Pros/Cons to rolling IRA into “old” 401k

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CoastalWinds
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Pros/Cons to rolling IRA into “old” 401k

Post by CoastalWinds » Wed Aug 21, 2019 11:30 am

Hi BHs

I’m trying to position myself to be able to do a backdoor Roth maneuver without getting zinged by the “pro-rata rule”. I have an existing rollover IRA that I need to tuck into a 401k. I have two active 401ks - one with my current employer and one with my former employer. Trying to figure out which one to roll it into. The fund options between them are equivalent (good VG fund options), but the “current” has 0.2% annual fees (AUM) while the former has no fees (at least for now). So this has me leaning towards moving it into the former. But this is new territory for me so I want to tap into the BH BrainTrust before taking any action: are there are other factors, pros/cons, etc. that I should be considering? Specifically, what are possible drawbacks to putting it in an “old” 401k.
Last edited by CoastalWinds on Wed Aug 21, 2019 11:34 am, edited 1 time in total.

HomeStretch
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Re: Pros/Cons to rolling IRA into prior 401k

Post by HomeStretch » Wed Aug 21, 2019 11:33 am

Are you sure the former employer 401k plan allows rollovers in from an IRA by terminated participants? I have seen plans that allow this for current employees but do not allow this for terminated employees.

ETA - if you do have a choice between 2 plans, is 1 plan better than the other in terms of distributions? Some plans only allow lump sum distributions whereas others allow RMDs, partial distributions after age 59-1/2 in case you want to do conversions to a Roth IRA, etc.
Last edited by HomeStretch on Wed Aug 21, 2019 11:37 am, edited 1 time in total.

tenkuky
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Re: Pros/Cons to rolling IRA into prior 401k

Post by tenkuky » Wed Aug 21, 2019 11:34 am

No issues whatsoever. Do the former employer one (if they allow roll-ins).
I did so and mine did.
Not only does it clear the IRA of pro-rata complications, but it also opens up straight Roth conversions (if you choose) in addition to the backdoor.
I'm doing this now in small doses.
You can't convert from current employer plan (no in-service distributions for me at least).

Only con is if the plan has fewer and more expensive options to invest.
Remember, there will be paperwork on BOTH ends, so be ready to check.
It also takes a little bit of time, especially between vendors, so you will be out of the market (could be good or bad) for a while (mine took 7-10 days).

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CoastalWinds
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Re: Pros/Cons to rolling IRA into prior 401k

Post by CoastalWinds » Wed Aug 21, 2019 11:35 am

HomeStretch wrote:
Wed Aug 21, 2019 11:33 am
Are you sure the former employer 401k plan allows rollovers in from an IRA by terminated participants? I have seen plans that allow this for current employees but do not allow this for terminated employees.
Is this atypical?

HomeStretch
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Re: Pros/Cons to rolling IRA into prior 401k

Post by HomeStretch » Wed Aug 21, 2019 11:40 am

CoastalWinds wrote:
Wed Aug 21, 2019 11:35 am
HomeStretch wrote:
Wed Aug 21, 2019 11:33 am
Are you sure the former employer 401k plan allows rollovers in from an IRA by terminated participants? I have seen plans that allow this for current employees but do not allow this for terminated employees.
Is this atypical?
Each 401k plan is different. Some have different “rules” for current employees vs former employees. If your ex-employer plan allows it per the plan provisions, it’s nice to have a choice.

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beyou
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by beyou » Wed Aug 21, 2019 11:43 am

How old are you ? If nearing retirement from current employer there is some advantage to current employer 401k. At 55 one can withdraw early if laid off/retired, 5 years earlier without penalty. Not desirable to withdraw early, but an option for untimely/unexpected lay offs that cause financial stress.

Above does not apply to older 401k plans of former employers. One reason some might roll the old plans to new employer in addition to IRA. That and consolidation/simplification.

Topic Author
CoastalWinds
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Re: Pros/Cons to rolling IRA into prior 401k

Post by CoastalWinds » Wed Aug 21, 2019 11:44 am

tenkuky wrote:
Wed Aug 21, 2019 11:34 am
Not only does it clear the IRA of pro-rata complications, but it also opens up straight Roth conversions (if you choose) in addition to the backdoor.
I'm doing this now in small doses.
I’m confused by this. The whole point of doing the IRA rollover is to avoid pro-rata rule conversions. Moving out the IRA leaves nothing except the non-deductible tIRA to convert, which is the backdoor maneuver. How are you avoiding pro-rata rule AND doing straight Roth conversions? Are you referring to a mega-backdoor process of in-service distributions/conversions? If so, unfortunately, that is not an option in my plan.

