Author Topic: I want to rollover my 401(k) to a Traditional IRA. Pitfalls?  (Read 1454 times)

desertadapted

  • 5 O'Clock Shadow
  • *
  • Posts: 83
I want to rollover my 401(k) to a Traditional IRA. Pitfalls?
« on: April 08, 2016, 02:19:12 PM »
I have to decide whether to roll over a 401(k) from a prior employer into a Traditional IRA, from a FIRE perspective.  I have not had much luck in my search for an existing thread directly on point.  If you are aware of one, point me to it and I will head over there.  And if not:

I have changed jobs and have the substantial majority of my assets in former employer’s 401(k).  All of my 401(k) contributions were pre-tax. The 401(k) generally has adequately diversified Vanguard index options except for bonds.  The 401(k) does not have access to more diverse Vanguard funds that I’m interested in, like REIT/Dividend indexes.  There is an annual fee, which is modest but still exists.  All things being equal between a 401(k) and Traditional IRA, I would like to have access to more investment choices, which would be available through a Traditional IRA at Vanguard.  Plus, no annual fee.

We plan about 12 years until FIRE.  Post-FIRE, I may need to access the 401(k) assets before I reach 59 ½, and I want to be prepared (and in the best position) for that eventuality.  My understanding is that a Traditional IRA allows me to have access to Substantially Equal Periodic Payments or a Roth conversion ladder, like a 401(k), which is how I anticipate I will pull out value until turning 59 ½. 

My question: am I missing any traps/opportunities that I might regret later?  I’d like to be out of the 401(k), but not if it’s going to bite me.   

FYI, am aware of the “loans from 401(k) and not from traditional IRA angle” and hope passionately that’s never an issue, and so am not considering it.  Also not considering the asset protection angle due to some state law issues.

Thanks in advance.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4637
  • Age: 34
  • Location: Seattle, WA
Re: I want to rollover my 401(k) to a Traditional IRA. Pitfalls?
« Reply #1 on: April 08, 2016, 02:24:06 PM »
There are a few possible pitfalls you may encounter.

First, you won't be able to do backdoor Roth IRA contributions if you have a pre-tax IRA balance. If you don't expect to have an income high enough for that to be necessary, this is irrelevant to you.

Second, if you plan to retire between age 55 and 60, you can make withdrawals from your last employer's 401(k) with no early withdrawal penalty. Rolling this money into the new employer's 401(k) instead of an IRA may be a better idea if this applies to you.

If neither of the above apply to you, rolling into an IRA sounds like a fine plan.

VaCPA

  • Stubble
  • **
  • Posts: 219
Re: I want to rollover my 401(k) to a Traditional IRA. Pitfalls?
« Reply #2 on: April 08, 2016, 02:32:24 PM »
Definitely keep the backdoor Roth thing in mind. Don't roll your 401k over to an IRA if you think you might need to do that in the near future. Although you can always roll it back into a 401k, provided you're working and have access to one. That's what I'm doing right now because I can't make contributions to a Roth and I want to get money into it via backdoor conversion, but I have an IRA from an old 401k rollover I did years ago.

desertadapted

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: I want to rollover my 401(k) to a Traditional IRA. Pitfalls?
« Reply #3 on: April 08, 2016, 03:50:27 PM »
Good food for thought, folks.  Thank you.

jim555

  • Handlebar Stache
  • *****
  • Posts: 1948
Re: I want to rollover my 401(k) to a Traditional IRA. Pitfalls?
« Reply #4 on: April 09, 2016, 06:10:39 AM »
Some states do not protect IRAs from lawsuits on an equal basis with 401ks.  401ks are Federally protected assets.