What to do with "old 401k's"?

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Roll them into my current employer's 401k

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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.

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Roll them into IRA (if so, what type?)

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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.

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Keep them as is.

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I like to keep things simple. Consolidation.

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?

I thought you can only contribute $5,500/yr to the Roth?

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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?

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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.

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.

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.

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.

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.

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.

Sorry for the hijack but can 401k's and IRA's go towards down payments for buying a home?