Move old 401k to new employer or to IRA

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Topic Author
CocoaMi
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Move old 401k to new employer or to IRA

Post by CocoaMi »

Hello, I have the option to move my old 401k into my new employer’s 401k plan. The new plan is an American Century target date fund with an ER of .23% and minimal quarterly fees (I don’t have the percentage in front of me but last quarter was only $5).

I am leaning towards moving it to a Traditional IRA out of my employer. I could lower the ER and minimize any fees as well. Though moving it to the new plan would help keep things simple I think — I’m not an active investor by any means.

The balance of my new 401k is a quarter of the old balance. I’m about 15-20 years from retirement. I have a Roth but haven’t been able to contribute because we are over the income limit.
CRJPylote
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Re: Move old 401k to new employer or to IRA

Post by CRJPylote »

In addition to the flexibility with funds and lower ER, I personally prefer to keep my money in funds I solely control. It’s a minor point and likely wouldn’t happen to you, but before I started becoming more responsible and taking retirement planning more seriously I had a small 401k at a company, where I didn’t make that much in income. I put in my 2 weeks, and was busy preparing for my new job, moving states etc. and didn’t remember to take care of the 401k until a few months later. Found out that a holding company took it, and then it took me a few weeks of back and forth to get it moved to a IRA, it was a real pain.

That story is obviously me mostly just being disorganized, young, and dumb, but since that experience I prefer to have as much money as possible in IRA’s.
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anon_investor
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Re: Move old 401k to new employer or to IRA

Post by anon_investor »

CocoaMi wrote: Sat Jul 17, 2021 1:34 pm Hello, I have the option to move my old 401k into my new employer’s 401k plan. The new plan is an American Century target date fund with an ER of .23% and minimal quarterly fees (I don’t have the percentage in front of me but last quarter was only $5).

I am leaning towards moving it to a Traditional IRA out of my employer. I could lower the ER and minimize any fees as well. Though moving it to the new plan would help keep things simple I think — I’m not an active investor by any means.

The balance of my new 401k is a quarter of the old balance. I’m about 15-20 years from retirement. I have a Roth but haven’t been able to contribute because we are over the income limit.
Will you need to do backdoor Roth in the future?
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Marmot
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Re: Move old 401k to new employer or to IRA

Post by Marmot »

CocoaMi wrote: Sat Jul 17, 2021 1:34 pm Hello, I have the option to move my old 401k into my new employer’s 401k plan. The new plan is an American Century target date fund with an ER of .23% and minimal quarterly fees (I don’t have the percentage in front of me but last quarter was only $5).

I am leaning towards moving it to a Traditional IRA out of my employer. I could lower the ER and minimize any fees as well. Though moving it to the new plan would help keep things simple I think — I’m not an active investor by any means.

The balance of my new 401k is a quarter of the old balance. I’m about 15-20 years from retirement. I have a Roth but haven’t been able to contribute because we are over the income limit.
Don't keep it with your employer. No telling what changes they may make down the line. Vanguard or Schwab would be my choice.
Marty....don't go to the year 2020....Dr. Emmett Brown
Topic Author
CocoaMi
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Joined: Mon Aug 31, 2020 8:20 pm

Re: Move old 401k to new employer or to IRA

Post by CocoaMi »

I’m guessing at some point I’ll need to do a back door Roth. And yes seems like keeping the money in my controlled accounts is better.

I have an existing Roth account with Schwab. I was thinking I’d use them. Which brings me to another question of whether to use their robo portfolio but I’ve heard the required cash % is not great. Right now, the Roth I have has holdings from when it was at Wealthfront.
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Duckie
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Re: Move old 401k to new employer or to IRA

Post by Duckie »

CocoaMi wrote: Sat Jul 17, 2021 1:34 pm I have a Roth but haven’t been able to contribute because we are over the income limit.
If you are over the income limit for direct Roth IRA contributions then you should use the backdoor process. But rolling your old 401k into a Rollover or Traditional IRA messes up that process because of the pro-rata rule.

Are the options/fees at your old 401k better or worse than the options/fees at your new 401k?
Last edited by Duckie on Sat Jul 17, 2021 5:30 pm, edited 1 time in total.
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anon_investor
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Re: Move old 401k to new employer or to IRA

Post by anon_investor »

Duckie wrote: Sat Jul 17, 2021 5:04 pm
anon_investor wrote: Sat Jul 17, 2021 2:52 pm I have a Roth but haven’t been able to contribute because we are over the income limit.
If you are over the income limit for direct Roth IRA contributions then you should use the backdoor process. But rolling your old 401k into a Rollover or Traditional IRA messes up that process because of the pro-rata rule.

