Author Topic: 401k to IRA rollover  (Read 965 times)

Apple_Tango

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401k to IRA rollover
« on: October 31, 2017, 08:48:06 PM »
I have a 401k for the first time ever! I have both a Traditional 401k and Roth 401k with Transamerica Retirement Solutions (if that matters). Well my job is ending this week so I want to roll over the respective balances into my Vanguard traditional IRA and Vanguard Roth IRA and I have never done such a thing before. It involves a few forms and I want to make sure I get it right.

I already have the exact funds I want in my IRAs. But they are not the same funds as what was offered in my 401ks. So will the 401k funds be sold, and the money placed into my already established IRAs? Or will I hold the old 401k funds, but in my Vanguard IRA accounts?

Also according to vanguard, I just need to have my company make the check payable to:
Vanguard Fiduciary Trust Company FBO [my name].

I am nervous about this because my name is literally one of the MOST COMMON names in the US. First, Last, and even Middle combined, I'm sure there are hundreds of people invested in vanguard with my exact same name. My SSN will be on the form...but has anyone ever had a mix up before?




sokoloff

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Re: 401k to IRA rollover
« Reply #1 on: November 01, 2017, 06:19:45 AM »
I would not sweat the name confusion thing. This is done all the time, and neither your current 401K company nor Vanguard has any interest in pilfering that money. Do it the way everyone else does it and it will go smoothly. If, by some slim miracle of circumstance, it doesn't go smoothly, there are mechanisms in place to track the money down and though it might be a small PITA, the right outcome will happen.

I would also, to the maximum extent possible, use Vanguard as the ones to initiate the process. (Use the firm that is "pulling the money" from the other firm as a general guiding principle. They have more experience and interest in making it smooth than the firm that is having the money taking from their management, plus Vanguard does 100s of these transactions per day with a variety of counterparties, so they're good at it. Each "pushing bank" does only a few per day with each specific counterparty. The path of least resistance is to start with Vanguard and follow their instructions. Don't think too hard about them, just follow them to the letter.) This is probably a large and scary sum to you to have in flight. That's normal. These transactions are done many, many times per day, in amounts far larger and circumstances more complex than yours, and the custodians are skilled and effective at making it happen.

Your funds will be sold and the assets transferred as cash (a check conveys cash, not securities) and then invested in Vanguard funds you choose. This is what you want anyway. (There are other means to transfer accounts and holdings without selling them. There is usually no point to doing this in a tax-advantaged account anyway. You want to move the money as money and have Vanguard re-invest it.)

I would roll the 401K money into a distinct IRA that only holds 401K rollover money. I would roll the Roth 401K into a distinct Roth IRA account that only holds Roth 401K rollover money. This protects your flexibility to later roll those funds into a future employer's 401K/Roth 401K plan. Once you comingle those rollovers with regular IRA contributions, you either can't roll them into a future 401K or it is an inordinate PITA to do so. (I think it's not possible, but I'm not 100% on that.) Though I have no plans to do such a rollover (because Vanguard IRAs are generally better fee structures than employer 401Ks), I also found it didn't cost me anything to keep them separate. If your assets at Vanguard are low enough that they're charging you $20/account/year fees, then you might want to consolidate them into an existing IRA to minimizes the number of accounts on which you're paying those fees.

seattlecyclone

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Re: 401k to IRA rollover
« Reply #2 on: November 02, 2017, 08:31:43 AM »
I wouldn't worry too much about having a special "conduit IRA". Most people won't want to roll their IRAs back into a 401(k) plan with a narrower choice of investments, often with higher fees. A big exception is those whose income is high enough that they would need to use the backdoor to make Roth IRA contributions. Even so, the law now permits incoming rollovers from a non-conduit traditional IRA. Some plans may not have updated their rules to reflect this though. As for the Roth money, once that goes into an IRA there's no way to get it back into the 401(k) even if you wanted to.