Question re: consolidating IRA into current 401K

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Captain Oveur
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Joined: Thu Feb 02, 2017 9:27 pm

Question re: consolidating IRA into current 401K

Post by Captain Oveur » Tue Nov 14, 2017 7:40 am

I'm 40 yrs old and have a Schwab Intelligent Portfolio account which houses all my previous 401ks, currently valued about 140K. I have a 401K account with Schwab for my current employer which is allocated via the "Guided Choice" and currently has about 85K in it (I max it out every year and do about 50% pretax and 50% roth aftertax option)

For simplicity sake and tracking ease, I'd like to move the funds in the Intelligent portfolio over to my employer 401K. Is there any harm in doing this? By doing this and rebalancing, am I essentially "selling high" since the market is up right now? Should I wait, or maybe even just keep them separate?

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ruralavalon
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Location: Illinois

Re: Question re: consolidating IRA into current 401K

Post by ruralavalon » Tue Nov 14, 2017 8:40 am

Captain Oveur wrote:
Tue Nov 14, 2017 7:40 am
I'm 40 yrs old and have a Schwab Intelligent Portfolio account which houses all my previous 401ks, currently valued about 140K. I have a 401K account with Schwab for my current employer which is allocated via the "Guided Choice" and currently has about 85K in it (I max it out every year and do about 50% pretax and 50% roth aftertax option)

For simplicity sake and tracking ease, I'd like to move the funds in the Intelligent portfolio over to my employer 401K. Is there any harm in doing this? By doing this and rebalancing, am I essentially "selling high" since the market is up right now? Should I wait, or maybe even just keep them separate?
This depends mostly on fees and expenses.

1) If better funds with lower expense ratios are offered in the old 401k, and there is no or just a small account maintenance fee, then it may be best to leave the old 401k where it is.

2) If the current 401k offers better funds with lower expense ratios, then it may be best to roll the old 401k over into the current 401k.

3) If the quality and expense are about the same or even close, then I would favor consolidation in the current 401k just for the added convenience, having one less account to keep track of and manage.

If it later turns out in hindsight that you have sold high, then you will also have brought high. If it turns out that you are selling low, then you are also buying low. It makes no difference at all. This should have no impact on your decision.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

overthought
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Re: Question re: consolidating IRA into current 401K

Post by overthought » Tue Nov 14, 2017 8:56 am

Captain Oveur wrote:
Tue Nov 14, 2017 7:40 am
I'm 40 yrs old and have a Schwab Intelligent Portfolio account which houses all my previous 401ks, currently valued about 140K. I have a 401K account with Schwab for my current employer which is allocated via the "Guided Choice" and currently has about 85K in it (I max it out every year and do about 50% pretax and 50% roth aftertax option)

For simplicity sake and tracking ease, I'd like to move the funds in the Intelligent portfolio over to my employer 401K. Is there any harm in doing this? By doing this and rebalancing, am I essentially "selling high" since the market is up right now? Should I wait, or maybe even just keep them separate?
What ruralavalon said.

Given that you have multiple past 401(k) accounts, I would guess you're in a career path that involves frequent changes of employer. That lowers the stakes a fair bit---you can always roll it back out next time you change jobs.

Given that you mention using Schwab IP, I assume those past 401(k) accounts are actually rollover IRA accounts (I've not heard of 401(k) plans offering Schwab IP before?). If so, keep in mind that it's generally better to keep pre-tax money in a 401(k) when possible. Non-zero pre-tax balance in any rollover or traditional IRA will interfere with backdoor Roth conversions, should you ever find yourself in a tax bracket where those make sense.

Aside: I'm curious why you split pre-tax and Roth contributions 50/50 in a given year? Normally the decision would be guided by how your expected tax bracket for the year compares with your expected tax bracket in retirement: Roth if you prefer to pay taxes now (e.g. in 15% bracket now, expect 25% bracket later), and pre-tax if you prefer to pay taxes at retirement (e.g. 33% bracket now, expect 25% bracket later).

Captain Oveur
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Joined: Thu Feb 02, 2017 9:27 pm

Re: Question re: consolidating IRA into current 401K

Post by Captain Oveur » Tue Nov 14, 2017 9:03 am


Given that you have multiple past 401(k) accounts, I would guess you're in a career path that involves frequent changes of employer. That lowers the stakes a fair bit---you can always roll it back out next time you change jobs.

I am now with the company I hope to be with until retirement.


Given that you mention using Schwab IP, I assume those past 401(k) accounts are actually rollover IRA accounts (I've not heard of 401(k) plans offering Schwab IP before?). If so, keep in mind that it's generally better to keep pre-tax money in a 401(k) when possible. Non-zero pre-tax balance in any rollover or traditional IRA will interfere with backdoor Roth conversions, should you ever find yourself in a tax bracket where those make sense.

Yes, they were all rolled into a Schwab IP account. My current plan is managed by Schwab but has a group of funds to select (most are low cost indexes).


Aside: I'm curious why you split pre-tax and Roth contributions 50/50 in a given year? Normally the decision would be guided by how your expected tax bracket for the year compares with your expected tax bracket in retirement: Roth if you prefer to pay taxes now (e.g. in 15% bracket now, expect 25% bracket later), and pre-tax if you prefer to pay taxes at retirement (e.g. 33% bracket now, expect 25% bracket later).

Whatever algorithm was used by the "Guided Choice" figured that between my wife and I maxing out our 401Ks, our cash on hand, and salaries, we would be retiring in a bracket that what be high and therefore should be taking a 50/50 pre/post tax split. Probably need to sit down with a financial adviser to take a look at this all since I know only enough to make me really dangerous when it comes to my finances. :|

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Question re: consolidating IRA into current 401K

Post by mega317 » Tue Nov 14, 2017 1:18 pm

Captain Oveur wrote:
Tue Nov 14, 2017 7:40 am
By doing this and rebalancing, am I essentially "selling high" since the market is up right now? Should I wait, or maybe even just keep them separate?
You are mixing two separate issues. Moving money between accounts may be beneficial for simplicity and/or different fund options. Rebalancing is independent of consolidating accounts. The concept of buying low and selling high is overblown, or at least completely unhelpful, because no one knows what will happen. Yes stocks are near all-time highs--they may also never be lower in the future.

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