Changing Jobs - What do you do with your 401k?

puma1552

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Can you take your 401k from your old job and just roll it over/merge/combine/transfer it to the 401k at your new job?

I always assumed this was the logical thing people did, but it doesn't seem to be that common? Do you roll it into an IRA and just let it sit there til you retire and start your new 401k from scratch?

I am changing jobs and this is the first time I will be dealing with this, but I don't trust my current HR person to give me correct information based on past precedent. Ideally I would like to just transfer it to my new job's 401k and keep the train rolling.
 

puma1552

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Some brokerages charge surrender fees, some don't. Check that out, 'cause you can just leave it alone too, just can't add to it anymore.
And that's sort of what I've been wondering if people do; theoretically, all things equal, if I have 10 401ks with $100k in them they should grow at the same rate as a single 401k with $1MM in it...I'd just prefer to avoid having to keep track of multiple 401ks for every job I've ever had, would much prefer to consolidate.

EDIT: From the article, looks like the direct rollover is what I originally had in mind and seems to be the way to go for my purposes:

Generally, the best way to roll over funds is to have your 401(k) plan directly transfer your funds to your new employer's retirement plan or to an IRA you've established. A direct rollover is simply a transfer of assets from the trustee or custodian of one retirement savings plan to the trustee or custodian of another (a "trustee-to-trustee transfer"). It's a seamless process that allows your retirement savings to remain tax deferred without interruption. Once you fill out the necessary paperwork, your 401(k) funds move directly to your new employer's retirement plan or to your IRA; the money never passes through your hands. And, if you directly roll over your 401(k) funds following federal rollover rules, no federal income tax will be withheld.
 

ejb190

macrumors 65816
Usually a company's 401k will offer an extremely limited number of investment options. Sometimes they are good ones, often times they are marginal. You have something like 4 options here.

1) Leave the money where it is out of your control and take your lumps. Not the best option.
2) Withdraw the money from the 401K and pay something like 45% in tax and penalties. Ouch!
3) Roll it to a traditional IRA. This puts the money in your control and shouldn't have any tax implications if done correctly.
4) Roll it to a Roth IRA. If you have a chunk of savings to pay the tax, this might be worth it, especially if you are a decade or more out from retirement so that money can grow tax free. If you don't have the cash now, you can roll the traditional to Roth at a later point when you do.

Whatever you do, contact an investment professional so you don't make any mistakes. If not done right, these things can come back and bite you. For instance a coworker *withdrew* an 401k to transfer it to an IRA instead of a direct rollover. The 401k held 10% back and he had to come up with the difference to deposit into the IRA within a few days or face penalties. It was a mess!
 

HDFan

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You need to evaluate whether leaving it in its current location is worthwhile. Is it with a reputable institution? Do you have a lot of investment options? Easy access via the web? What fees are involved, for maintaining the account, making transactions, etc.

If you move your account just make very sure that it is to a 401K account or you would be liable for the tax implications. If you can afford paying the taxes a Roth makes a lot of sense as you won't be subject to the inevitable tax increases in the future that will have to occur, at least here in the U.S.

I just transferred a Roth. Called the receiving company and they talked me through it. Even the purchase prices were transferred. When you sell 30 years out finding out what you paid for that particular stock/bond/fund can be a problem. If they don't transfer purchase price be sure to get those values (I took screenshots, which I didn't need) so you will have them when you file your tax returns for the year of the sale.
 

puma1552

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So just want to make sure -

If I do a direct rollover from my current 401k to the new employer's 401k (what I ideally would like to do), there are no tax penalties or anything for doing so? My 401k is currently a Roth 401k, but as always the match is traditional and we didn't always have the Roth option, so my current 401k is technically mixed traditional/Roth, if that matters.
 

Cave Man

macrumors 604
So just want to make sure -

If I do a direct rollover from my current 401k to the new employer's 401k (what I ideally would like to do), there are no tax penalties or anything for doing so? My 401k is currently a Roth 401k, but as always the match is traditional and we didn't always have the Roth option, so my current 401k is technically mixed traditional/Roth, if that matters.
I think you ought to roll this directly to a Roth IRA with another company (e.g., Vanguard, Fidelity, T Rowe Price or other low-fee company). How much will your new employer's 401k charge in annual fees, and are there front or back end loads associated with purchases? What company is managing your 401k? What are the instruments you are using (e.g., mutual funds?). If your new employer does not offer a Roth 401k then you won't be able to roll it over without taking a tax hit. I'd avoid that as much as possible. Also, having your retirement split between two different entities reduces the risk of losing everything should the one company go belly-up.
 
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puma1552

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I think you ought to roll this directly to a Roth IRA with another company (e.g., Vanguard, Fidelity, T Rowe Price or other low-fee company). How much will your new employer's 401k charge in annual fees, and are there front or back end loads associated with purchases? What company is managing your 401k? What are the instruments you are using (e.g., mutual funds?). If your new employer does not offer a Roth 401k then you won't be able to roll it over without taking a tax hit. I'd avoid that as much as possible. Also, having your retirement split between two different entities reduces the risk of losing everything should the one company go belly-up.
New employer offers a Roth 401k but that's all I know at this point. Also I already have a Roth IRA through Vanguard as well so I'm covered there.

