Old 401k - what to do with it? | TigerDroppings.com

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elposter
Alabama Fan
Member since Dec 2010
7905 posts

Old 401k - what to do with it?


I have about $50,000 in an old 401k (previous employer). It's just been sitting in 3 diversified mutual funds kind doing okay, not great. I'd like to do better.

I have a new 401k that has fairly limited options so I don't necessarily want to roll into that. So, I plan to roll into an independent IRA. If you were given $50,000 today from an old 401k what would you do with it? I want to be very aggressive with it - my current 401k is pretty conservative because of the options.







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Vols&Shaft83
Tennessee Fan
Member since Dec 2012
13127 posts

re: Old 401k - what to do with it?


Vanguard 500 Index, Vanguard Total Stock Market, Fidelity Contra Fund, AMCAP. Fairly aggressive, but not stupid.





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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

Vanguard



Been reading up for the past 2 weeks since y'all recommended them for rolling my 401k... Every review I have read is positive

Still trying to decide on whether to roll it to a Roth or not...

Option 1: Rolling it to a Roth
Option 2: Roll it to an IRA and open a separate Roth to fund






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


One thing I am reading about the implications of rolling it to a Roth...

Yes, the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.

So unless you're 100% positive that you won't need to touch it prior to age 60, it is a wash on net return.







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Tiger n Miami AU83
Auburn Fan
Miami
Member since Oct 2007
34328 posts

re: Old 401k - what to do with it?


quote:

I want to be very aggressive with it


Strippers and blow. Immediate ROI.






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CoolHand
USA Fan
Member since Dec 2011
1482 posts

re: Old 401k - what to do with it?


quote:

Yes, the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.


Just to clarify, your contributions can be removed without penalty. I think that's what you meant.






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29859 posts

re: Old 401k - what to do with it?


quote:

One thing I am reading about the implications of rolling it to a Roth...


quote:

the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.


For interest earned, this is correct. Of course, the contribution can be pulled out at any time because when you contribute to a Roth you have to pay taxes on that up front.

Going from a 401 to a Roth isn't actually a rollover, the technical term is "recharacterization" and you have to pay tax on the amount being recharacterized. You can rollover directly to a traditional IRA without paying taxes though, but of course you can't pull out the contribution early for those.






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

but of course you can't pull out the contribution early for those


You can, you would just pay the 10% penalty, like with a Roth, correct and the taxes on the amount?






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Vols&Shaft83
Tennessee Fan
Member since Dec 2012
13127 posts

re: Old 401k - what to do with it?


quote:

You can, you would just pay the 10% penalty, like with a Roth, correct and the taxes on the amount?



You can take the contributions (principal) out of the Roth without penalty, not the gains (unless it's a qualifying life event). You cannot take principal or gains from a 401K or Traditional IRA until age 59.5






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

You can take the contributions (principal) out of the Roth without penalty, not the gains (unless it's a qualifying life event). You cannot take principal or gains from a 401K or Traditional IRA until age 59.5



Ok, Im confused... Tell me where I'm wrong

401k - Pre Tax contribution, if you were to pull it out early you would pay Taxes on the amount plus 10% penalty

Roth - Post Tax contribution, if you were to pull it out early, you pay the 10% penalty.






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Vols&Shaft83
Tennessee Fan
Member since Dec 2012
13127 posts

re: Old 401k - what to do with it?


quote:

Ok, Im confused... Tell me where I'm wrong


You are wrong here:

quote:

Roth - Post Tax contribution, if you were to pull it out early, you pay the 10% penalty.


You can pull your contributions early without penalty or taxes because you've already paid taxes on that money, you cannot pull gains early without penalty (unless it's due to a qualifying life event like medical reasons, etc.)






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

You can pull your contributions early without penalty or taxes because you've already paid taxes on that money, you cannot pull gains early without penalty


Ok, gotcha

What are your feelings on rolling an old employer 401k worth about $26k over?

IRA or Roth?






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Vols&Shaft83
Tennessee Fan
Member since Dec 2012
13127 posts

re: Old 401k - what to do with it?


quote:

What are your feelings on rolling an old employer 401k worth about $26k over?

IRA or Roth?


Posted earlier by Foshizzle

quote:

Going from a 401 to a Roth isn't actually a rollover, the technical term is "recharacterization" and you have to pay tax on the amount being recharacterized. You can rollover directly to a traditional IRA without paying taxes though, but of course you can't pull out the contribution early for those.


Probably better to just move to a traditional ira, and start a Roth Separately.






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

Probably better to just move to a traditional ira, and start a Roth Separately.


Thats the way I was leaning... Someone did the math and over 30yrs theres a minimal difference between the two when you figure in gains/taxes.






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romereaux
LSU Fan
Member since Jan 2011
53 posts

re: Old 401k - what to do with it?


quote:

Strippers and blow



Aghhhhhhhhahahahahahah






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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

Probably better to just move to a traditional ira, and start a Roth Separately.


In the middle of processing the paperwork and I see that my old 401k has the option to withhold income tax from this rollover if I choose to move it to a Roth...

Would that change your mind? I'd have to get more details on how that happens, but it sounds like I wouldn't have to come out of pocket for the taxes







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Lsut81
USA Fan
Member since Jun 2005
64236 posts

re: Old 401k - what to do with it?


quote:

has the option to withhold income tax from this rollover if I choose to move it to a Roth...


Nevermind, it was as I suspected, the $$$ that they withhold for taxes would be assessed a 10% penalty because it would be seen as a cash payout.

Guessing its better to stick with the original plan and roll it to an IRA and then open a separate Roth and fund it out of my savings/checking.






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