durham_lad

Exactly. From an IRS tax viewpoint there is no difference at all and distributions from either a 401k or IRA are reported by the trustee to the IRS on a 1099-R.

A distribution from a Roth IRA is also reported using a 1099-R but the distribution code indicates there is no tax due. The distribution is still reported on the 1040, line 15, along with distributions from a 401k and regular IRA. Line 15a holds the total of all IRA, 401k, 4013b, Roth etc distributions and line 15b shows the amount that is taxable.

tom169

There are thousands of mutual funds on the open market, which an IRA like with vanguard allows you to buy into.

Owen778

I do realise that, yes. But I'm not sure you understand what I'm saying. Many 401ks for big companies include institutional grade funds. These have fees (the expense ratio) lower than the equivalent funds available to individual investors, such as in an IRA.

It makes no sense for someone whose 401k includes these funds to rollover into an IRA.

tom169

I do understand. There are very likely better performing mutual funds than what your index fund is getting.

Owen778

Of course, there almost always are. Though I bet you can't guarantee which mutual funds will out-perform their indexes, except with hindsight.

If you can, some major banks and brokerages would like to pay you a lot of money.

There are a few funds that have such a consistently good history that they have a better chance than most - Vanguard's Wellington and Primecap come to mind - but even then none can be guaranteed.

formfill1

It appears they are different on the 1040nr form.
I don't have the form to hand, but from what I can remember, the IRA part is on the main section, first page, whilst the Pensions are in the NEC section, which is treated differently.

tom169

But an index fund isn't guaranteed either. So this time I'm not sure what your point is.

robin1234

Yes, pensions are listed in the NEC Schedule. BUT they are also listed in the income section of the first page of the 1040nr, lines 8-23, this section (where you list out all your income) being virtually identical to the equivalent section of the IRS form 1040. So pension distribution and IRA distribution is treated the same.

It's easy to pull up PDFs of both the 1040 and the 1040nr. I'd advise you to do this, and compare the lines 8-23 on both. Essentially, they're the same.

I believe the NEC is a subset of income, non-US income? It would make sense that IRA distribution is not listed there, since there's no such thing as non-US IRA distribution... I'm not sure, because I've never used the 1040nr.

Owen778

This seems a little silly. How can someone guarantee that an index fund will outperform itself?

You stated that, "There are very likely better performing mutual funds than what your index fund is getting." This is obviously true, given there are hundreds of actively manged mutual funds for each sector of the equity markets. But it's a useless fact, unless you can identify those mutual funds ahead of time.

tom169

And it isn't hard to research mutual funds with a good track record of out performing whatever index you're testing against (usually S and P 500). It gives a good insight into how it has been managed and how it's likely to continue. We're talking 30 year averages.

Giantaxe

He said "institutional" not "index":

"Mutual funds offer institutional shares as one class of their mutual funds. Institutional shares have their own fee structure and investing requirements. Institutional shares usually offer the lowest expense ratios of all a mutual fund's share classes. The minimum investment is usually around $200,000."

https://www.investopedia.com/terms/i...onalshares.asp

My (admittedly very large) employer's 401(k) plan allows me to invest in anything that its IRA holders can invest, which is a heck of a lot of mutual funds, as well as individual shares and ETFs. Many - but by no means all - of those mutual funds offer an institutional class of share with lower fees. So, depending on ones investment mix, there may be a reason not to roll over into an IRA.

Otoh, I did once have a 401(k) with a small startup that subsequently went bankrupt. It was a complete pain in the ass getting hold of my money subsequent to that, and during that period my investments were locked.

tom169

Ok, looks like I was getting mixed up with institutional and index.

Regardless, I think you hit the nail on the head with a good reason to get out of a 401k and into an IRA - Having the power in your court and not HR.

Giantaxe

No HR involved with a bankrupt company - that one was all on Merrill Lynch trying to get fee dollars through the company's bankruptcy hearing. But that experience certainly made me immediately roll over the 401(k) of the next startups I worked for.

formfill1

My apologies for the delay in replying.

I have now had the opportunity to look at the 1040nr form again.

If you use the Pensions line on the first page of 1040nr, then it would appear that IRAs and Pensions were treated the same.

However, I assumed that a Green Card holder who returned home, would be using the NEC section. For this section, Pensions are taxed at a flat rate.
There is also the disadvantage of not being able to use a Personal Allowance/Deductions to reduce your tax.