 22, 2019 4:40 pm

MathIsMyWayr wrote:
Wed May 22, 2019 4:22 pm
If you move it to the current employer plan, you cannot roll it over until you separate from the employer.
My current MegaCorp 401k plan allows in-service withdrawals. I did roll over my previous 401k plan funds into the plan, and they kept it in a separate sub account and tracking its growth separately, even when I chose to invest in the same funds as my regular contributions. My plan summary also indicates that, if I choose to, at a later date, I can roll it out over to an external traditional IRA. There is a bit steep fee though, $50 for each external transfer.

I have no intention of finding out if that is indeed true, just wanted to point out that it could be also dependent on individual plan.

In general, your statement is true.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by joe8d » Wed May 22, 2019 9:24 pm

madbrain wrote:
Wed May 22, 2019 4:34 pm
One of the biggest problems with this is the time it takes to liquidate the funds, get a check from the old 401k custodian, send it to the new 401k custodian, have it deposited, and invested. This is a process that can take weeks or more. During that time, you will be uninvested. The market can move a lot, up or down, depending on your asset allocation. For me, it has moved up significantly several times while I was uninvested, costing tens of thousands of dollars.
Yes,I would rollover to Vanguard so don't have to deal with above twice.
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knightrider
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by knightrider » Thu May 23, 2019 8:11 am

MathIsMyWayr wrote:
Wed May 22, 2019 4:22 pm
If you move it to the current employer plan, you cannot roll it over until you separate from the employer. After you reach age 70 1/2, only the current employer plan is exempt from RMD. If you roll it over to IRA and it is in the way for a backdoor Roth, it may be rolled over to your current employer plan if the plan allows.
Not sure I understand the situation you are describing. Why would one want to rollover the 401k twice?

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Stinky » Thu May 23, 2019 8:48 am

knightrider wrote:
Wed May 22, 2019 1:49 pm

New 401k
========
$1.40 administrative fee ( depends on balance and can fluctuate ) - Current balance is ~90k

Fund -- Allocation - Expense ratio
=============================
Vanguard Target Retirement 2020 Trust Select 100% 0.05%
What other options are available to you in the new 401(k) plan? Surely it’s not all target date funds.
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by quantAndHold » Thu May 23, 2019 10:13 am

knightrider wrote:
Wed May 22, 2019 1:49 pm
Jack FFR1846 wrote:
Tue May 21, 2019 8:50 am
What are the costs and expense ratios of old megacorp vs new megacorp?
I logged into my 401k accounts and poked around to get this info:

Old 401k
========
$5 administration fee per month

Fund -- Allocation - Expense ratio
=============================
Capital Preservation 21% 0.079%
Bond 22% 0.020%
Large US Equity 25% 0.010%
Small/Mid U.S. Equity 22% 0.075%
International Equity 10% 0.050%

New 401k
========
$1.40 administrative fee ( depends on balance and can fluctuate ) - Current balance is ~90k

Fund -- Allocation - Expense ratio
=============================
Vanguard Target Retirement 2020 Trust Select 100% 0.05%
So fees are low on both. Does the new 401k have the investments you want? I left money in an old 401k because it had a stable value fund that I like and can’t get elsewhere. Otherwise, everything always got rolled, either to the new 401k or an IRA, just for the sake of simplicity.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by TN_INVEST » Thu May 23, 2019 11:27 am

Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Thu May 23, 2019 11:33 am

TN_INVEST wrote:
Thu May 23, 2019 11:27 am
Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.
I can think of two reasons easily.

Asset protection in 401k plans is much stronger than in individual IRAs.

If your income is in the 24% federal tax bracket, you are also likely bumping up against limits to contribute to Roth IRA directly; in that case having a large traditional Rollover IRA will also shut you out of being able to contribute to Roth.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by TN_INVEST » Thu May 23, 2019 11:57 am

lakpr wrote:
Thu May 23, 2019 11:33 am
TN_INVEST wrote:
Thu May 23, 2019 11:27 am
Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.
I can think of two reasons easily.

