Author Topic: Our 401ks and converting to Roth?  (Read 3884 times)

jeromedawg

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Our 401ks and converting to Roth?
« on: January 28, 2016, 06:10:17 PM »
Hey guys,

My wife and I both have 401k's with our former/soon-to-be former companies. I left my former employer in December and have about $65k in the 401k there. And my wife's last day with her current employer is tomorrow and she's got about $43k in her 401k.

We are invested in the S&P 500 institutional class funds for both (FXAIX in mine and FXSIX for hers).

Should we go ahead and roll these over into our Roth IRAs? I'm checking right now with Fidelity to see if the class would be retained or if they would be converted into a different class fund (I currently hold FUSVX in my Roth IRA, for example). If it can be retained, it sounds like I wouldn't be able to buy any more either (in this case, should I just leave it alone and hold onto it for as long as I possibly can?)

Any pointers on what the best move would be? Should I just leave the 401ks alone for the time being? Or, if I'm able to roll it over to my current company's plan, should I do that instead?
« Last Edit: January 28, 2016, 06:13:05 PM by jplee3 »

wienerdog

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Re: Our 401ks and converting to Roth?
« Reply #1 on: January 28, 2016, 06:13:41 PM »
I would check your fees.  Fees might go up not being an employee.

ender

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Re: Our 401ks and converting to Roth?
« Reply #2 on: January 28, 2016, 06:14:24 PM »
You want to pay income taxes on all of the money?

You don't say whether it's in a Roth 401k or not.

seattlecyclone

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Re: Our 401ks and converting to Roth?
« Reply #3 on: January 28, 2016, 06:17:50 PM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #4 on: January 28, 2016, 06:35:38 PM »
You want to pay income taxes on all of the money?

You don't say whether it's in a Roth 401k or not.

Oops sorry, these are both traditional 401ks so rolling them to Roth IRAs would be a taxable event.

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #5 on: January 28, 2016, 06:40:31 PM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

I just checked my current company's 401k and they offer a privately held/managed S&P 500 Fund that has the same expenses/fees as FXAIX/FXSIX, so I'm thinking about just rolling the money over to the current company's plan.

So you're saying, in general for a t-401k I might be considering converting and moving to a Roth IRA, that I should actually *wait* until retirement to do it? I always thought that you'd get taxed based on whatever bracket your in at the time of conversion... so if I expect to be in a lower tax bracket then, it might be more beneficial to convert at that point in time? (sorry if I'm mixing things up... I always get confused with this stuff)

Geekenstein

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Re: Our 401ks and converting to Roth?
« Reply #6 on: January 28, 2016, 06:56:29 PM »
Any pointers on what the best move would be? Should I just leave the 401ks alone for the time being? Or, if I'm able to roll it over to my current company's plan, should I do that instead?

Probably not relevant, but how old are you?  If you are 55 or older you may want to leave them with your current employer.  You can access them penalty-free.  If you roll it over, you can't.

tjrssibelle

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Re: Our 401ks and converting to Roth?
« Reply #7 on: January 28, 2016, 07:20:13 PM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

I just checked my current company's 401k and they offer a privately held/managed S&P 500 Fund that has the same expenses/fees as FXAIX/FXSIX, so I'm thinking about just rolling the money over to the current company's plan.

So you're saying, in general for a t-401k I might be considering converting and moving to a Roth IRA, that I should actually *wait* until retirement to do it? I always thought that you'd get taxed based on whatever bracket your in at the time of conversion... so if I expect to be in a lower tax bracket then, it might be more beneficial to convert at that point in time? (sorry if I'm mixing things up... I always get confused with this stuff)
The 401k can also be rolled over to a traditional IRA (non-taxable event) and the money converted to Roth at a later date

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jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #8 on: January 28, 2016, 10:06:24 PM »
Any pointers on what the best move would be? Should I just leave the 401ks alone for the time being? Or, if I'm able to roll it over to my current company's plan, should I do that instead?

Probably not relevant, but how old are you?  If you are 55 or older you may want to leave them with your current employer.  You can access them penalty-free.  If you roll it over, you can't.

I'm 35 and my wife is 29.

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #9 on: January 28, 2016, 11:08:26 PM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

I just checked my current company's 401k and they offer a privately held/managed S&P 500 Fund that has the same expenses/fees as FXAIX/FXSIX, so I'm thinking about just rolling the money over to the current company's plan.

