401k Rollover to IRA (Traditional or Roth)

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sundancekid4
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Joined: Fri Jan 12, 2018 5:46 pm

401k Rollover to IRA (Traditional or Roth)

Post by sundancekid4 » Fri Jan 12, 2018 5:53 pm

Hi all -

I was hoping for some advice as to how I should proceed forward with some retirement planning. I recently changed jobs and have about $25,000 sitting in a 401k at my old company. I am 27 years old and have many years of employment ahead of me. I was wondering if you all had some advice as to whether I should keep it in the 401k, roll it into a Roth IRA or roll it into a traditional IRA.

In the next couple years, major life events include the purchase of an engagement ring as well as the down payment on a home. Unsure at this point whether I'll want to take a loan out of my retirement savings to throw towards the down payment, but I'm all ears to anything.

Any and all advice would be greatly appreciated. Thanks all!

Mike

mhalley
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Joined: Tue Nov 20, 2007 6:02 am

Re: 401k Rollover to IRA (Traditional or Roth)

Post by mhalley » Fri Jan 12, 2018 7:14 pm

Depends on multiple things. There is nothing wrong with leaving it there if they have good options. You can’t take out a loan on an old 401k, and in general it is not a good idea anyway. You might not want to roll it over to an Ira if you might eventuality want to do backdoor Roths.
If you are in a low tax bracket now and anticipate your income going up and have enough money in taxable to pay taxes on the Roth conversion you could consider it after you run some numbers.
https://www.schwab.com/public/schwab/in ... conversion

28fe6
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Joined: Wed Jan 03, 2018 9:01 am

Re: 401k Rollover to IRA (Traditional or Roth)

Post by 28fe6 » Fri Jan 12, 2018 7:49 pm

I left mine alone for several years when I changed jobs. There is no hurry. It was interesting watching my new 401k "catch up" due to new contributions as well as seeing the old one continue to grow despite no contributions. I opened an IRA to roll over the old one, but eventually decided just to roll it into my current 401k to cut down my total number of accounts. 401k also has loan options that don't exist for IRAs and favorable legal treatment. I initially wanted the IRA for more investment options, but since becoming a boglehead I only need 3 funds anyway, and my current 401k plan has good offerings.

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FiveK
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Re: 401k Rollover to IRA (Traditional or Roth)

Post by FiveK » Fri Jan 12, 2018 11:43 pm

sundancekid4, welcome to the forum.

Do you have a 401k at your new job, and if so
- will it accept a rollover from your old 401, and
- how do the investment options at the old and new job compare?

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Watty
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Re: 401k Rollover to IRA (Traditional or Roth)

Post by Watty » Sat Jan 13, 2018 7:55 pm

sundancekid4 wrote:
Fri Jan 12, 2018 5:53 pm
I was wondering if you all had some advice as to whether I should keep it in the 401k, roll it into a Roth IRA or roll it into a traditional IRA.
Here a wiki that might help with deciding to do a Roth conversion on not.

https://www.bogleheads.org/wiki/Traditional_versus_Roth

There are lots of factors but if you are single, then single people get into the higher tax brackets pretty quickly so if you ever get married you could end up in a lower tax bracket then.

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Watty
Posts: 13439
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Re: 401k Rollover to IRA (Traditional or Roth)

Post by Watty » Sat Jan 13, 2018 7:56 pm

sundancekid4 wrote:
Fri Jan 12, 2018 5:53 pm
I was wondering if you all had some advice as to whether I should keep it in the 401k, roll it into a Roth IRA or roll it into a traditional IRA.
Here a wiki that might help with deciding to do a Roth conversion on not.

https://www.bogleheads.org/wiki/Traditional_versus_Roth

There are lots of factors but if you are single, then single people get into the higher tax brackets pretty quickly so if you ever get married you could end up in a lower tax bracket then.

drk
Posts: 521
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: 401k Rollover to IRA (Traditional or Roth)

Post by drk » Sat Jan 13, 2018 8:33 pm

It depends on your current income and tax rate as well as your expected future ones. I will say, though, that I was faced with a similar decision a few years ago. I decided to roll my 401k into a Traditional IRA for simplicity's sake. Fast forward a year or so, and a new job put my income beyond Roth contribution limits, making the backdoor Roth attractive. Fortunately, my new employer's plan allowed rollovers in, but I would have been SOL if not. If your old or new employer's plans offer good options, I would recommend keeping they money in a 401k. On the other hand, if you're in a low tax bracket, you may be well-served by converting now.

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