Asset protection in 401k plans is much stronger than in individual IRAs.

If your income is in the 24% federal tax bracket, you are also likely bumping up against limits to contribute to Roth IRA directly; in that case having a large traditional Rollover IRA will also shut you out of being able to contribute to Roth.
Not worried about the asset protection differences.

I'm not familiar with the Roth contribution limitations due to size of rollover IRA, so I'd be most interested in learning about that.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Thu May 23, 2019 1:42 pm

TN_INVEST wrote:
Thu May 23, 2019 11:57 am
I'm not familiar with the Roth contribution limitations due to size of rollover IRA, so I'd be most interested in learning about that.
https://www.bogleheads.org/wiki/Backdoor_Roth

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by MnD » Thu May 23, 2019 2:05 pm

lakpr wrote:
Thu May 23, 2019 11:33 am
TN_INVEST wrote:
Thu May 23, 2019 11:27 am
Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.
I can think of two reasons easily.

Asset protection in 401k plans is much stronger than in individual IRAs.

If your income is in the 24% federal tax bracket, you are also likely bumping up against limits to contribute to Roth IRA directly; in that case having a large traditional Rollover IRA will also shut you out of being able to contribute to Roth.
Also the "rule of 55" enables penalty free withdrawals from 401-K of the employer you separated from at/after age 55. You can't do that from a prior employer 401-K or from an IRA under that particular exemption.
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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by rascott » Thu May 23, 2019 2:41 pm

Check your new 401k with Fidelity and see if they offer Brokerage Link..... both myself and spouse's Fidelity 401k plans offer this (different employers).

If so....you've got the noted advantages of the 401k combined with the endless investment choices of a trad IRA.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Earl Lemongrab » Thu May 23, 2019 2:41 pm

MathIsMyWayr wrote:
Wed May 22, 2019 4:22 pm
If you move it to the current employer plan, you cannot roll it over until you separate from the employer.
That's not a legal requirement. MegaCorp allowed you to take in-service distribution of rollover contributions at any age.

That actually got me in trouble with my first Mega Backdoor. I had old accumulated after-tax contributions with a fair amount of earnings. I rolled the lot out, then the earnings back in. After converting the after-tax to Roth, I rolled the earnings back into a TIRA. Then I went to file my taxes and . . . oops, it's the IRAs at the end of the year not when you do the conversion! I had to recharacterize (you could still do that then) and do it all over the next year.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by mpsz » Thu May 23, 2019 2:50 pm

My preference is to roll all money out of employer-sponsored plans as soon as possible... unless you have a good reason not to, such as being unable to have a tIRA/rolloverIRA because of backdoor Roth contributions.

This protects against shenanigans that your employer is legally allowed to do... high fees, changing administrators, etc. I recently went through a forced liquidation to cash with automatic re-investment at a time NOT of my own choosing (in other words, my employer was randomly timing the market on my behalf) because my employer changed 401k administrators. This cost me over $1,000 because I was involuntarily bought back in at a higher price... but could have gone the other direction too.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by Hector » Thu May 23, 2019 3:26 pm

lakpr wrote:
Thu May 23, 2019 11:33 am
TN_INVEST wrote:
Thu May 23, 2019 11:27 am
Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.
Asset protection in 401k plans is much stronger than in individual IRAs.
Can't you prove that portion of IRA was rolled over from previous 401k relatively easily and get the same protection?

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Thu May 23, 2019 3:42 pm

Hector wrote:
Thu May 23, 2019 3:26 pm
lakpr wrote:
Thu May 23, 2019 11:33 am
TN_INVEST wrote:
Thu May 23, 2019 11:27 am
Nope.
I can't think of one reason to choose a 401k over a rollover IRA.