So you're saying, in general for a t-401k I might be considering converting and moving to a Roth IRA, that I should actually *wait* until retirement to do it? I always thought that you'd get taxed based on whatever bracket your in at the time of conversion... so if I expect to be in a lower tax bracket then, it might be more beneficial to convert at that point in time? (sorry if I'm mixing things up... I always get confused with this stuff)
The 401k can also be rolled over to a traditional IRA (non-taxable event) and the money converted to Roth at a later date

Sent from my SM-N920V using Tapatalk

So I'm assuming this would be favorable in the case that I anticipate being in a lower tax bracket later down the road?

Also, I wouldn't necessarily want to rollover to a tIRA if I'm going to lose the investor class fund right (with the advantage of lower fees). I'm guessing that if I can maintain the lower fees, go that route - this would mean that it *seems* the most favorable option (that wouldn't trigger a taxable event) would be to rollover my former company's 401k into the current 401k (because the current 401k offers an S&P 500 fund with the same low fees as the prior, and this is lower than the fees that are in the equivalent but different class funds I have in my Roth IRA).

seattlecyclone

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Re: Our 401ks and converting to Roth?
« Reply #10 on: January 28, 2016, 11:47:01 PM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

I just checked my current company's 401k and they offer a privately held/managed S&P 500 Fund that has the same expenses/fees as FXAIX/FXSIX, so I'm thinking about just rolling the money over to the current company's plan.

So you're saying, in general for a t-401k I might be considering converting and moving to a Roth IRA, that I should actually *wait* until retirement to do it? I always thought that you'd get taxed based on whatever bracket your in at the time of conversion... so if I expect to be in a lower tax bracket then, it might be more beneficial to convert at that point in time? (sorry if I'm mixing things up... I always get confused with this stuff)

Exactly. You don't want to do Roth conversions in a year when your income is already high. If you expect your income this year will be lower than ever again (including during retirement), Roth conversions may make sense now. Otherwise wait.

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #11 on: January 29, 2016, 12:02:10 AM »
Since you have awesome funds in your current 401(k), there's no real hurry to roll it over. If your new 401(k) has similarly good funds, you may want to roll it into there. Otherwise an IRA is fine if you just want to reduce the number of accounts you have open. If any of these funds you're thinking of moving to a Roth IRA are traditional 401(k) funds, I might suggest waiting until after you retire, as you would be taxed on the entire amount converted at your current marginal rate.

I just checked my current company's 401k and they offer a privately held/managed S&P 500 Fund that has the same expenses/fees as FXAIX/FXSIX, so I'm thinking about just rolling the money over to the current company's plan.

So you're saying, in general for a t-401k I might be considering converting and moving to a Roth IRA, that I should actually *wait* until retirement to do it? I always thought that you'd get taxed based on whatever bracket your in at the time of conversion... so if I expect to be in a lower tax bracket then, it might be more beneficial to convert at that point in time? (sorry if I'm mixing things up... I always get confused with this stuff)

Exactly. You don't want to do Roth conversions in a year when your income is already high. If you expect your income this year will be lower than ever again (including during retirement), Roth conversions may make sense now. Otherwise wait.

Ah ok thanks for the heads-up. I made a big mistake then rolling over the 401k from two companies ago to a Roth IRA back when I decided to do that. Ah well...

So then it seems like a good strategy would be that if the new company offers good fund options in the 401k (and that does seem to be the case with the S&P 500 fund costing the same as before and less than the other funds I currently hold in my other accounts), I should just rollover my old 401k to the new 401k as a first option.
« Last Edit: January 29, 2016, 12:04:25 AM by jplee3 »

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #12 on: February 04, 2016, 10:59:32 AM »
So I was just speaking with a Fidelity rep and he remained mostly unbiased but also seemed to push me towards me converting to IRA (within Fidelity) and said the FXAIX would be converted to FUSVX (which I have in my IRAs already).
The expense ratio for FUSVX is .05 versus .02 (FXAIX and also the Wells Fargo S&P 500 Index fund) but he was saying that's a nominal difference (but hey, every little cent/sub-cent counts right?)

Another point he brought up is that if I decide to convert to the other 401k, it will take about 7-10 business days at least and that my money would be out of the market at that point. I don't think this is such a huge deal, as long as the money gets back into the market in a reasonable time frame right?

But he did point out that I'm getting charged $40 per year for additional maintenance fees in Fidelity, and that rolling over to IRA would avoid this as well as rolling over to the new company's 401k especially if they don't charge such maintenance fees. I think I'm pretty set on rolling over to the new 401k. He mentioned the IRA is more for a long-term strategy of holding the money and pointed out that with the 401k, I'll eventually have to move the money around to access it anyway. To me that's not such a huge deal though. I don't know if there are any other caveats or items I'm missing...