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beyou
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by beyou » Wed Aug 21, 2019 1:54 pm

I moved non deductible basis per 8606 to roth ira, the rest to current employer 401k. Did it for asset protection (any 401k is same for that), and for the 55+ accessibility (only applies to current employer).

tenkuky
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Re: Pros/Cons to rolling IRA into prior 401k

Post by tenkuky » Wed Aug 21, 2019 7:48 pm

CoastalWinds wrote:
Wed Aug 21, 2019 11:44 am
tenkuky wrote:
Wed Aug 21, 2019 11:34 am
Not only does it clear the IRA of pro-rata complications, but it also opens up straight Roth conversions (if you choose) in addition to the backdoor.
I'm doing this now in small doses.
I’m confused by this. The whole point of doing the IRA rollover is to avoid pro-rata rule conversions. Moving out the IRA leaves nothing except the non-deductible tIRA to convert, which is the backdoor maneuver. How are you avoiding pro-rata rule AND doing straight Roth conversions? Are you referring to a mega-backdoor process of in-service distributions/conversions? If so, unfortunately, that is not an option in my plan.
I have no assets in tIRA after rollin.
I complete backdoor.
Then I convert directly from my old employer 403b to Roth IRA, no stop in tIRA. No inservice, old employer account.
Zero balance in tIRA all year after backdoor.

MathIsMyWayr
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Re: Pros/Cons to rolling IRA into prior 401k

Post by MathIsMyWayr » Wed Aug 21, 2019 7:55 pm

HomeStretch wrote:
Wed Aug 21, 2019 11:40 am
CoastalWinds wrote:
Wed Aug 21, 2019 11:35 am
HomeStretch wrote:
Wed Aug 21, 2019 11:33 am
Are you sure the former employer 401k plan allows rollovers in from an IRA by terminated participants? I have seen plans that allow this for current employees but do not allow this for terminated employees.
Is this atypical?
Each 401k plan is different. Some have different “rules” for current employees vs former employees. If your ex-employer plan allows it per the plan provisions, it’s nice to have a choice.
It's weird: you may rollover back and forth, back and forth,,,between a previous employer's 401(k) plan and IRA.

ef11
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by ef11 » Wed Aug 21, 2019 8:02 pm

A slight hijack here...But I have wondered for a long time...

If a person leaves their employer and rolls their 401k to a Rollover IRA, and then is working for a company withOUT a 401k, could they open a SE 401k and roll the rollover IRA into it? I know they couldn't contribute to the SE 401k without being self-employed, but I would think they could roll their IRA into it and let it sit there....

Thoughts?
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celia
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by celia » Wed Aug 21, 2019 8:13 pm

ef11 wrote:
Wed Aug 21, 2019 8:02 pm
A slight hijack here...But I have wondered for a long time...

If a person leaves their employer and rolls their 401k to a Rollover IRA, and then is working for a company withOUT a 401k, could they open a SE 401k and roll the rollover IRA into it? I know they couldn't contribute to the SE 401k without being self-employed, but I would think they could roll their IRA into it and let it sit there....

Thoughts?
You can't open a self-employed 401K without being self-employed. And you can't just sign in and create such an account. It needs to be governed by some plan documents that say what the rules are (that fall within IRS rules).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

ef11
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by ef11 » Wed Aug 21, 2019 8:18 pm

celia wrote:
Wed Aug 21, 2019 8:13 pm
ef11 wrote:
Wed Aug 21, 2019 8:02 pm
A slight hijack here...But I have wondered for a long time...

If a person leaves their employer and rolls their 401k to a Rollover IRA, and then is working for a company withOUT a 401k, could they open a SE 401k and roll the rollover IRA into it? I know they couldn't contribute to the SE 401k without being self-employed, but I would think they could roll their IRA into it and let it sit there....

Thoughts?
You can't open a self-employed 401K without being self-employed. And you can't just sign in and create such an account. It needs to be governed by some plan documents that say what the rules are (that fall within IRS rules).
Oh ok, good to know. Just curious if that was a potential option for people. I am SE and have a SE401k through mysolo401k. Wasn't sure if you had to be SE to open one or just to contribute.

Thanks for clarifying!
45% Vang Inst 500 IDX ER .01% | 10% Vang Inst Ext Mkt ER .04% | 25% ACWI EX US IMI NL R ER .10% | 10% Vang Total Bond Market ER .03% | 10% Fidelity MSCI Real Estate ER 0.084%

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celia
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Re: Pros/Cons to rolling IRA into prior 401k

