Should I Move 401k Funds to IRA?

[PedalGeoff]

Hello,

My wife and I run our own business. Following the advice of MMM, I setup Vanguard traditional IRA accounts for us and moved all our money from a local broker. That has been a great move. Along with the IRA, I also setup a 401k plan under our company and have been contributing to that (not to IRA). However, it just occurred to me yesterday that we should probably be contributing the maximum allowable per year to the IRAs first since they have a higher balance.

So I'm wondering if I should move the money over from the 401k to the IRA and contribute the maximum allowable to the IRA each year, and then contribute a smaller portion to the 401k, or if we should contribute to it at all (for example, maybe we'd be better off doing extra mortgage payments on rental property before 401k).

Thanks!

[MDM]

However, it just occurred to me yesterday that we should probably be contributing the maximum allowable per year to the IRAs first since they have a higher balance.

Individual balances don't matter.  If you have two investment amounts, A and B, and each grows r%/yr, after n years you have

A * (1+r)^n + B * (1+r)^n.  That is identical to what you would have if you combined A and B in the first place: (A+B) * (1+r)^n.

See Investment Order for more.

[bortman]

Many years ago I asked a TIAA-CREF advisor if I would benefit by consolidating a 403b from a previous employer with the 403b from my current employer.

The adivsor's simple explanation -- to reinforce MDM's explanation -- was this: there is no economy of scale in combining these.

Focus instead on deciding whether you want to put your money into taxable tIRA or tax-deferred 401k. Most here would likely prioritize the 401k before investing in a tIRA, but everyone's circumstances are different.

[smallstache]

So I'm wondering if I should move the money over from the 401k to the IRA and contribute the maximum allowable to the IRA each year, and then contribute a smaller portion to the 401k, or if we should contribute to it at all (for example, maybe we'd be better off doing extra mortgage payments on rental property before 401k).

Highly doubt it, but need more info than this.