Rolling over 401k into IRA

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JD2775
Posts: 304
Joined: Thu Jul 09, 2015 10:47 pm

Rolling over 401k into IRA

Post by JD2775 » Tue Oct 08, 2019 11:14 am

This is a question for my girlfriend....

She has a 401k with Merrill Lynch that has been sitting there the last year since she left her company. She is invested in a target date fund with 0.64 ER and is paying monthly admin fees, and wants to get out of it. She has other accounts with both Vanguard and Schwab (misc Roths, taxable accts etc...).

She has about 200k in the 401k and wants to dump it into a Target Date fund. I see 3 options..

Schwab-
Target 2045 Index Fund SWYHX - 0.08% ER
Target 2045 Fund SWMRX - 0.71% ER

Vanguard-
Target Retirement 2045 VTIVX - 0.15% ER

I think the high expense Schwab fund is out, so I am trying to narrow down the other 2....

My questions are...

1. Do you feel one of the 2 funds SWYHX vs VTIVX is better than the other? I am leaning towards Vanguard but not really sure.
2. I am assuming this is just a direct transfer/dump from her 401k to an IRA? Anything to be cautious of here in regards to fees?
3. My assumption is 401k to IRA is the best move here (as opposed to 401k to Roth). Would that be correct?
4. She already maxed out her Roth for 2019, but this wouldn't count against that right? A rollover is something different?
5. Maybe a dumb question but who should she call to make this transaction? Merrill Lynch or Vanguard/Schwab?

Thanks for any help!

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dwickenh
Posts: 1733
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Rolling over 401k into IRA

Post by dwickenh » Tue Oct 08, 2019 11:31 am

If she is working for another company with a 401K, she could roll the old 401K into the current employer 401K.

1. Go to Morningstar.com and check the asset allocation of each fund to determine if they are comparable.
2. Direct transfer is best, have any check made payable to the IRA Broker only.
3. IRA to Roth IRA would trigger a hefty tax bill if all of the funds are tax-deferred.
4. Rollover is different, would only be limited by how much taxes she wants to pay.
5. She could do this on-line and also call the Brokerage if any questions arrive.

This link may be helpful from recent thread: viewtopic.php?f=1&t=292111#p4783823

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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ruralavalon
Posts: 16367
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Rolling over 401k into IRA

Post by ruralavalon » Tue Oct 08, 2019 11:39 am

JD2775 wrote:
Tue Oct 08, 2019 11:14 am
This is a question for my girlfriend....

She has a 401k with Merrill Lynch that has been sitting there the last year since she left her company. She is invested in a target date fund with 0.64 ER and is paying monthly admin fees, and wants to get out of it. She has other accounts with both Vanguard and Schwab (misc Roths, taxable accts etc...).

She has about 200k in the 401k and wants to dump it into a Target Date fund. I see 3 options..

Schwab-
Target 2045 Index Fund SWYHX - 0.08% ER
Target 2045 Fund SWMRX - 0.71% ER

Vanguard-
Target Retirement 2045 VTIVX - 0.15% ER

I think the high expense Schwab fund is out, so I am trying to narrow down the other 2....

My questions are...

1. Do you feel one of the 2 funds SWYHX vs VTIVX is better than the other? I am leaning towards Vanguard but not really sure.
My personal preference is Vanguard.

2. I am assuming this is just a direct transfer/dump from her 401k to an IRA? Anything to be cautious of here in regards to fees?
This is a rollover to an IRA. Request a direct trustee to trustee transfer.


3. My assumption is 401k to IRA is the best move here (as opposed to 401k to Roth). Would that be correct?
A rollover with a conversion to a Roth IRA would create income tax liability. You have not included enough information to say if a Roth conversion is a good idea or not.

Does she have a new job which offers a 401k plan? If so a rollover into her new employer's plan might be considered.


[4. She already maxed out her Roth for 2019, but this wouldn't count against that right? A rollover is something different?
Correct, a rollover is different than an IRA contribution.

5. Maybe a dumb question but who should she call to make this transaction? Merrill Lynch or Vanguard/Schwab?
Call the company receiving the rollover, Vanguard. They will help with the rollover, and do most of the work for you.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retired@50
Posts: 200
Joined: Tue Oct 01, 2019 2:36 pm

Re: Rolling over 401k into IRA

Post by retired@50 » Tue Oct 08, 2019 12:29 pm

One additional consideration is her income level. If she earns near or above the Roth IRA contribution limits, and intends to fund a Roth IRA via the "back door" strategy, then rolling to a current employer 401k may be advised. Since many folks don't earn anywhere near these Roth IRA contribution limits, this may not be a consideration at all...

delamer
Posts: 8920
Joined: Tue Feb 08, 2011 6:13 pm

Re: Rolling over 401k into IRA

Post by delamer » Tue Oct 08, 2019 1:25 pm

What level of risk is your girlfriend comfortable with?

Even if she is planning on retiring in 2045, that doesn’t mean the allocation is appropriate for her.

Coolguy8877
Posts: 12
Joined: Thu Oct 03, 2019 8:41 am

Re: Rolling over 401k into IRA

Post by Coolguy8877 » Tue Oct 08, 2019 1:55 pm

retired@50 wrote:
Tue Oct 08, 2019 12:29 pm
One additional consideration is her income level. If she earns near or above the Roth IRA contribution limits, and intends to fund a Roth IRA via the "back door" strategy, then rolling to a current employer 401k may be advised. Since many folks don't earn anywhere near these Roth IRA contribution limits, this may not be a consideration at all...
This^, if she wants to ever do a backdoor roth IRA she will have to have $0 in any pre-tax IRA account at the end of the year of the conversion to comply with the pro rata rule.

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