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Golfer
LSU Fan
Member since Nov 2005
73368 posts

What to do with "old 401k's"?
I have two 401k's totaling about $30,000 from previous employers. Do I?

- Roll them into my current employer's 401k?
- Roll them into IRA (if so, what type?)
- Keep them as is.



LSUAfro
LSU Fan
Baton Rouge
Member since Aug 2005
12775 posts

re: What to do with "old 401k's"?
quote:

Roll them into my current employer's 401k
If you aren't maxing out a roth and they have a roth in their 401k, do that. Max it out and roll the rest in to their traditional. You can do $5k this year and $5k next.
quote:

Roll them into IRA (if so, what type?)
If you aren't utilizing a roth and can, now would be a good time to. I would roll my traditional in to the employer sponsored plans if they have decent options.
quote:

Keep them as is.
I like to keep things simple. Consolidation.
This post was edited on 10/22 at 3:27 pm


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Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
I personally would pay the taxes and slowly transition them into a Roth IRA.

Gives you an investment vehicle independent of the 401 with more options.


That said, in your case, I seem to remember your take home being fairly high, which muddles it all.
This post was edited on 10/22 at 3:10 pm


Golfer
LSU Fan
Member since Nov 2005
73368 posts

re: What to do with "old 401k's"?
Nah, we are below the income levels for married filing jointly.

One is $22k the other is $8,000.

Roll the $22k into the current 401k and "cash out" the $8,000 to move into a Roth? $5,500 distribution for 2013 and then $2,500 for 2014? Or am I way off here?
This post was edited on 10/22 at 3:17 pm


GoCrazyAuburn
Auburn Fan
Member since Feb 2010
28632 posts
 Online 

re: What to do with "old 401k's"?
If you are expecting a decently low tax burden (relative I guess), I'd roll all of it into a Roth IRA.


Golfer
LSU Fan
Member since Nov 2005
73368 posts

re: What to do with "old 401k's"?
I thought you can only contribute $5,500/yr to the Roth?


GoCrazyAuburn
Auburn Fan
Member since Feb 2010
28632 posts
 Online 

re: What to do with "old 401k's"?
Yes, that is correct. I meant over the next few years. Sorry for te confusion.


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Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
quote:

Roll the $22k into the current 401k and "cash out" the $8,000 to move into a Roth? $5,500 distribution for 2013 and then $2,500 for 2014? Or am I way off here?



I don't know what your plans are, but I would move the entire thing over to Roth. Especially if your income allows for sub 15% contributions.


Conversions arent subject to the same contributions limits. You can move the whole thing over at once.

You just don't want that conversion plus your current income to push you in a higher tax bracket.
This post was edited on 10/22 at 4:14 pm


stevengtiger
LSU Fan
Member since Jul 2013
2778 posts

re: What to do with "old 401k's"?
I had a similar amount in mine when I recently started a new job. I rolled mine over into new 401k with new employer. Very easy to do and no fees or taxes. My thought process was, why pay taxes on money when you don't need to? Just my .02.


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
Because you still have to pay taxes on it either way

It's a choice to pay it now if you are at a lower rate than you anticipate retiring at.

Where you will have to pay income taxes on everything you withdraw from your 401k, Roth investors pull their assets completely tax free.

And that tax difference can REALLY add up in your favor given years of compound interest if you plan on having an active retirement.


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
Illustration time:

Jack and John both have 30k they are looking to rollover.

Both are in a 15% income tax bracket.

Jack doesn't feel like he should pay taxes when he doesn't have to, so he rolls into an IRA

John feels comfortable in betting he is in the 25% bracket or higher at retirement, and pays the taxes out of pocket (4500) to convert to a Roth.

Fast forward 30 years. Both invested similarly and very well and got an average of 10.5% annually. As predicted by John, both are in the 25% bracket and plan to continue being there in retirement.

Both now have an account worth around 625,000.

Because John paid that 4500 30 years ago, he has that full amount to spend in retirement as he wishes. His withdrawals are null as far as the IRS is concerned.

Jack, in his attempt to avoid taxes and due to living in a 25% tax bracket in continuing his standard of living into retirement will eventually owe the IRS a quarter of that egg....156,000 dollars, because he thought he was being fiscally shrewd not paying that 4500 earlier in life.


Roth is not always the right choice, but if you are in a circumstance that it is....you go balls deep.



Chris Farley
Maryland Fan
Regulating
Member since Sep 2009
4072 posts

re: What to do with "old 401k's"?
quote:

Conversions arent subject to the same contributions limits. You can move the whole thing over at once.