Main reason being that I don't trust the new company HR benefit department won't monkey around and change things up.
Asset protection in 401k plans is much stronger than in individual IRAs.
Can't you prove that portion of IRA was rolled over from previous 401k relatively easily and get the same protection?
IANAL. However, my understanding is that, if you have received a judgment against you, the burden is on you to prove that the IRA funds cannot be garnished to satisfy the judgment. On the other hand, 401k plan administrators don’t even need to entertain a judgment, your 401k funds are immune. You don’t need to do anything at all.

Obviously there are exceptions to this; they are federal tax liens, child support judgments, QDROs and student loan defaults.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by knightrider » Tue May 28, 2019 4:00 pm

MnD wrote:
Thu May 23, 2019 2:05 pm
Also the "rule of 55" enables penalty free withdrawals from 401-K of the employer you separated from at/after age 55. You can't do that from a prior employer 401-K or from an IRA under that particular exemption.
I googled this rule of 55 and seems it does not apply to me. I was laid off at age 40.

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by TN_INVEST » Mon Jun 03, 2019 1:33 pm

lakpr wrote:
Thu May 23, 2019 1:42 pm
TN_INVEST wrote:
Thu May 23, 2019 11:57 am
I'm not familiar with the Roth contribution limitations due to size of rollover IRA, so I'd be most interested in learning about that.
https://www.bogleheads.org/wiki/Backdoor_Roth
Still not seeing where your contributions to a Roth are affected by size of rollover.

Is the restriction on contributions based on income? (I'm not asking about Roth conversions)

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Re: Should I rollover my 401k from old megacorp to new megacorp?

Post by lakpr » Mon Jun 03, 2019 2:23 pm

TN_INVEST wrote:
Mon Jun 03, 2019 1:33 pm
Still not seeing where your contributions to a Roth are affected by size of rollover.

Is the restriction on contributions based on income? (I'm not asking about Roth conversions)

If you are eligible to make a direct contribution to Roth IRA, then there is no issue.

If however your MFJ income is above $203k, you cannot contribute to Roth IRA directly. The workaround is to do a two step process.
1. Make a non-deductible contribution to traditional IRA
2. Convert the amount to Roth

In this two step process, if you have a sizable rollover IRA existing, the conversion is assumed to be pro-rated. Which will have essentially the effect of your non-deductible contribution being double taxed for that year.

For example, say you have $200k in rollover IRA already. Then you make a n-d-tIRA contribution of $6000.

When you convert the $6k to Roth, IRS views it as a proportional conversion. $6k/($200k + $6k) = 2.9% is non-deductible, the remaining 97.1% is conversion to Roth of a previously tax deferred amount now subject to taxation. That is 97.1% * $6000 = $5825 (rounded to nearest dollar), which is added to the taxable income on your tax return.

But remember that the $6k contribution was non-deductible. You already paid taxes on it. But because you also converted it to Roth while there is a sizable Rollover IRA existing, you pay tax again on $5825; double taxed for the year 2019.

Now repeat the same logic where there is no balance in Rollover IRA. Contribute $6k non-deductible to tIRA, convert $6k to Roth, non-taxable amount = $6k/($6k + 0) = 100%, tax owed = $0. You have paid no double tax (only once on the initial contribution), but gotten $6k into Roth IRA, all future growth is tax free.

How do you get the Rollover IRA to zero? Simply don’t create one in the first place, leave it in 401k. Or, if the current 401k plan allows it, roll the entire Rollover IRA balance into it. If it is already rolled over to Rollover IRA, and your current 401k plan does not accept incoming rollovers, you are effectively shut out of backdoor Roth.

Again, ignore all this if your adjusted gross income is less than $193k for MFJ filing status. Not applicable to you. If you have a reason to believe you will breach this threshold in the very near future, don’t have a balance in Rollover IRA.


Edited to add before someone points out: the balance in the Rollover IRA as of December 31st, is what matters. Theoretically you can do steps 1 and 2 first, then roll the Rollover IRA to 401k plan before end of year, you are still good. I just don’t like to move to steps 1 and 2 until the rollover is completed. Too much risk of double taxation.

Another point: unlike direct Roth contributions, the converted Roth amounts are not available for withdrawal until 5 years are elapsed.

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