Post by celia » Wed Aug 21, 2019 8:25 pm

MathIsMyWayr wrote:
Wed Aug 21, 2019 7:55 pm
HomeStretch wrote:
Wed Aug 21, 2019 11:40 am
CoastalWinds wrote:
Wed Aug 21, 2019 11:35 am
HomeStretch wrote:
Wed Aug 21, 2019 11:33 am
Are you sure the former employer 401k plan allows rollovers in from an IRA by terminated participants? I have seen plans that allow this for current employees but do not allow this for terminated employees.
Is this atypical?
Each 401k plan is different. Some have different “rules” for current employees vs former employees. If your ex-employer plan allows it per the plan provisions, it’s nice to have a choice.
It's weird: you may rollover back and forth, back and forth,,,between a previous employer's 401(k) plan and IRA.
Usually, after you leave, the employer (or their custodian) doesn't want to be bothering with an account of a non-employee. The account won't grow as much without new contributions going in. And when you die and have "x" beneficiaries, they won't want to bother with x beneficiaries, so they will probably require that it be moved to Inherited IRAs. So, it is likely, they won't let you transfer other money in and out. That was not the purpose of the account. The original purpose was for the employer and employee to contribute while the account grew.

Even if it is allowed, who do you think will be willing to pay for those services? current employees? the employer? Besides processing the transaction, there's still statements and tax reporting to the IRS and state. That is not "free".
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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celia
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Re: Pros/Cons to rolling IRA into prior 401k

Post by celia » Wed Aug 21, 2019 8:37 pm

CoastalWinds wrote:
Wed Aug 21, 2019 11:44 am
tenkuky wrote:
Wed Aug 21, 2019 11:34 am
Not only does it clear the IRA of pro-rata complications, but it also opens up straight Roth conversions (if you choose) in addition to the backdoor.
I'm doing this now in small doses.
I’m confused by this. The whole point of doing the IRA rollover is to avoid pro-rata rule conversions. Moving out the IRA leaves nothing except the non-deductible tIRA to convert, which is the backdoor maneuver. How are you avoiding pro-rata rule AND doing straight Roth conversions? Are you referring to a mega-backdoor process of in-service distributions/conversions? If so, unfortunately, that is not an option in my plan.
Another way you can do regular conversions and a backdoor is to leave some of the money in the tIRA while moving the rest of the tIRA to an employer plan. You can:
1) convert the remaining tIRA money before making the backdoor contribution,
2) convert it when you do the conversion for the backdoor contribution or
3) convert it after you convert the backdoor contribution.

All of this assumes everything is done in the same year. If the value of the money that was left in the tIRA did not change during this time, the taxes would be the same, no matter when you converted the regular tIRA money (in the same year).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

MathIsMyWayr
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Re: Pros/Cons to rolling IRA into prior 401k

Post by MathIsMyWayr » Wed Aug 21, 2019 8:38 pm

celia wrote:
Wed Aug 21, 2019 8:25 pm
Usually, after you leave, the employer (or their custodian) doesn't want to be bothering with an account of a non-employee. The account won't grow as much without new contributions going in. And when you die and have "x" beneficiaries, they won't want to bother with x beneficiaries, so they will probably require that it be moved to Inherited IRAs. So, it is likely, they won't let you transfer other money in and out. That was not the purpose of the account. The original purpose was for the employer and employee to contribute while the account grew.

Even if it is allowed, who do you think will be willing to pay for those services? current employees? the employer? Besides processing the transaction, there's still statements and tax reporting to the IRS and state. That is not "free".
My current employer's 401(k) plan has excellent funds, very low ER Vanguard and Fidelity funds. It also allows leaving account behind after a separation according to the plan document and I plan to do so except RMD leakage and slow conversion to Roth IRA depending on tax considerations. We pay small fees. It is funny that my former employer is larger, but their plan is not so good. Both are mega corp's.

Boatguy
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by Boatguy » Wed Aug 21, 2019 8:48 pm

Oddly enough, GE’s 401k plan just started to allow former employees to rollover IRAs into their plan (administered by Fidelity) on August 1. That was quite a surprise, and my rollovers (2) are in process. I’m thankful that I left a small balance in the GE plan, as my current employer’s plan doesn’t accept IRA rollovers.

Once the dust settles on my 2 IRA rollovers, I’m going to roll my GE 401k into my current employer’s plan...and be down to a single 401k.

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celia
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Re: Pros/Cons to rolling IRA into “old” 401k

Post by celia » Fri Aug 23, 2019 4:24 pm

Boatguy wrote:
Wed Aug 21, 2019 8:48 pm
Oddly enough, GE’s 401k plan just started to allow former employees to rollover IRAs into their plan (administered by Fidelity) on August 1. That was quite a surprise, and my rollovers (2) are in process. I’m thankful that I left a small balance in the GE plan, as my current employer’s plan doesn’t accept IRA rollovers.

Once the dust settles on my 2 IRA rollovers, I’m going to roll my GE 401k into my current employer’s plan...and be down to a single 401k.
If there is any possibility of you needing to rollover a future IRA again, think about leaving a small balance in the GE 401k. You never know! Either plan could change their rules in the future, as you have just seen.

Think of this as "diversity" of 401K plan rules! :beer

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