Author Topic: What to do with old 401K  (Read 1137 times)

Saving808

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What to do with old 401K
« on: May 04, 2017, 06:45:48 PM »
My husband quit his job a year ago to pursue his own business. He never contributed to his 401K for the 10 years he was with his former employer (I know, I can hear the gasps). So there's $28,000 sitting in his old 401K doing nothing because we're only making contributions to my 401K with my current employer. What do we do with his old 401K that's just sitting around making about $10 a year? Cash it out and invest in index funds? Transfer it into an IRA? Leave it alone for a rainy day? I'm just not sure what's the best move. Please help!

Frankies Girl

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Re: What to do with old 401K
« Reply #1 on: May 04, 2017, 07:05:33 PM »
DO NOT CASH IT OUT unless you want to pay additional taxes plus the 10% penalty! Rollover IRA or assess the existing 401k's fund selection and invest there if they have something broad-market (close to index as you can get) that is also a low expense ratio and also if they're not charging you a service fee for no longer being an employee (this isn't common, but you should ask if you don't already know).

If you have no decent investment options within the existing 401k's plan, then convert it to a rollover IRA at someplace like Vanguard and you can invest it in anything, like their VTSAX (total market index fund). Moving it to another instituion like Vanguard may mean you're hit with a transfer or closing account fee (the small petty companies love doing this) but it would be worth the $50-150 to get the money out and working.

A rollover IRA is essentially a traditional IRA for all intents and purposes. So that means he could start contributing to it as a traditional IRA and possibly get credit for the contribution on your taxes (depending on your tax brackets/other 401k availability). but at the very least he'd be able to throw in $5,500/year and get it all invested and working for you.

And if he is self employed, he needs to check into a solo 401k to be able to maximize your saving/investing buckets.

Saving808

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Re: What to do with old 401K
« Reply #2 on: May 04, 2017, 09:09:52 PM »
Thanks so much for the reply Frankies Girl. I will take all those thoughts into consideration. I really appreciate the help.