One other dumb question: my wife's only option with her 401k will be to convert it to IRA right? (e.g. I wouldn't be able to roll those 401k funds into *my* account even though she stopped working and we're on a single income)
« Last Edit: February 04, 2016, 11:35:00 AM by jplee3 »

beltim

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Re: Our 401ks and converting to Roth?
« Reply #13 on: February 04, 2016, 11:50:28 AM »
So I was just speaking with a Fidelity rep and he remained mostly unbiased but also seemed to push me towards me converting to IRA (within Fidelity) and said the FXAIX would be converted to FUSVX (which I have in my IRAs already).
The expense ratio for FUSVX is .05 versus .02 (FXAIX and also the Wells Fargo S&P 500 Index fund) but he was saying that's a nominal difference (but hey, every little cent/sub-cent counts right?)

On $65k that's a $20/year difference.

Quote
Another point he brought up is that if I decide to convert to the other 401k, it will take about 7-10 business days at least and that my money would be out of the market at that point. I don't think this is such a huge deal, as long as the money gets back into the market in a reasonable time frame right?

The expected value there is like 0.04% per business day.  But the standard deviation is huge.  So no, I don't think it's a big deal.

Quote
But he did point out that I'm getting charged $40 per year for additional maintenance fees in Fidelity, and that rolling over to IRA would avoid this as well as rolling over to the new company's 401k especially if they don't charge such maintenance fees. I think I'm pretty set on rolling over to the new 401k. He mentioned the IRA is more for a long-term strategy of holding the money and pointed out that with the 401k, I'll eventually have to move the money around to access it anyway. To me that's not such a huge deal though. I don't know if there are any other caveats or items I'm missing...

That $40/year is the biggest factor so far, and suggests rolling it over somewhere is a good idea.

Quote
One other dumb question: my wife's only option with her 401k will be to convert it to IRA right? (e.g. I wouldn't be able to roll those 401k funds into *my* account even though she stopped working and we're on a single income)

Not a dumb question, but you're correct you cannot roll your wife's 401k into any of your accounts.

jeromedawg

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Re: Our 401ks and converting to Roth?
« Reply #14 on: February 04, 2016, 12:10:45 PM »
Thanks! Yea, the new 401k plan doesn't assess any fees of sorts, which is definitely a nice benefit. I think I'll initiate a rollover to 401k in that case.

RedmondStash

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Re: Our 401ks and converting to Roth?
« Reply #15 on: February 06, 2016, 12:56:31 PM »
The thing about company 401ks is that they have limited choices, those choices can change, and you have no control over when and if they do. You are at your company's mercy.

If you roll your 401ks over into traditional IRAs at whatever brokerage firm you want to use (we just moved our accounts to Vanguard, but Fidelity has some index funds similar to what we like at Vanguard), you should have far more control over what you invest in, without incurring the taxable event of transferring to a Roth IRA.

Also, if you foresee any low-income years coming up, you'd be able to transfer chunks of your traditional IRAs into Roth IRAs at a slower pace, with lower taxes. I don't think you can just transfer money out of 401ks like that.

When we moved our accounts to Vanguard, because of some timing mix-ups, we were out of the market for about 3-4 weeks. Which, in the long term, will be totally meaningless. If you think in terms of decades instead of months or years, you realize that a few days or weeks don't really matter.

Good luck.

MustacheAndaHalf

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Re: Our 401ks and converting to Roth?
« Reply #16 on: February 06, 2016, 06:31:47 PM »
Being out of the market 7 days is a bit of a scare tactic if you ask me.  If it does scare you, you can always split it into two transfers to mitigate your lost time in the market (only half your money will be in transit at one time).

I personally would rather have control over my 0.05% expense ratio account than invest in the 401(k) plan that features a 0.02% fund.  Speaking of which, why are you only talking about the S&P 500?  If you're not investing in Total Stock Market, and ignoring international funds, that's significant.  The expense ratio difference is unlikely to be your biggest problem (esp at $1.70/month.  Did you lower your cell phone, cable bill, etc before worrying about this $1.70/month?)

Tax wise, you can wait in a Traditional IRA until it's favorable to convert to a Roth IRA.  The Roth IRA is more flexible if you need money before official retirement age (which is more likely if you're here on MMM forums).