Author Topic: Any reason to *keep* money in 401k?  (Read 2570 times)

CrankAddict

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Any reason to *keep* money in 401k?
« on: January 18, 2018, 02:24:40 PM »
I am self employed and have an individual 401k plan with Vanguard.  I also have a Vanguard traditional IRA.  Right now about 2/3 of my retirement is in the IRA (it was set up for years prior to creating the 401k) and 1/3 is in the 401k.  The appeal of the 401k is that it allows bigger annual contributions so that's why I set it up once I was in a position to put away more than what a simple plan would allow.  But once the money is in the 401k, is there any reason not to roll it into the IRA?  This question came up because I have admiral shares of everything in my IRA but the 401k only allows the investor versions of those same funds.  I realize it's not a huge difference in fees, but if it's going to stew for 20+ years might as well go for the lowest fees possible, right?

So bottom line, is there anything wrong with just using the 401k as a temporary landing zone for new contributions and then rolling them along to the IRA on a regular basis?

Thanks!

neo von retorch

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Re: Any reason to *keep* money in 401k?
« Reply #1 on: January 18, 2018, 02:32:05 PM »
I'm curious of the answer. I know with employer-sponsored 401(k) accounts, you usually cannot perform a rollover while the account remains active. Only once you part ways with the employer, can you rollover the funds. Are you suggesting that you can roll over 401(k) funds while still actively participating in your Vanguard 401(k)?

Scandium

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Re: Any reason to *keep* money in 401k?
« Reply #2 on: January 18, 2018, 02:34:37 PM »
Only reason I know of is if you're doing back-door roth you can't have anything in an traditional IRA. But since you do already that doesn't matter here. For asset protection concerns I believe 401k and IRA are treated the same? Same for student aid calculations if you have kids. So I'd say no there's no reason to.

neo von retorch

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Re: Any reason to *keep* money in 401k?
« Reply #3 on: January 18, 2018, 02:40:58 PM »
Actually there is one technical / withdrawal strategy reason. If you leave an employer after you turn 55 - you can make withdrawals from the 401(k) once you do. I'm not sure if this applies when you're self-employed. 401(k) accounts are also creditor protected.

More information: https://www.thebalance.com/401k-withdrawals-at-age-55-2388222

CrankAddict

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Re: Any reason to *keep* money in 401k?
« Reply #4 on: January 18, 2018, 03:03:44 PM »
Are you suggesting that you can roll over 401(k) funds while still actively participating in your Vanguard 401(k)?

I wasn't meaning to suggest that, I'm all questions at this point.  Your reaction to that notion prompted me to call Vanguard and inquire further...  It's not real simple, but in a nutshell it sounds like I can rollover the employer contributions if I've had the plan for more than 5 years, but not the employee contributions under any timeframe.  This is while the plan has an "in service" status.  If the plan were shut down then it can all rollover.  So it sounds like it's probably not worth the trouble, but at least I have some more information on what is possible.

the_fixer

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Re: Any reason to *keep* money in 401k?
« Reply #5 on: January 18, 2018, 06:55:18 PM »
I believe the 401k provides additional protection in some states against law suits.

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desk_jockey

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Re: Any reason to *keep* money in 401k?
« Reply #6 on: January 18, 2018, 10:04:26 PM »
I believe the 401k provides additional protection in some states against law suits.

Yes, the 401k provides additional protection against bankruptcy and lawsuits in some states. Rollover IRAs provide similar protection in some states if there are no other non-rollover mixed IRA funds. 

BigRed

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Re: Any reason to *keep* money in 401k?
« Reply #7 on: January 19, 2018, 08:12:04 AM »
Doesn't having a traditional IRA complicate backdoor Roth strategies, so there is an advantage to leaving money in a 401k rather than rolling to a Traditional IRA?

Scandium

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Re: Any reason to *keep* money in 401k?
« Reply #8 on: February 07, 2018, 11:13:51 AM »
Doesn't having a traditional IRA complicate backdoor Roth strategies, so there is an advantage to leaving money in a 401k rather than rolling to a Traditional IRA?
I'd does,as mentioned above. But op already has an IRA.

Beridian

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Re: Any reason to *keep* money in 401k?
« Reply #9 on: February 07, 2018, 01:06:56 PM »
Assuming that you have decent investment options in both accounts, one important reason to leave your money in the 401k is that you can access the 401k funds penalty-free in the year you turn 55 (assuming you are unemployed).  The IRA doesn't become penalty free until age 59.5.

retireatbirth

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Re: Any reason to *keep* money in 401k?
« Reply #10 on: February 07, 2018, 03:13:41 PM »
I prefer keeping the IRA empty and moving the money into a self employed 401k. This allows you to do backdoor Roth contributions without incurring any tax.