Author Topic: Orphaned 401k - What to do?  (Read 2611 times)

winstonsmith

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Orphaned 401k - What to do?
« on: July 15, 2014, 10:25:24 AM »
Hello all,

Here is the situation:  I recently left my first "real" job after college.  Over the course of three years of employment I took advantage of a traditional 401k account through John Hancock (the traditional 401k allowed employer matching).  Now this account is considered "orphaned," and I am wondering what my best course of action is currently.  Should I leave the account where it is, or convert it to an IRA through Vanguard (where I plan to invest in the future).

*I know there will be tax implications if I convert (particularly to a Roth IRA), but thought this might be a good idea considering I plan to use Vanguard in the future*

Other pertinent info:

  • I am in my mid 20's
  • The 401k is my only retirement/investing account at this moment (I am just embarking on mustachioed living)
  • The account currently sits at around 10k, and I have been averaging approx. 7-10% return over the past three years

Please let me know if you have any experience with "orphaned" retirement accounts or need more information.  Any advice on a best course of action would be greatly appreciated.

Best,

-winston

matchewed

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Re: Orphaned 401k - What to do?
« Reply #1 on: July 15, 2014, 10:29:16 AM »
If it is all a traditional 401k then roll it into a traditional IRA and invest it per your asset allocation. If it is a Roth 401k then roll it into a Roth IRA and invest it per your asset allocation. Why convert it to a Roth? Why not just start a Roth if you want one and it is part of your financial plan?

frugaliknowit

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Re: Orphaned 401k - What to do?
« Reply #2 on: July 15, 2014, 10:53:13 AM »
Do an IRA rollover to Vanguard.  Call them and you'll barely need to lift a finger (they will be so happy to help you!!!).  Make sure you do "trustee to trustee" transfer.

winstonsmith

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Re: Orphaned 401k - What to do?
« Reply #3 on: July 15, 2014, 02:49:59 PM »
Thanks for the ideas.  Some people i have talked to said that a 401k can be advantageous due to an earlier penalty-free withdrawal age compared to an IRA and different borrowing (taking a loan against your retirement account) requirements.  Any thoughts?

Thanks again,

-winston

frugaliknowit

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Re: Orphaned 401k - What to do?
« Reply #4 on: July 15, 2014, 02:54:40 PM »
Don't quote me, but I believe that's only if you are canned at age 55 or higher (in which case you are not charged the 10% penalty, only your tax rate), but consult a tax professional about that to be sure.  Others argue that by converting to an IRA you forgo the opportunity to roll it into a new employer's plan (????).

Emg03063

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Re: Orphaned 401k - What to do?
« Reply #5 on: July 16, 2014, 05:03:02 AM »
Roll it to a traditional IRA.  If and when it makes sense with your financial plans, you can Roth convert it from there.  Periods of unemployment are good times to do it.

dragoncar

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Re: Orphaned 401k - What to do?
« Reply #6 on: July 16, 2014, 11:29:33 AM »
Roll it to a traditional IRA.  If and when it makes sense with your financial plans, you can Roth convert it from there.  Periods of unemployment are good times to do it.

This is what I did and it works.  You can convert small amounts each year as your tax brackets allow. 

Don't take loans from your 401k -- I don't even know if you can do so after separation from employer.  You are pursuing RE (presumably?) anyways so don't worry so much about distribution age -- you will probably be doing a Roth pipeline or SEPP anyways.  Get that Roth pipeline started early, I say!