Are the options/fees at your old 401k better or worse than the options/fees at your new 401k?
I think you misquoted me, I didn't say that...
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Duckie
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Re: Move old 401k to new employer or to IRA

Post by Duckie »

anon_investor wrote: Sat Jul 17, 2021 5:06 pm I think you misquoted me, I didn't say that...
Sorry, fixed.
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anon_investor
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Re: Move old 401k to new employer or to IRA

Post by anon_investor »

Duckie wrote: Sat Jul 17, 2021 5:30 pm
anon_investor wrote: Sat Jul 17, 2021 5:06 pm I think you misquoted me, I didn't say that...
Sorry, fixed.
Thanks.

But you do outline some good points for the OP. We were thinking about the same backdoor Roth impact of rolling over from a 401k to IRA.
PowderDay9
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Re: Move old 401k to new employer or to IRA

Post by PowderDay9 »

I would definitely keep the money in your new 401k. Two reasons:

1. Having a traditional IRA impacts your ability to do a backdoor Roth IRA.

2. 401ks have very strong creditor protections.
Galaga
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Re: Move old 401k to new employer or to IRA

Post by Galaga »

It’s hard to give you accurate advice without knowing more of your situation. Here are some thoughts:

1. Do you have an IPS, and do the available options in the new and former 401ks allow you adequate diversification per your IPS?

2. Will your former employer allow you to continue to use the old 401k or are you being asked to transfer out? What are the fees in the former plan? A good plan is a good plan and it would be hard for me to leave just to simplify.

3. As others have mentioned, transferring to an IRA would disallow the back door Roth due to pro-rata rule. It’s nice to have a sizeable Roth “bucket” upon retirement to minimize taxes.

4. However, depending on the size of your old 401k it may not be advantageous to transfer to new 401k just to use back door Roth. For example, if you have a $400k old 401k with low fees and S&P 500 fund costing you 0.04% would you be willing to pay an extra $760 every year just to do backdoor Roth? ((0.23%-0.04%) * 400000)

Best regards
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ruralavalon
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Re: Move old 401k to new employer or to IRA

Post by ruralavalon »

CocoaMi wrote: Sat Jul 17, 2021 1:34 pm Hello, I have the option to move my old 401k into my new employer’s 401k plan. The new plan is an American Century target date fund with an ER of .23% and minimal quarterly fees (I don’t have the percentage in front of me but last quarter was only $5).

I am leaning towards moving it to a Traditional IRA out of my employer. I could lower the ER and minimize any fees as well. Though moving it to the new plan would help keep things simple I think — I’m not an active investor by any means.

The balance of my new 401k is a quarter of the old balance. I’m about 15-20 years from retirement. I have a Roth but haven’t been able to contribute because we are over the income limit.
How much do you contribute annually to your current employer's 401k plan? Do you make the maximum annual employee contribution ($19.5k if under age 50)?

Do you have extra you could contribute to another account? If so consider a "Backdoor Roth IRA.

If you want to use a backdoor Roth IRA then you need to not have a traditional IRA, so rollover the old 401k into the current 401k plan.

An expense ratio of 0.23% is reasonable for a target date fund. A Vanguard target date fund would be around 0.15%, so the difference is not large. You can use this calculator to get an estimate of the impact of the difference in expense ratios.

Since you are using target date funds you obviously value convenience and simplicity, so you might want to rollover the old 401k account into the current 401k account just for the convenience and simplicity.

CocoaMi wrote: Sat Jul 17, 2021 4:12 pm I’m guessing at some point I’ll need to do a back door Roth. And yes seems like keeping the money in my controlled accounts is better.

I have an existing Roth account with Schwab. I was thinking I’d use them. Which brings me to another question of whether to use their robo portfolio but I’ve heard the required cash % is not great. Right now, the Roth I have has holdings from when it was at Wealthfront.
I suggest not using a robo advisor for your Roth IRA at Schwab.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
CocoaMi
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Joined: Mon Aug 31, 2020 8:20 pm

Re: Move old 401k to new employer or to IRA

Post by CocoaMi »

To close the loop here, I ended up rolling it into the new 401k plan. Right choice for me. I wanted to be able to do a back door Roth this year. And I wasn’t totally sold on moving it to something with Schwab. :happy
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ruralavalon
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Re: Move old 401k to new employer or to IRA

Post by ruralavalon »

CocoaMi wrote: Fri Oct 15, 2021 9:21 pm To close the loop here, I ended up rolling it into the new 401k plan. Right choice for me. I wanted to be able to do a back door Roth this year. And I wasn’t totally sold on moving it to something with Schwab. :happy
In my opinion that's a good choice.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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