Author Topic: What do do with 401k when leaving job to start school?  (Read 1580 times)

donedeal511

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What do do with 401k when leaving job to start school?
« on: March 27, 2018, 09:10:15 AM »
What should I do with the 50k I have in a 401k target retirement fund serviced through Transamerica when I leave my job in 3 months to start medical school for the next 4 years?
Leave it where it lies?
Can I roll it into my Roth IRA vanguard target retirement fund?
Cash some out to pay tuition (fed loans are likely around 7%)

Lucky Recardito

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Re: What do do with 401k when leaving job to start school?
« Reply #1 on: March 27, 2018, 09:43:50 AM »
Roll it into a Vanguard IRA (Trad if you contributed to your 401k on a Traditional basis; Roth if it's a Roth 401k), and invest it in an appropriate age-based/target-date/lifecycle fund or a happy mix of 2 or 3 cheap index funds. Then leave it alone.

Don't raid your retirement savings to pay for school; you're about to (presumably) stop contributing to your retirement for a few years. That alone is enough of a raid.

rubybeth

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Re: What do do with 401k when leaving job to start school?
« Reply #2 on: March 27, 2018, 09:44:21 AM »
Yikes. Roll it over to Vanguard, VTSAX. Do not touch for school, penalty will not be worth it.

MDM

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Re: What do do with 401k when leaving job to start school?
« Reply #3 on: March 27, 2018, 11:22:29 AM »
What should I do with the 50k I have in a 401k target retirement fund serviced through Transamerica when I leave my job in 3 months to start medical school for the next 4 years?
Leave it where it lies?
Can I roll it into my Roth IRA vanguard target retirement fund?
Cash some out to pay tuition (fed loans are likely around 7%)
Assuming your marginal tax rate in 2019, 2020, and 2021 (and maybe 2022?) will be lower than both this year (because you are still working 1/2 year) and thereafter (because you will start to earn after graduating), then doing Roth conversions at some rate doing those years could work well.

You can't withdraw the $50K within the next five years without paying a 10% penalty.

NoraLenderbee

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Re: What do do with 401k when leaving job to start school?
« Reply #4 on: March 27, 2018, 02:18:07 PM »
Roll it over to a new IRA with Vanguard. You cannot combine it with an existing IRA; it will be a new account. Look for info on vanguard's web site. it's easy, and they take care of everything; you just need to fill out some transfer-of-assets forms.

La Bibliotecaria Feroz

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Re: What do do with 401k when leaving job to start school?
« Reply #5 on: March 27, 2018, 03:29:03 PM »
I do not necessarily support borrowing money to pay for schooling. There is often a better plan.

But if you must borrow, it is sometimes possible to borrow against a 401(k) even if you no longer work for the company, whereas it is NOT possible to borrow against an IRA.  So you might want to leave it where it is as a sort of emergency line of credit and then roll it over in the future when you have built up a larger emergency fund.

ClovisKid

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Re: What do do with 401k when leaving job to start school?
« Reply #6 on: March 27, 2018, 05:05:58 PM »
Agree - DO NOT RAID the fund and use it for anything else except retirement.  Tax-deferred earning accounts are a precious resource!

I do not (necessarily) agree with rolling it over into an IRA. My workplace 401k has very low cost index funds, such as S&P 500 with a 0.01% fee.  Yes, 0.01%(!) - through Blackrock, and lower than Vanguard.  Many fund managers are lowering their fees to compete with Vanguard.  I love Vanguard, and I have a post-tax account with them, but there are some lower-cost or equal-cost options out there.  Many 401k plans also offer the ability to purchase individual ETFs (such as vanguard) through them.
The main point though: 401k plans have a higher level of liability protection in many states compared to an IRA if you ever get sued or are entangled in previous, future, former or current spousal litigation.

frugalnacho

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Re: What do do with 401k when leaving job to start school?
« Reply #7 on: March 28, 2018, 08:23:09 AM »
I do not necessarily support borrowing money to pay for schooling. There is often a better plan.

But if you must borrow, it is sometimes possible to borrow against a 401(k) even if you no longer work for the company, whereas it is NOT possible to borrow against an IRA.  So you might want to leave it where it is as a sort of emergency line of credit and then roll it over in the future when you have built up a larger emergency fund.

I've never heard of this.  Most of the time if you borrow against your 401k and you leave your job for any reason (quit, get fired, get bought out by a new company) the balance of the loan is due in full within a short time frame (usually <6 months).  I've known several people who borrowed against their 401k, then circumstances beyond their control changed and they got royally fucked and forced to liquidate a portion of the remaining 401k balance with penalty in order to repay the loan.

I would advise rolling it into an IRA at vanguard and putting it in VTSAX.  If your income is low while you go to school I would consider converting some portion of it into roth as MDM suggests.

La Bibliotecaria Feroz

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Re: What do do with 401k when leaving job to start school?
« Reply #8 on: March 28, 2018, 08:27:54 AM »
Nope. My ex borrowed against an orphan account and my fiance is still making payments on his loan, and he left his job in November. Plan rules must vary wildly. So... "sometimes"!