This, I would put it all into a Roth or traditional IRA.


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tirebiter
LSU Fan
ATL
Member since Oct 2006
6432 posts

re: What to do with "old 401k's"?
Assuming it is a traditional 401k you would have to open a traditional IRA, then convert the holdings into a Roth or you could keep it in the traditional IRA with no tax impact or roll to the new employer 401k. Regardless, you need to walk through how converting from traditional to Roth would affect your marginal fed tax bracket + state tax if any. Then you have to guess what your retirement tax bracket will be to guess if it is beneficial or not. See where I am going with this? If you are talking 21% tax all-in maybe a Roth makes sense, otherwise you may better opps through the years to do conversions later. 401k's offer some protection that IRAs do not, but it would have to be a great 401k (ie investment choices, low expenses, maybe a brokerage option within the plan that again would have to be low cost per transaction, etc) for me to transfer to a new plan compared to an IRA brokerage account with any of the big players, ie Vanguard, Fidelity, Schwab, Etrade,etc.

I have converted quite a bit to Roths the last 10-yrs, but most times I had some good tax hedges to keep rates low. FWIW, my CPA always says frick conversions, it is too hard for most to make up the tax cost drag incurred on the conversions.


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tirebiter
LSU Fan
ATL
Member since Oct 2006
6432 posts

re: What to do with "old 401k's"?
quote:

John feels comfortable in betting he is in the 25% bracket or higher at retirement, and pays the taxes out of pocket (4500) to convert to a Roth.

Fast forward 30 years. Both invested similarly and very well and got an average of 10.5% annually. As predicted by John, both are in the 25% bracket and plan to continue being there in retirement.


I don't really feel like getting into an argument, but if one builds up significant taxable accounts, assuming tax policy stays similar, they could put off paying 25% fed tax for a loonnnngggg time in retirement. Additionally, if married, here in GA the state exempts ~ $130k in income for those 62 or older when filing MFJ. People need to really put in a little effort designing tax efficient portfolios for now and retirement.

My holdings are half tax advantaged including Roth and half taxable due to past contribution level limits, fairly high income for a decent period of time, etc. I could easily draw six figure income equivalent and pay little to no tax, much less 31% (25% + 6% state tax) although it will be a long time before 62 years of age rolls around.

Not throwing stones, just coming from a different perspective.


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
My point wasn't to lay out what could happen.

For fricks sake I would have to write a book to cover all the possible permutations of choices in tax codes.

The point was to illustrate the benefit of a Roth to someone who apparently dismisses them on the basis of "why pay taxes if you have to."

I think I did a decent job of that.

Bringing up state income tax exceptions (especially when I didn't factor them in the hypothetical to start with) is irrelevant.


JumpingTheShark
USA Fan
America
Member since Nov 2012
17887 posts

re: What to do with "old 401k's"?
i rolled mine into my current employer's 401k


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tirebiter
LSU Fan
ATL
Member since Oct 2006
6432 posts

re: What to do with "old 401k's"?
Don't get your panties in a wad, bro, just bringing more perspective to the scenario which is often overlooked. Like I said, wasn't saying you are wrong just that people should really think about what they are doing for their own life situations. I have converted when I knew it was favorable, so I am not dismissing the concept in general, and people that do that without actually running numbers probably have bigger problems down the road due to lack of long term thinking. Most people live in states with state, if not city taxes, too, so its not like I am throwing non-pertinent scenarios out there.


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
It's not panties in a wad as it is not being sure as to your point.


What perspective is being offered?

All you are seem to be saying is that the real world is more complex than a singular hypothetical intended to illustrate a single point.

Sitting there throwing tangents after tangents isn't offering a perspective. It just muddles the issue.


Paul Allen
Notre Dame Fan
Montauk, NY
Member since Nov 2007
58848 posts
 Online 

re: What to do with "old 401k's"?
Sorry for the hijack but can 401k's and IRA's go towards down payments for buying a home?


Volvagia
LSU Fan
Fort Worth
Member since Mar 2006
46827 posts

re: What to do with "old 401k's"?
It depends on the plan but in general, yes. Although or is often considered a bad idea to do so.

How it works varies on what it is you have.

For instance, in my 401k you are allowed to take a loan out against yourself where you pay yourself interest. You can take out the lesser of 50% of your vested balance or 50k for a term of 25 years.

My Roth IRA, outside of allowing contributions being immediately withdrawn, also allows a one time withdrawal of up to 10k in earnings penalty and tax free for the purpose of purchasing your first home, a trait I'm using myself to buildup home purchase nest egg.


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