Switching jobs, can I roll my 401k into an IRA?

[TheAnonOne]

Hello,

I have been with my current firm for around 4 years as a W2 hourly employee. Due to unforeseen events, I will be switching employers for a while but probably returning later in the year or early next year.

I have around 40k in my 401k here, and the expense ratios are pretty bad @ 1.6%.

I have a Vanguard IRA with the VTSAX as my main holding.

Can I roll over that 40k into that IRA? What are the implications of that? Taxes?


Thanks!

[seattlecyclone]

Can I roll over that 40k into that IRA?

Yes.

What are the implications of that? Taxes?

As long as you roll traditional 401(k) -> traditional IRA and Roth 401(k) -> Roth IRA, there are no taxes.

You'll receive a Form 1099-R from your current 401(k) provider next tax season, and you'll have to write some extra numbers on your Form 1040 as a result, but it should not increase your tax owed.

[TheAnonOne]

Can I roll over that 40k into that IRA?

Yes.

What are the implications of that? Taxes?

As long as you roll traditional 401(k) -> traditional IRA and Roth 401(k) -> Roth IRA, there are no taxes.

You'll receive a Form 1099-R from your current 401(k) provider next tax season, and you'll have to write some extra numbers on your Form 1040 as a result, but it should not increase your tax owed.

Thanks! I have about 1k worth of that as ROTH 401k money and the rest is Traditional.

So i probably need to do two transactions worth.

[nereo]

Can I roll over that 40k into that IRA?

Yes.

What are the implications of that? Taxes?

As long as you roll traditional 401(k) -> traditional IRA and Roth 401(k) -> Roth IRA, there are no taxes.

You'll receive a Form 1099-R from your current 401(k) provider next tax season, and you'll have to write some extra numbers on your Form 1040 as a result, but it should not increase your tax owed.

Thanks! I have about 1k worth of that as ROTH 401k money and the rest is Traditional.

So i probably need to do two transactions worth.

You are correct.  Most brokerages (Vanguard, Fidelity, etc) will generate the paperwork for you - all you need to do is print and sign and mail.

FWIW, you could roll over your normal 401(k) into your ROTH and be responsible for paying all applicable taxes.  This strategy might make sense if you plan on having a very low tax burden in 2016.  I did exactly this when I went back to graduate school... wound up paying $0 in taxes that year because I  had $0 in earned income, even with a transfer of ~$5k from an old 401(k) into my ROTH. 
YMMV.

[Gone Fishing]

If your new employer offers Vanguard Institutional or Institutional Plus options, you might be able to roll your existing funds into their plan (if they allow it) and end up with management fees even less than the what the Vanguard Admiral funds offer.  You would need to make sure your balance is high enough to remain in the new company's plan if you switch back to your current employer to make it worth while.  Odds of all  this working out are probably slim, but worth keeping an eye out for and worst case scenario you just end up rolling it all to Vanguard anyway.

[Dezrah]

I just did what you're planning to do. It involved a call to Vanguard but they were helpful and made it super easy.  Fwiw, they won't do a re-characterization until after it's been fully transferred to their custody. The whole thing is less cumbersome than you would guess.

[Gone Fishing]

I just did what you're planning to do. It involved a call to Vanguard but they were helpful and made it super easy.  Fwiw, they won't do a re-characterization until after it's been fully transferred to their custody. The whole thing is less cumbersome than you would guess.

I don't think you can recharacterize any funds that started out as a 401(k). You could do a conversion though, and convert your pre-tax IRA to ROTH if you were willing to pay the taxes on it.

[TheAnonOne]

I just did what you're planning to do. It involved a call to Vanguard but they were helpful and made it super easy.  Fwiw, they won't do a re-characterization until after it's been fully transferred to their custody. The whole thing is less cumbersome than you would guess.

I don't think you can recharacterize any funds that started out as a 401(k). You could do a conversion though, and convert your pre-tax IRA to ROTH if you were willing to pay the taxes on it.

I made around 200k last year and am aiming at around 170ish this year, so I think the tax liability would be pretty steep.

That being said, just getting it over to a low-fee fund alone would be a huge boon. 40k (Probably 43 to 45 after my next contribution..) @ 1.6% fee is gigantic.

[Alternatepriorities]

At that income level rolling it to the matching IRA seems like it makes the most sense. Saving 1%+ is totally worth the paperwork even though you'll probably have to do the same thing again the next time you change away from that employer. I'll be doing the same thing for the same reason when I leave my current position at the end of May.

[TheAnonOne]

At that income level rolling it to the matching IRA seems like it makes the most sense. Saving 1%+ is totally worth the paperwork even though you'll probably have to do the same thing again the next time you change away from that employer. I'll be doing the same thing for the same reason when I leave my current position at the end of May.

Yea, I am sure this will be a reoccurring theme, however, I won't worry about it until it comes. Getting 40k out of that high-fee world is a big win, even if some new money goes back into it in the future!

[freeat57]

One consideration on the roll over.... In many instances, 401k funds are protected from financial judgments against you.  IRA funds are generally not.  (Varies by state)  For this reason, I have decided to leave my old 401k with my former employer, even though I don't particularly like the investment choices.  On the slim chance that someone sues me for everything I have, I'll still have something to live on.

You can always write a letter to your HR administrator making the case for a lower cost 401k management provider.