rollover 401k/403b pros and cons

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Syner01
Posts: 15
Joined: Mon Jun 10, 2024 8:49 am

rollover 401k/403b pros and cons

Post by Syner01 »

basic question. pros and cons of rolling over a 401k/403b. have 2 accounts and wondering if it is worth it to rollover or just leave where it is.
offhand i can think of a couple of differences
fees/costs
investment options

also if i take a loan out against 1 would it prevent me from having a rollover option until it is paid off?
bombcar
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Joined: Sun Aug 12, 2007 6:41 pm

Re: rollover 401k/403b pros and cons

Post by bombcar »

You can roll a 401(k) to another 401(k). You can also roll it to a trad IRA (or Roth if it was a Roth 401(K).

The latter is often cheapest in terms of fees, but do note that 401(k)s are MORE protected than IRAs in many cases, such as bankruptcy/judgements.

Having a trad rollover IRA can also make backdoor roths complicated or impossible.
lakpr
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Re: rollover 401k/403b pros and cons

Post by lakpr »

Syner01 wrote: Mon Jun 10, 2024 9:05 am also if i take a loan out against 1 would it prevent me from having a rollover option until it is paid off?
Since the loan amount would be at the maximum 50% of the 401(k) / 403(b) amount, if you initiate a rollover with a loan pending against it, they will first offset the loan amount against the existing balance before allowing the rest of the money to be rolled over.
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ruralavalon
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Location: Illinois

Re: rollover 401k/403b pros and cons

Post by ruralavalon »

Welcome to the forum :D .

Syner01 wrote: Mon Jun 10, 2024 9:05 am basic question. pros and cons of rolling over a 401k/403b. have 2 accounts and wondering if it is worth it to rollover or just leave where it is.
offhand i can think of a couple of differences
fees/costs
investment options

also if i take a loan out against 1 would it prevent me from having a rollover option until it is paid off?
The default should be a rollover of some type. The average employee tenure with an employer is about 4.1 years. BLS, Employee Tenure Summary. Without rollovers you could wind up with an unwieldy collection of many small accounts. Having all of your assets in a single account is easier to manage. Simplicity is valuable.

In general:
1) If the old employer's plan offers good funds with low expense ratios, and no account maintenance fee or only a small fee, then it may be best to leave the old account where it is;
2) If the new employer's plan offers similar or better funds with similar or lower expense ratios, and no extra account fees or only small extra fees, then it may be best to rollover the old account into the account with the new employer's plan;
3) If neither employer plan offers good funds with low expense ratios, or both have high account maintenance fees, then it may be best to rollover the old account into an IRA with a low cost provider like Vanguard, Fidelity or Schwab.

Other considerations are:
1) a ERISA plan offers greater protection from creditors in some states.
2) an employer plan allows penalty-free withdrawals at age 55, earlier than from an IRA;
3) Losing the ability to do the backdoor Roth IRA if you rollover to an IRA;
4) Losing the ability to take a loan from the employer account if you rollover to an IRA;
5) If you are age 73 or older and actively employed, then assets held in your current employer's 401(k) plan are exempt from Required Minimum Distributions (RMDs); if the 401(k) is left at the former employer or rolled over to an IRA, then those assets are subject to RMD.

Wiki article, 401k, Rollovers.

I don't know if you taken a loan out against one plan whether that would "prevent [you] from having a rollover option until it is paid off". What are the terms of the loan? What does the employer plan state?

"If you don’t repay the loan, including interest, according to the loan’s terms, any unpaid amounts become a plan distribution to you. Your plan may even require you to repay the loan in full if you leave your job." IRS,Considering a loan from your 401(k) plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Syner01
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Joined: Mon Jun 10, 2024 8:49 am

Re: rollover 401k/403b pros and cons

Post by Syner01 »

thank you for the replies.

1.same employer but they changed plan administrators some time ago and i did not take advantage of rollover then so i wound up with 2 different accounts.

