401k Left my Company - No New Plan - What would you suggest??

[Rharford32]

Hello All - I left my company and joined a new one.  Higher upward income but no 401k or match.  How should I deal with my current 401k and what would you suggest that I roll it into?

I would like to keep contributing and growing it but I am open to options.

Gratefully,

RH

[HPstache]

Roll it into a Vanguard IRA (assuming it is a Traditional 401K).  Then, depending on your situation, either start contributing to that new IRA or open a Roth IRA in addition to your traditional IRA and start contributing to that.

[terran]

Maybe obvious, but you won't be able to continue to contribute.

I would also be inclined to roll it over to an IRA to have access to best in class investment options. Vanguard, Fidelity, Schwab, Etrade, or TD Ameritrade would all be good options, probably in that order.

If your former employer's 401(k) has very good investment options as they sometimes do (sometimes even better than what is available in an IRA due to the size of the plan) you could consider leaving it where it is, just stay up to date to make sure they don't change investments or start charging you fees. The argument for this would be that it would preserve your ability to make backdoor Roth contributions without paying tax on some of the conversion if you income is/becomes too high to make direct Roth contributions.

If in future years you aren't covered by a workplace retirement plan and neither is your spouse you can make deductible IRA contributions no matter what your income is. Assuming you and/or your former employer made 401(k) contributions in 2019 then you are considered covered for 2019, so you'll only be able to make a deductible IRA contribution if you income is below a certain level. See https://www.irs.gov/retirement-plans/ira-deduction-limits

[Rharford32]

Thank you for your guidance. Either way, this money let's just call it 15k can be put into an IRA but I can't continue to contribute to it.  May I ask you what is the technical reason that it must remain in isolation?

But as you mentioned, I can open another one that is separate and contribute to it monthly like I used to with the 401k?  I will also look into potentially keeping it where it is at.

Are there any other options where I could roll this into real estate or other which would not impose tax and penalties?

Many thanks for taking the time to educate me.

Sincerely,

RH

[terran]

It has to stay either in a 401(k) or IRA or you will pay tax at your marginal tax rate plus a 10% early withdrawal penalty (assuming you're younger than 59.5). As to why, that's just how the rules of such plans work to encourage people to save for retirement instead of cashing out every time they change jobs.

There are "self directed" IRAs that can invest in real estate, but they can't invest in real estate that you have any direct hand in (managing, working on the property, etc), and they're quite expensive, so they're not really worth it most times I think.

[MDM]

It has to stay either in a 401(k) or IRA or you will pay tax at your marginal tax rate plus a 10% early withdrawal penalty (assuming you're younger than 59.5)

...unless you convert it to a Roth, in which case you still pay tax at your marginal tax rate but there is no early withdrawal penalty.

Rharford32, one other oh-by-the-way: if you foresee a time at which you would want and need to use the backdoor Roth process, that would weigh on the side of keeping the money in the old 401k (or converting to Roth).

Depending on the rate and amount of "Higher upward income" you might want to use Roth IRA now instead of traditional IRA - but then again you might not.  See Traditional versus Roth for trade-offs.

[terran]

It has to stay either in a 401(k) or IRA or you will pay tax at your marginal tax rate plus a 10% early withdrawal penalty (assuming you're younger than 59.5)

...unless you convert it to a Roth, in which case you still pay tax at your marginal tax rate but there is no early withdrawal penalty.

...after you wait 5 years.

[MDM]

...after you wait 5 years.

:)

[terran]

...after you wait 5 years.

:)

Teamwork.

[Rharford32]

Many thanks to you for answering my questions.

[Car Jack]

Let's back the truck up here.  Not enough info to make an informed decision.

First....who is the 401k with?  What are the fees?  What ER's?

If it's some crap John Hancock or Mass Mutual or similar, then ok, it may (MAY) make sense to move to an IRA.  If it's a low cost Fidelity plan with no fees, then just leave it, but every turn of a new year, go into netbenefits and check that there still are no fees.  Why?  In some states, 401ks have more protections than IRAs.  Also, if your IRAs get too big, then doing backdoor Roths becomes impractical (I have over $1M in IRA....there's no chance I can ever do one).