401k and leaving employer

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Topic Author
investingfun
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Joined: Thu Oct 15, 2020 8:58 pm

401k and leaving employer

Post by investingfun »

Hi Folks,

I left an employer a couple months ago and have about $200k in a 401k.

Are there any tax planning ideas that I should consider at this point? I'm 37.

I believe expense ratio's are lower if I keep it in the 401k.

From a legal standpoint, have I read 401k's are protected against bankruptcy and/or lawsuits?

What's the general consensus? Keep funds at my age in a 401k or consolidate into an IRA, etc?
Marseille07
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Re: 401k and leaving employer

Post by Marseille07 »

Lots of people roll into an IRA. I keep 401K personally.
Boatguy
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Re: 401k and leaving employer

Post by Boatguy »

I kept mine at my old employer because of good fund offerings with very low ERs. If you don’t already have an IRA, not rolling into an IRA also facilitates backdoor Roths without the prorata hassle.
lakpr
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Re: 401k and leaving employer

Post by lakpr »

I am not sure about a general consensus, but if you have more than $5000 in contributions to the 401(k) -- meaning rollover amounts do not count -- the plan admin cannot kick you out of the plan. A large number of employers do NOT kick participants out of the plan even if they have less than that threshold, but below that point it is at the discretion of the plan.

Since you say you have $200k in there, I would prefer to leave it be, assuming the plan expense ratios are good to excellent, and better than what you can get at retail in an IRA (which you indicate is the case).

Yes, 401k plans are governed by the ERISA law and its powerful non-alienation provisions. Yes, including bankruptcies and lawsuits.

Unless the plan expenses are high (and depending on the plan, the costs that ex-employees bear may be higher than active participants, so when I say plan expenses I am implicitly including any such higher fees), there is absolutely no reason to roll the 401k money over to an IRA.
Misenplace
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Re: 401k and leaving employer

Post by Misenplace »

If you want to do a back door Roth, it's preferred to not roll 401(k)'s into a Rollover IRA. If you get another job with a good 401(k) plan, you may be able to roll your old job 401(k) into the new one. Sort of depends upon the plan, and your own situation.
Here's the Wiki on back door Roth https://www.bogleheads.org/wiki/Backdoor_Roth
Generally, you would keep your Employer Retirement funds segregated in a Rollover IRA, to maintain max ERISA protection. Here is a Wiki on it:
https://www.bogleheads.org/wiki/Employe ... s_overview

If you post your complete portfolio, along with the choices in your 401(k), you will get better and more complete advice. Here is the template:
Asking Portfolio Questions
bogledogle
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Re: 401k and leaving employer

Post by bogledogle »

If your new employer offers better options, you may want to roll into the new employer's 401k. Your 401k is protected and is not under your old employer's control. Rolling into an IRA will probably give you access to more funds and better cost options. However, if you roll into an IRA, you cannot do a backdoor roth ira until that IRA is rolled out to another 401k plan.
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rob
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Re: 401k and leaving employer

Post by rob »

One argument for keeping old 401K is if you have access to good stable value funds... I've seen those limited to new money at new employer - not rollover money.

The big down-side - depending on income - is the back door roth - I've never been able to use that due to large rollover IRA's and it's irritating.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
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anon_investor
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Re: 401k and leaving employer

Post by anon_investor »

Don't rollover of you want to do back door roth.
lakpr
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Re: 401k and leaving employer

Post by lakpr »

bogledogle wrote: Wed Dec 23, 2020 9:04 pm Rolling into an IRA will probably give you access to more funds
and better cost options
First half of that sentence: I do not see it as a particular advantage, in fact more of a disadvantage. As long as a 3-fund portfolio can be built at a reasonable cost with choices available within the 401k plan, there is no need for additional funds.

Second half of that sentence: depends on the particular 401k plan. With large employers especially, you get access to Institutional shares of the funds and Collective Investment Trusts with much lower cost than what you get in retail in an IRA. For example, within my 401k plan I have access to VIIIX (Vanguard Institutional Index fund) at 0.02%, whereas the IRA equivalent of Vanguard 500 Index fund, VFIAX, has a retail expense ratio of 0.05% ...
Topic Author
investingfun
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Joined: Thu Oct 15, 2020 8:58 pm

Re: 401k and leaving employer

Post by investingfun »

Thank you all for the quick thoughts!
260chrisb
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Re: 401k and leaving employer

Post by 260chrisb »

investingfun wrote: Wed Dec 23, 2020 8:46 pm Hi Folks,

I left an employer a couple months ago and have about $200k in a 401k.

Are there any tax planning ideas that I should consider at this point? I'm 37.

I believe expense ratio's are lower if I keep it in the 401k.

From a legal standpoint, have I read 401k's are protected against bankruptcy and/or lawsuits?

What's the general consensus? Keep funds at my age in a 401k or consolidate into an IRA, etc?
If it were me, I'd roll it into an IRA. I did this once at about the same age. I'm at a loss as to how the expense ratios could be lower but perhaps. Ultimately your overall expenses will be higher as there are fees within the 401K that you won't have at Vanguard or other investment firms.
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anon_investor
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Re: 401k and leaving employer

Post by anon_investor »

260chrisb wrote: Wed Dec 23, 2020 9:15 pm
investingfun wrote: Wed Dec 23, 2020 8:46 pm Hi Folks,

I left an employer a couple months ago and have about $200k in a 401k.

