$18k in 401k from previous employers - where to move it to? tax free?

[want2learnmore]

I have $18k from 2 previous employers still in their 401k plans. about $14k in one and $4k in the other.
Can I move it somewhere else tax free? like vanguard and reinvestment? in an index fund?

Anyone know of employers still contributing to the 401k even though I am no longer employed there?

Here is the statement for this year on one of the accounts

Your Personal Rate of Return from 01/01/2016 - 06/01/20162.89%
Beginning Balance as of 01/01/2016 $3,933.63
Employer Contributions $262.95
Fees-$30.48
Change in Market Value$117.81
Current Balance as of 06/01/2016$4,283.91
Vested Balance $4,283.91

Are those fees high?
I want a set it/forget it for each year mentality or longer if possible.

Have $24k in my current employer 401k. Age 31.

[JLee]

You can roll them over into an IRA (I like Vanguard).  Your previous employers will no longer contribute to it if you are not an employee.

[CmFtns]

Initiate a rollover to a vanguard traditional IRA... It will stay pre-tax and you'll have many great low-cost investment options

[dandarc]

And your fees, while not terrible are not great either.  0.7% vs 0.2% or less you can get easily at Vanguard.

[want2learnmore]

thanks! I will move all $18k over to a traditional IRA with Vanguard then.

I wouldn't have thought my employer would contribute either but it says they did for $262.95...

[CanuckExpat]

thanks! I will move all $18k over to a traditional IRA with Vanguard then.

I wouldn't have thought my employer would contribute either but it says they did for $262.95...

Before you do that, what's your current and anticipated future income?

If you foresee yourself running into Roth IRA contribution limits (~$130,000 single and ~$200,000 married) and want to do a backdoor Roth in the future, you don't want to do this but roll into your current employer 401k instead.

[redcedar]

Great point on backdrop Roth.

Please make sure to use vanguard to pull the money from the 401k plans. That way you don't have to worry about old employers, HR departments, or 401k admins making a mistake and sending you a check. That's not the end of the world but should be something that you strive to avoid.

[CmFtns]

thanks! I will move all $18k over to a traditional IRA with Vanguard then.

I wouldn't have thought my employer would contribute either but it says they did for $262.95...

Before you do that, what's your current and anticipated future income?

If you foresee yourself running into Roth IRA contribution limits (~$130,000 single and ~$200,000 married) and want to do a backdoor Roth in the future, you don't want to do this but roll into your current employer 401k instead.

I always forget about all the high income phaseout stuff... Unluckily for most of us we don't fall in this category however

[seattlecyclone]

Yes, I agree with the previous posters. In general you should roll an old 401(k) into an IRA of the same kind [traditional 401(k) → traditional IRA, Roth 401(k) → Roth IRA]. This will be a tax-free transfer.

You may instead want to move your old 401(k) into your new employer's 401(k) if either of the following apply to you:

• Your income is too high for direct Roth IRA contributions. The backdoor Roth IRA requires you to have $0 in pre-tax IRA balances; pre-tax 401(k) balances are irrelevant.
• Your new 401(k) has "institutional" index funds with lower expense ratios than you can get as an individual. Take advantage of these if you can.

[want2learnmore]

I earn $116k a year and about $16k bonus each year (both pre tax).
Only been earning this for 2 years now and just got interested in savings in the past month or so, because the site struck a cord with me and financial security/independence seems awesome and something I want to achieve.

is a Roth IRA pre or post tax?

[seattlecyclone]

A Roth IRA is post-tax. You pay tax on the income you earn this year, put it in the Roth IRA, and then it grows with no further taxes due on the gains. With a pre-tax traditional IRA, you deduct your contributions from your income in the year you contribute, then the full amount you withdraw counts as taxable income in the year you withdraw it.

There are income limitations for each of these. As a single person you can only contribute the full amount to a pre-tax traditional IRA when your MAGI is under $61k. You can only contribute the full amount to a Roth IRA when your MAGI is under $117k. For this purpose your MAGI would include your full salary and bonus minus your pre-tax 401(k) contributions and some other deductions.

For people over both of these limits, there's another option, the "backdoor Roth IRA." There's no income limit for putting after-tax money in a traditional IRA, and this money can be converted to Roth IRA at any time by paying tax on it. The complication is that any Roth conversions from a traditional IRA are pro-rated between pre-tax and post-tax money. If you already have some money in a pre-tax IRA, you'll pay tax on that pre-tax money if you make Roth conversion. On the other hand, if 100% of your traditional IRA money is post-tax, that means you can convert it all to Roth tax-free and likely never owe tax on that chunk of your stash again. It's rightfully called a "back door" because it essentially allows you to make Roth IRA contributions when your income is too high to do it otherwise.

Since you are pretty close to the Roth IRA limit I might suggest you consider keeping your money in a 401(k) to leave the backdoor Roth IRA option open in future years if your income gets too high to make regular Roth IRA contributions.

[CmFtns]

Forget what I said and do this ^^ if you think your income would grow.