Author Topic: Should I Rollover my old 401Ks to new company or Traditional IRA?  (Read 572 times)

alcon835

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I've got four 401Ks going right now. Most of them I'm 100% vested into, which is nice. Across them all I've got a pretty sizable chunk of money. I'm trying to decide if I should put them into my Vanguard account into a traditional IRA or if I should roll them into my new company 401K.

Right now I'm leaning toward rolling them all into a Vanguard Traditional IRA using the same investments I've got going in my other Vanguard accounts. Is there any reason why this would be a bad idea? The fees are definitely smaller at Vanguard and I'll have a TON more control over my funds than in my new employer account.

marbar

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #1 on: May 15, 2019, 06:59:16 AM »
The fees are definitely smaller at Vanguard and I'll have a TON more control over my funds than in my new employer account.

I would roll them into a Vanguard account unless your new employer's 401(k) is excellent in terms of investment offerings and fees. I currently have a 401(k) account with an old employer managed by Guideline, but their fund offerings are great, and fees are low, so I'm leaving the funds there.

Also, if you ever want to make backdoor Roth IRA contributions, it's good not to have tax deferred money in a TIRA because you’ll be subject to taxes when making your Roth conversion due to the pro-rata rule (Google Backdoor Roth IRA if you need more info on the pro-rata rule).

Cromacster

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #2 on: May 15, 2019, 08:09:43 AM »
The fees are definitely smaller at Vanguard and I'll have a TON more control over my funds than in my new employer account.

I would roll them into a Vanguard account unless your new employer's 401(k) is excellent in terms of investment offerings and fees. I currently have a 401(k) account with an old employer managed by Guideline, but their fund offerings are great, and fees are low, so I'm leaving the funds there.

Also, if you ever want to make backdoor Roth IRA contributions, it's good not to have tax deferred money in a TIRA because you’ll be subject to taxes when making your Roth conversion due to the pro-rata rule (Google Backdoor Roth IRA if you need more info on the pro-rata rule).

I feel this is the only reason why you would consider rolling into new employers 401k.

When I did this I chose to roll it all into a Vanguard IRA.  I knew based on my income and timeline I most likely won't utilize the backdoor roth.

alcon835

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #3 on: May 15, 2019, 04:44:28 PM »
The fees are definitely smaller at Vanguard and I'll have a TON more control over my funds than in my new employer account.

I would roll them into a Vanguard account unless your new employer's 401(k) is excellent in terms of investment offerings and fees. I currently have a 401(k) account with an old employer managed by Guideline, but their fund offerings are great, and fees are low, so I'm leaving the funds there.

Also, if you ever want to make backdoor Roth IRA contributions, it's good not to have tax deferred money in a TIRA because you’ll be subject to taxes when making your Roth conversion due to the pro-rata rule (Google Backdoor Roth IRA if you need more info on the pro-rata rule).

I feel this is the only reason why you would consider rolling into new employers 401k.

When I did this I chose to roll it all into a Vanguard IRA.  I knew based on my income and timeline I most likely won't utilize the backdoor roth.

I probably will do a back door at some point, but this is a relatively small part of what I intend my investments to be at that point, so I'm thinking it's probably safe. Plus, to be honest, the funds available at my employer account are okay but not nearly as interesting as what I can get at Vanguard.

PDXTabs

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #4 on: May 15, 2019, 07:29:54 PM »
I feel this is the only reason why you would consider rolling into new employers 401k.

A company sponsored 401k is a real ERISA plan. This means infinite bankruptcy protection, which an IRA does not have. So that's one other thing to consider.

Cromacster

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #5 on: May 16, 2019, 06:36:08 AM »
I feel this is the only reason why you would consider rolling into new employers 401k.

A company sponsored 401k is a real ERISA plan. This means infinite bankruptcy protection, which an IRA does not have. So that's one other thing to consider.

Ah Right!  Bankruptcy protection in regards to IRA's varies by state.  This seems to be a good chart, but from 2014.

https://www.thetaxadviser.com/content/dam/tta/issues/2014/jan/stateirachart.pdf

PDXTabs

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #6 on: May 16, 2019, 08:55:27 AM »
There are federal laws about IRA bankruptcy protection too. But I'm not a lawyer and they get really complicated when it comes to bankruptcy vs creditor protections:
https://www.irahelp.com/slottreport/your-ira-protected-creditors-you-may-be-surprised
https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira
« Last Edit: May 16, 2019, 12:49:50 PM by PDXTabs »

anonprof

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #7 on: May 16, 2019, 12:45:40 PM »
Thanks for starting this thread.  I'm trying to decide if I should leave my 401k with my former employer or roll it over to a tIRA at Vanguard.   I'd prefer vanguard but wanted to understand if there was any potential downside.  I understand each state has different rules re protection of IRAs from creditors and found this info re California:

https://www.nolo.com/legal-encyclopedia/are-my-retirement-accounts-protected-from-judgment-creditors-california.html
"If you roll over funds from an ERISA account or PRP into an IRA, those funds remain 100% exempt. This is the case even though the IRA is not fully exempt in California. As long as you are able to prove that the funds in your IRA originally came from an ERISA account or PRP, then you do not have to go through the “necessary for support” test."

https://sdirahandbook.com/self-directed-ira-news/california-rollover-iras-can-receive-erisa-style-creditor-protection/
"Notwithstanding the limited creditor protections for IRAs outlined above, the California Court of Appeals has ruled that rollover IRAs funded from “private retirement plans” receive full creditor protection as if they were a fully protected private retirement plan under California law."

alcon835

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Re: Should I Rollover my old 401Ks to new company or Traditional IRA?
« Reply #8 on: May 18, 2019, 09:27:50 AM »
Thanks for starting this thread.  I'm trying to decide if I should leave my 401k with my former employer or roll it over to a tIRA at Vanguard.   I'd prefer vanguard but wanted to understand if there was any potential downside.  I understand each state has different rules re protection of IRAs from creditors and found this info re California:

https://www.nolo.com/legal-encyclopedia/are-my-retirement-accounts-protected-from-judgment-creditors-california.html
"If you roll over funds from an ERISA account or PRP into an IRA, those funds remain 100% exempt. This is the case even though the IRA is not fully exempt in California. As long as you are able to prove that the funds in your IRA originally came from an ERISA account or PRP, then you do not have to go through the “necessary for support” test."

https://sdirahandbook.com/self-directed-ira-news/california-rollover-iras-can-receive-erisa-style-creditor-protection/
"Notwithstanding the limited creditor protections for IRAs outlined above, the California Court of Appeals has ruled that rollover IRAs funded from “private retirement plans” receive full creditor protection as if they were a fully protected private retirement plan under California law."

Check out the link above to protections surrounding 401Ks vs tIRAs.

My state, for instance, has amazing protections so I'm not super worried about moving the money. However some states, like California, have really poor protections around tIRAs, so YMMV.

Also, if you're looking to RE soon, you probably want to keep the money in the 401K so you can take advantage of the backdoor Roth stuff. My understanding is you can't do that from a tIRA.