Are there any tax planning ideas that I should consider at this point? I'm 37.

I believe expense ratio's are lower if I keep it in the 401k.

From a legal standpoint, have I read 401k's are protected against bankruptcy and/or lawsuits?

What's the general consensus? Keep funds at my age in a 401k or consolidate into an IRA, etc?
If it were me, I'd roll it into an IRA. I did this once at about the same age. I'm at a loss as to how the expense ratios could be lower but perhaps. Ultimately your overall expenses will be higher as there are fees within the 401K that you won't have at Vanguard or other investment firms.
Definitely possible for a 401k plan to have lower costs. Usually with large employers. My current and prior 401k have lower costs than Vanguard.
ge1
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Re: 401k and leaving employer

Post by ge1 »

My wife and I rolled our mid six figures 401k from a prior employer to an IRA with Fidelity a few years ago. It‘s true that you lose the back door roth option, however I love the fact that I can buy any traded stock or ETF. Will leave my current employer shortly and can‘t wait to move that money into my IRA as well.
calvin111
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Re: 401k and leaving employer

Post by calvin111 »

If you have a 401K option with Fidelity then check if they offer BrokerageLink option with your 401K. Then you can rollover that IRA into Fidelity 401K and invest into individual securities in Brokeragelink. It is as good as IRA investment.

Though you cannot do option trading in brokeragelink but you can do it in IRA.
NicB
Posts: 32
Joined: Fri Nov 20, 2015 3:05 pm

Re: 401k and leaving employer

Post by NicB »

Boatguy wrote: Wed Dec 23, 2020 8:55 pm I kept mine at my old employer because of good fund offerings with very low ERs. If you don’t already have an IRA, not rolling into an IRA also facilitates backdoor Roths without the prorata hassle.
Exactly this - x2. I've done some consolidation, but have not moved anything out of a 401k into an IRA.
Last edited by NicB on Wed Dec 23, 2020 10:15 pm, edited 1 time in total.
Adfmacro
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Re: 401k and leaving employer

Post by Adfmacro »

I had no need for a back door Roth protection and rolled mine to an IRA after being gone from the company for several years. Keeping the old 401k is good if you have better options there than your current employer and want to leave the back door Roth option open.

Be sure your old employer has your updated info and you not old check your balance but also check for any news. 401k’s can move to a different fund sponsor or funds can be eliminated, etc.

I doubt that you will need to consider this, but 401k of your current employer while you still work there are not subject to RMDs, but 401ks of past employers are. You are a long ways away from that issue, but those of us still working in our 60s, it is not so far off.
bogledogle
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Re: 401k and leaving employer

Post by bogledogle »

lakpr wrote: Wed Dec 23, 2020 9:08 pm
bogledogle wrote: Wed Dec 23, 2020 9:04 pm Rolling into an IRA will probably give you access to more funds
and better cost options
First half of that sentence: I do not see it as a particular advantage, in fact more of a disadvantage. As long as a 3-fund portfolio can be built at a reasonable cost with choices available within the 401k plan, there is no need for additional funds.

Second half of that sentence: depends on the particular 401k plan. With large employers especially, you get access to Institutional shares of the funds and Collective Investment Trusts with much lower cost than what you get in retail in an IRA. For example, within my 401k plan I have access to VIIIX (Vanguard Institutional Index fund) at 0.02%, whereas the IRA equivalent of Vanguard 500 Index fund, VFIAX, has a retail expense ratio of 0.05% ...
That is why I said "probably" :sharebeer
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FelixTheCat
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Re: 401k and leaving employer

Post by FelixTheCat »

Misenplace wrote: Wed Dec 23, 2020 9:00 pm If you want to do a back door Roth, it's preferred to not roll 401(k)'s into a Rollover IRA.
I thought a Backdoor Roth was allowed from non-deductible IRAs. 401Ks allow you to deduct your contributions from your income. Am I right?
Felix is a wonderful, wonderful cat.
Misenplace
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Re: 401k and leaving employer

Post by Misenplace »

FelixTheCat wrote: Tue Dec 29, 2020 2:47 pm
Misenplace wrote: Wed Dec 23, 2020 9:00 pm If you want to do a back door Roth, it's preferred to not roll 401(k)'s into a Rollover IRA.
I thought a Backdoor Roth was allowed from non-deductible IRAs. 401Ks allow you to deduct your contributions from your income. Am I right?
Yes the Backdoor Roth starts from a non-deductible IRA, and contributions to a 401(k) can be deducted from income (unless they are Roth 401(k) contributions). But that is not the whole story. The reason I cautioned about not creating a Rollover IRA if poster wanted to do a Backdoor Roth is because of the pro rata rule (see the Cautions section of the wiki entry on Backdoor Roth
LittleMaggieMae
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Re: 401k and leaving employer

Post by LittleMaggieMae »

anon_investor wrote: Wed Dec 23, 2020 9:08 pm Don't rollover of you want to do back door roth.
I'd add that you should think about your income earning abilities in the years ahead when thinking about the "back door roth" thing. I'd also check if you can roll it into your employer's 401K plan and if that makes over sense for your overall plans and financial situation.

I had expected my income to stay below the "roth contribution" threshold indefinitely - but then my employer got generous and gave me a big raise in one year, and then a big bump in salary along with a big raise the next year. It was enough to put me just over the Roth limit. I have a large rolled over IRA which makes a back door roth unappealing.

I am looking into rolling the IRA into my employers 401K.
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