2.the expenses and expense ratios i asked in another question on here. not sure as they bury alot of the info. need to figure out how to dig on this.

3.the types are a mix between 403b and 401k because of M&A we went from 403b to 401k at one point. So there are multiple administrators along with multiple account types and match accounts which are separated as well.

4.i brought up rule of 55 to current plan administrator but they were coy and said they never heard of it. i'm not even sure if i am saying this part right 'administrator' may not be the correct terminology. The company that manages the assets is what i am calling the 'administrator' in this context. i think they are actually the trustee though. the administrator in my documentation has a different name and address. Is the rule of 55 a standard or some option by employers if they want to provide? i do see the below in my plan SPD

"What happens if I terminate employment at Early Retirement Date?
Early Retirement Date. Your Early Retirement Date is the date you have attained age 55 and completed 10 Years of Service with your
Employer (early retirement age). Your Years of Service will be determined using Years of Service for vesting. You may elect to retire
when you reach your Early Retirement Date.

Payment of benefits. If you are employed on the date you attain your early retirement age, you will become 100% vested in all of your
accounts under the Plan. However, the payment of benefits generally will not begin until you actually retire after reaching your Early
Retirement Date. In such event, a distribution will be made, at your election, as soon as administratively feasible. However, if you retire
after reaching your Early Retirement Date but prior to your Normal Retirement Date and the value of your account balance does not exceed
$5,000, then a distribution of your account balance will be made to you, regardless of whether you consent to receive it. (See the question
entitled "How will my benefits be paid to me?" for an explanation of how these benefits will be paid.)"

5. yes we are ERISA covered

6. thank you for the rollover link i will review.

7. these are the types of contributions they accept
.Employee salary deferrals including Roth 401(k) deferrals
• Employer matching contributions
• Employer profit sharing contributions
• Employee "rollover" contributions

8. the plan does state that i can do a direct rollover and that it will land in an account called 'rollover account' at my current adminstrator. it does not say anything about if i take a loan out against the 1st account could i roll it over or not. when i asked the administrator they said no however i suspect it is like was commented here that it would count as a distribution and the rest rolled over which is not ideal.

9. also i know this is a really naive question but generally do i have to stop working in order to start taking distributions from these types of retirement accounts? could i start taking distributions at the right age and continue with the employment if i wanted?

10. for matching they state the below:

Allocation conditions. In order to share in the matching contribution, you must satisfy the following conditions:
• If you are employed on the last day of the Plan Year, you will share regardless of the amount of service you completed during the
Plan Year.
• If you terminate employment (not employed on the last day of the Plan Year), you will share if you completed 1,000 Hours of
Service during a Plan Year for per diem Employees.

And so when i plan to retire in order to get the final year match do i have to quit on the last day of the plan year? i am not a per diem employee.

11. for Roth i have it in the old account which is a significant amount of years open now. for the 5 year rule for distributions is it 5 years from when the contribution itself was made or 5 years from when the account was opened you can take any of the money in the account for distribution? how do i differentiate money i put in recently (less than 5yrs vs money that has been in there over 5yrs)?

12. if i seperate employment can i stay with the existing 403b/401k plans or do i have to do a direct rollover to an ira? the plan says i have to complete a direct rollover within 60 days of distribution but i am not clear on if at time of separation of employment i have 60 days or i can stay with them and do it at my leisure.

13. if i take a loan it says it comes out of accounts for pre-tax deferrals but it doesn't really say how it comes out. do they sell in order to cover the loan amount? do they sell any MF and put into less risky instruments or something? Where does the actual loan money come from?
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ruralavalon
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Location: Illinois

Re: rollover 401k/403b pros and cons

Post by ruralavalon »

Syner01 wrote: Mon Jun 10, 2024 12:39 pm
. . . . .

2.the expenses and expense ratios i asked in another question on here. not sure as they bury alot of the info. need to figure out how to dig on this.

. . . . .
Find this information, as your first priority.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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