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401K v IRA roll over or not?

401K v IRA roll over or not?

Old Mar 14th 2008, 7:53 pm
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Default 401K v IRA roll over or not?

I haven't gotten the info yet, but now that I'm unemployed I think I should roll my 401K into an IRA? Anyway know the pros, cons and other implications or 401K and being dumped out of a job?

I don't think I had enough in there for it to be kept as a 401K anyway so it could be a moot point but as I'm not really up on all the pension shenanigans and have other things on my mind right now I thought I'd ask rather than have to google what all the options might mean once I get them...and speak in thicky terms
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Old Mar 14th 2008, 8:33 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by Bob View Post
I haven't gotten the info yet, but now that I'm unemployed I think I should roll my 401K into an IRA? Anyway know the pros, cons and other implications or 401K and being dumped out of a job?

I don't think I had enough in there for it to be kept as a 401K anyway so it could be a moot point but as I'm not really up on all the pension shenanigans and have other things on my mind right now I thought I'd ask rather than have to google what all the options might mean once I get them...and speak in thicky terms
Hey Bob, sorry about the job, that sucks!

I'm not sure but I guess you can leave it there for a short time. If so I would do that and hopefully you get another job soon and roll it into that. That way it will be easier to manage in one place. Opening up a separate IRA would mean when you get another job and another 401k you have to manage them separately.

However not sure if there are any other implications and as the missus has just changed jobs would be interested in the answers.
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Old Mar 14th 2008, 11:55 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by Bob View Post
I haven't gotten the info yet, but now that I'm unemployed I think I should roll my 401K into an IRA? Anyway know the pros, cons and other implications or 401K and being dumped out of a job?

I don't think I had enough in there for it to be kept as a 401K anyway so it could be a moot point but as I'm not really up on all the pension shenanigans and have other things on my mind right now I thought I'd ask rather than have to google what all the options might mean once I get them...and speak in thicky terms
Generally it is probably better to roll it over into an IRA precisely because you are then able to control how it is invested. Any brokerage firm (Schwab, Vanguard etc) will be more than happy to set up a rollover IRA account for you and guide you through the process. The important thing is set up the receiving account first and make it very clear to your current 401K plan that this is a rollover to another qualified plan. That way you avoid any tax or withdrawl penalties on the transaction. Sometimes they can do a direct transfer into the new account, but quite often the will insist on sending a check (cheque!) to you. In that case you will want the check made payable to "Your new financial institution, FBO Your IRA rollover account" and not to you personally - once again to avoid any possibility of taxes or penalties.

Even if you do get another job with a 401K plan, the new plan doesn't have to accept rollovers from other plans and even if it does you will still be limited to the investment options provided by that plan, which may be more restrictive than you would like. even if you have no option but to put new 401K money into that plan, why rollover your existing 401K to a plan with limited options when you could have complete control over it?
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Old Mar 15th 2008, 12:06 am
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Default Re: 401K v IRA roll over or not?

Originally Posted by md95065 View Post
Even if you do get another job with a 401K plan, the new plan doesn't have to accept rollovers from other plans and even if it does you will still be limited to the investment options provided by that plan, which may be more restrictive than you would like. even if you have no option but to put new 401K money into that plan, why rollover your existing 401K to a plan with limited options when you could have complete control over it?
The only reason I know of is that you can take a loan from a 401(k) but not an IRA.
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Old Mar 15th 2008, 12:39 am
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Default Re: 401K v IRA roll over or not?

I know that Fidelity has a system where they arrange the transfer to an IRA.

The biggies, and lowest cost are Vanguard, Fidelity and Schwab. You said it wasn't a large amount so check for administrative fees. You would want to use a fund account not a brokerage account.
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Old Mar 15th 2008, 5:58 am
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Default Re: 401K v IRA roll over or not?

Originally Posted by Bob View Post
I haven't gotten the info yet, but now that I'm unemployed I think I should roll my 401K into an IRA? Anyway know the pros, cons and other implications or 401K and being dumped out of a job?

I don't think I had enough in there for it to be kept as a 401K anyway so it could be a moot point but as I'm not really up on all the pension shenanigans and have other things on my mind right now I thought I'd ask rather than have to google what all the options might mean once I get them...and speak in thicky terms
Roll it into an IRA. There are a load of good web-based ones. You will get paperwork from the company -- read it very carefully and act quickly. You want a trustee to trustee xfer. Choose a rollover IRA now and find out what you need to get it started so you're ready when the paperwork arrives from your current plan.
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Old Mar 15th 2008, 6:46 am
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Default Re: 401K v IRA roll over or not?

The fund can just be rolled over into your next companies 401K. Cashing it in before ages 591/2 will lead to considerable withdrawal penalties ( 40%). You need to decide;

a) How much you have in it, and any potential penalties for early withdrawal.
b) How much you need the money now

Usually it only fully vests to include any total company contributions after 5 years. Maybe you need the cash now, maybe you don't want to incur the early withdrawal penalties and invest for your retirement.
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Old Mar 15th 2008, 4:12 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by Lord Lionheart View Post
The fund can just be rolled over into your next companies 401K. Cashing it in before ages 591/2 will lead to considerable withdrawal penalties ( 40%). You need to decide;

a) How much you have in it, and any potential penalties for early withdrawal.
b) How much you need the money now

Usually it only fully vests to include any total company contributions after 5 years. Maybe you need the cash now, maybe you don't want to incur the early withdrawal penalties and invest for your retirement.
Yes, "cashing in" a 401K plan - ie making an early withdrawal - will incur both income tax and a 10% penalty and should be avoided at all costs. Rolling the money over into an IRA does not incur either tax or a penalty and gives you much more freedom over the way the money is invested.

