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Started By
Message
What to do with an old 401k account?
Posted on 1/3/25 at 10:05 am
Posted on 1/3/25 at 10:05 am
My wife has an old 401k from a previous employer that I would like to roll over.
We make over 300k a year combined so we are already having to back door Roth IRA accounts.
Should we roll it over to a Roth or traditional Ira?
Should we roll it over to her current employer 401k?
Just leave it?
We make over 300k a year combined so we are already having to back door Roth IRA accounts.
Should we roll it over to a Roth or traditional Ira?
Should we roll it over to her current employer 401k?
Just leave it?
5
Posted on 1/3/25 at 10:42 am to Simon Gruber
quote:
current employer 401k?
If you roll it over to an independent shop, not an employer, they may have lower expenses and more options. I've always rolled money out into Schwab or whomever within two weeks after quitting. My current employer's options are total shite, and there's no way I'd put more money that I didn't "have" to.
Posted on 1/3/25 at 11:13 am to Simon Gruber
quote:
Should we roll it over to her current employer 401k?
Don't do this, we always advise clients to take control of their money when given the opportunity.
Roll it over into an IRA where you can take full advantage of the market and not something that has restrictions like a 401k.
ETA: don't roll it over into a roth IRA unless you want to be hit with the tax bill for all the money in that 401k.
This post was edited on 1/3/25 at 11:18 am
Posted on 1/3/25 at 11:49 am to bradygolf98
To preserve the backdoor Roth (without triggering pro rata rule and tax.on conversion) move it to current 401k or keep it where it is. Unless there are high fees or bad investment choices why move it?
If you dont like either 401k, rollover to Traditional IRA will just result in some tax on conversions when you backdoor Roth. Have $ set aside to pay the tax without pulling from conversion.
If you dont like either 401k, rollover to Traditional IRA will just result in some tax on conversions when you backdoor Roth. Have $ set aside to pay the tax without pulling from conversion.
Posted on 1/3/25 at 11:52 am to TorchtheFlyingTiger
Yeah the backdoor roth complicates it a little. 401k options are just in general shitty and typically higher fees than a traditional IRA.
Posted on 1/3/25 at 12:05 pm to Simon Gruber
I just went through this. Since you already have to back door your Roth, you will get screwed if you put it in an IRA. Leave it as a 401k
Posted on 1/3/25 at 12:11 pm to bradygolf98
quote:
we always advise clients to take control of their money when given the opportunity.
Sounds like it's "always" an opportunity for you to take control of more of their assets. Let me guess you dont get compensated for assets held in their 401k. If either 401k is decent why advise a client to dick up the backdoor Roth unless for personal gain?
Posted on 1/3/25 at 12:18 pm to TorchtheFlyingTiger
Not the reason. If I'm being honest I skimmed over the backdoor part of his post and didn't consider that in my original post.
I'm speaking in generalities about 401k options because I have absolutely no clue what company OP works for or where the 401k is located or what options they have available to them.
In general terms, what is easier to do? Make money with the entire market at your disposal with lower fees, or be restricted to your investments and pay higher fees? Easy choice for me.
I'm speaking in generalities about 401k options because I have absolutely no clue what company OP works for or where the 401k is located or what options they have available to them.
In general terms, what is easier to do? Make money with the entire market at your disposal with lower fees, or be restricted to your investments and pay higher fees? Easy choice for me.
Posted on 1/3/25 at 12:23 pm to TorchtheFlyingTiger
Google Rule of 55. If she is anywhere near that age and want to have early retirement options, or just want to buy a beach house or something, you might want to roll it into her current employer's 401K.
On the Pro Rata rule: doesn't it only apply to his wife's IRA balances, not jointly? That may have some sort of advantage.
On the Pro Rata rule: doesn't it only apply to his wife's IRA balances, not jointly? That may have some sort of advantage.
Posted on 1/3/25 at 1:48 pm to bradygolf98
Depending on your state, 401k can be protected from lawsuits
Posted on 1/3/25 at 2:18 pm to Simon Gruber
I just leave mine if they have low fees and decent options for investments.
Posted on 1/3/25 at 3:27 pm to Simon Gruber
We had a 401k rolled over to an IRA for my wife a few years ago. This past year was the first year we were over the income limit for ROTH IRA. So we did traditional IRAs with the intention of backdooring end of year. I only learned somewhat recently about the pro rata rule and the basis for the tax implication of doing back door was not only in our 2 traditional IRAs last year but that rollover IRA as well.
I had to ship the rollover IRA back out to her current 401k then do the roth conversion on our traditional IRAs as a result so we didnt get hit with a super massive tax bill as the rollover IRA had almost $100k in it.
So I would not roll over the 401k to an IRA if your intention is to continue to do back door roth IRAs. The IRS cares about all non ROTH IRAs when you do a conversion, but it doesnt care about 401k as a basis...just a weird thing i didnt know about until somewhat recently.
I had to ship the rollover IRA back out to her current 401k then do the roth conversion on our traditional IRAs as a result so we didnt get hit with a super massive tax bill as the rollover IRA had almost $100k in it.
So I would not roll over the 401k to an IRA if your intention is to continue to do back door roth IRAs. The IRS cares about all non ROTH IRAs when you do a conversion, but it doesnt care about 401k as a basis...just a weird thing i didnt know about until somewhat recently.
This post was edited on 1/3/25 at 3:30 pm
Posted on 1/3/25 at 5:01 pm to thunderbird1100
One other thing: some 401K plans that have a Roth option allow for conversions from traditional to Roth in the plan. See if you can do that with your wife's old 401K. Also, some 401K's allow for in service rollovers, so there might be some options in her current 401K. There might be a scenario where you can convert to Roth, maybe over a couple of years to spread out the tax hit, then rollover to a Roth IRA.
Posted on 1/4/25 at 9:11 am to bradygolf98
My 401k is still at previous employer. Majority of it is in Russell1000 and 2000. Both have .02 expense ratio. I saw no reason to move it.
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