There is no "usually" when it comes to vesting of employer's matching contributions in a 401K plan - you have to look at the rules of the individual plan to find out. To the best of my knowledge none of the four 401K plans that I have been in over the last 20 years had a 5 year "vesting period" - even if such a period does exist it is almost certainly based on length of employment, not the time that the money has been in the plan, in which case "it is what it is" and whether or not you roll the money over into another plan won't make any difference.

Finally, while I would still recommend rolling the money over into an IRA sooner rather than later just to get the whole thing done and out of the way, there is no time limit on thie. You can leave the money in the 401K for as long as you like and still decide next week, next month, next year or in 10 years time that you want to roll it over to another account. So, if this is something that you don't want to deal with right now you don't have to.
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Old Mar 15th 2008, 4:20 pm
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Default Re: 401K v IRA roll over or not?

I've got a similar thing going on with my last job Bob, I'm about to roll my 401k into my Vanguard Roth IRA, which you can now do direct as of Jan this year. As I understand it, you pay the tax now (because 401k is pretax, Roth IRA's are post tax), but not when you are 60+ and start withdrawing. And you don't have to pay a penalty, just the tax you would've paid if it'd been a Roth from the get-go.

I'm about to start the process rolling on this, you might want to have a read here: https://personal.vanguard.com/us/Van...122008_ALL.jsp

Not that you have to use Vanguard, but the link explains it a bit.

Last edited by Dan725; Mar 15th 2008 at 4:24 pm.
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Old Mar 15th 2008, 4:24 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by md95065 View Post
Yes, "cashing in" a 401K plan - ie making an early withdrawal - will incur both income tax and a 10% penalty and should be avoided at all costs. Rolling the money over into an IRA does not incur either tax or a penalty and gives you much more freedom over the way the money is invested.

There is no "usually" when it comes to vesting of employer's matching contributions in a 401K plan - you have to look at the rules of the individual plan to find out. To the best of my knowledge none of the four 401K plans that I have been in over the last 20 years had a 5 year "vesting period" - even if such a period does exist it is almost certainly based on length of employment, not the time that the money has been in the plan, in which case "it is what it is" and whether or not you roll the money over into another plan won't make any difference.

Finally, while I would still recommend rolling the money over into an IRA sooner rather than later just to get the whole thing done and out of the way, there is no time limit on thie. You can leave the money in the 401K for as long as you like and still decide next week, next month, next year or in 10 years time that you want to roll it over to another account. So, if this is something that you don't want to deal with right now you don't have to.
I was trying to say that Bob probably would not be fully vested as he was'nt with the company that long. As you say vestment on employer contributions vary according to plan. Every one I have been in (3) took 5 years of employment to vest, not just having your money there for 5 years. Bottom line if you really need the money now despite the big tax and penalty hit or can ride it out and rollover the fund. Which would be better long term obviously
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Old Mar 15th 2008, 6:09 pm
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Default Re: 401K v IRA roll over or not?

Bob wasn't talking about cashing in.

If you cash in, they are required to withhold 20% for tax.

If you then want to put the whole amount into an IRA, you have to find that 20% until you get your refund next year. Avoid that with a direct rollover that the receiving company will handle for you.
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Old Mar 16th 2008, 8:03 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by md95065 View Post
...why rollover your existing 401K to a plan with limited options when you could have complete control over it?
because I'm thick when it comes to investing money and I'd rather just let it do whatever?

thanks for the info, will have to give this a bit more thought I think once I get the info in
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Old Mar 16th 2008, 8:11 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by paddingtongreen View Post
Bob wasn't talking about cashing in.

If you cash in, they are required to withhold 20% for tax.

If you then want to put the whole amount into an IRA, you have to find that 20% until you get your refund next year. Avoid that with a direct rollover that the receiving company will handle for you.
Yup, I'm wanting to avoid as much hassle as possible and any tax/fee's so I don't want to botch this up. Obviously I'm going to have to read the small print and do a bit of googling, but to be honest here, a lot of this stuff if a bit over my head.

If I've got time and won't incur any fee's etc from keeping it in the 401K if I'm able, I'd probably prefer to do that for the short term, at least till I get another job and then re-evaluate the situation to either roll over into a new 401K or into an IRA or some sort.

I certainly got want to cash out what meager pension I've got as I've got to start building that up as it is

All the help is much appreciated, cheers guys

Last edited by Bob; Mar 16th 2008 at 8:14 pm.
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Old Mar 17th 2008, 3:15 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by Bob View Post
If I've got time and won't incur any fee's etc from keeping it in the 401K if I'm able, I'd probably prefer to do that for the short term, at least till I get another job and then re-evaluate the situation to either roll over into a new 401K or into an IRA or some sort.
Don't count on having all the time in the world to do something with the account. At my last company, I was told I had 90 days to decide what to do (rollover to IRA, or other 401k) or they were going to simply cut me a check. This was because the amount of money in there was below a certain threshhold. You may want to call and find out if there are any time limits before the decision is taken out of your hands.
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Old Mar 17th 2008, 3:42 pm
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Default Re: 401K v IRA roll over or not?

Originally Posted by sunflwrgrl13 View Post
Don't count on having all the time in the world to do something with the account. At my last company, I was told I had 90 days to decide what to do (rollover to IRA, or other 401k) or they were going to simply cut me a check. This was because the amount of money in there was below a certain threshhold. You may want to call and find out if there are any time limits before the decision is taken out of your hands.
And once they cut you a check in your name, the withholding is removed for the IRA and it's all taxable. Speed is indeed of the essence. And they don't usually do much to clearly explain the procedure so you have to work it out for yourself.
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