The article linked above supports your mention of only being able to roll a Roth 401k into another Roth 401k:

If you've made Roth contributions to your 401(k) plan, you can only roll those funds over into another Roth 401(k) plan or Roth 403(b) plan (if your new employer's plan accepts rollovers) or to a Roth IRA.
So it sounds from that quote like as long as you made any Roth contributions to your current 401k then you would only be able to roll to another Roth 401k and not a traditional...my concern here is that my 401k wasn't always a Roth (didn't have the option originally, but at some point they gave us the option and I'm pretty sure you could split your contribution between Roth/traditional, but I went all Roth at that point) but I don't think that matters - as long as my current 401k had any Roth contributions at all, then I would want/need to roll to a Roth 401k at the new place. Which is fine for now, though at some point I'm probably going to want to tip the scale back towards traditional contributions as my income grows and my tax bracket goes beyond what it may be at retirement. I'm assuming that won't be a problem to start swapping the contributions back towards traditional in the future, but just for the rollover act itself, I have to go Roth 401k --> Roth 401k. Then after that I can start changing back to traditional contributions if I like.
 
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Cave Man

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You don't want to put your Roth money into anything other than a Roth account. If you do, then it becomes taxable income when you start withdrawing (mandatory the year you turn 70.5). With Roth, there is no tax on withdrawals and there is no required minimal distribution. Keep your Roth money as it is. If you want to reduce your annual tax burden, then contribute to a conventional 401k. This reduces your taxable income each year you contribute.
 
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puma1552

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You don't want to put your Roth money into anything other than a Roth account. If you do, then it becomes taxable income when you start withdrawing (mandatory the year you turn 70.5). With Roth, there is no tax on withdrawals and there is no required minimal distribution. Keep your Roth money as it is. If you want to reduce your annual tax burden, then contribute to a conventional 401k. This reduces your taxable income each year you contribute.
Thanks and right, some of this might be more clear when I see the details of the new employer's 401k plan so I might be a bit premature here. I know my current 401k plan allows you to mix/split your contributions within the same 401k between Roth/traditional, and I'm sort of assuming the new one will be the same way but I guess I'm not sure yet. Maybe my current employer's setup is abnormal?

I think my plan of attack for now is when I start the new job, tell them I currently have a Roth 401k (with the caveat that it wasn't always/originally a Roth) and need to do a direct rollover to their Roth 401k. Then, assuming their 401k is set up the same way my current one is where you can mix/match Roth/traditional contributions within the same account, at some point down the road I can presumably just start changing the contributions back towards traditional. That second sentence is the murky part, and probably the part I'm a little premature on at this point, having not seen the new employer's setup. But for now I think I got what I need, that being that I can in fact do a rollover from my Roth 401k to their Roth 401k, and to do it as a direct rollover so I don't have to deal with any tax implications or anything.

And obviously rolling it into my Roth IRA and just starting a new 401k is also another option.

EDIT: Now I'm starting to think my current plan is abnormal, and that it might be considered a traditional IRA that allows Roth contributions, because it sounds a lot like what's described here, in which case I'd have to split out the Roth/Traditional contributions into Roth/Traditional 401k/IRAs:

https://www.kiplinger.com/article/r...4-new-path-to-a-tax-free-roth-conversion.html
 
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ejb190

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Sorry to be contrary, but I would take your old 401k and roll it out to an IRA. The reason is this. My 401k offers a choice of about 15 investment options including mutual funds, bond funds, and time managed funds. Some of them are okay, but several of them are really bad investments - I could do better in a CD at my bank! In all, very limited options and the fees are...higher than average. If I contact an independent investment broker, I have hundreds of mutual funds at my disposal. The choice is mine, not someone else's. If your broker starts messing with you, take your money and run. Like I said, you have options. Finally, (speaking to folks with a pension type retirement), if you roll it out, you don't have to worry about your company folding or cutting the pension leaving you with nothing.

Also, be aware that moving a traditional 401k or traditional IRA into Roth, while a good move in the long run, will have tax implications that will have to be paid this year. Depending on the amount in the account, it could run several thousand dollars.
 
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JoeInMilwaukee

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Even if your 401k was 100% Roth from the very beginning, you should verify that all the money that went into it is Roth. With my Roth 401k, matching employer contributions go in as Traditional 401k contributions (I'm assuming this is a Federal law).
 

ActionableMango

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I strongly agree with ejb190. Convert your 401K into an IRA. If you don't want accounts/logins/passwords all over the place, fine, convert it to an IRA at whatever financial institution your new company uses for its 401K.

Your choices as to what to invest in will be massively better with an IRA.
 
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adk

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Stuck in the middle with you
@puma1552 if you’re happy with the service you’re currently getting from Vanguard I’d strongly recommend considering rolling your old 401(k) into an IRA with Vanguard. I’ve done it ... if you call them up they’re super helpful in getting everything moved over seamlessly. I rolled my 401(k) into a traditional IRA with Vanguard.

If you roll your current 401(k) into your new employer’s plan it will certainly be a little bit “easier” but you will be held captive to whichever investment options and fees they allow you to choose from.
 

zhenya

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You have two good options. Roll the existing Roth contributions to a Roth IRA, roll the Traditional contributions (any match your employer made will be Traditional, plus anything you may have contributed prior to converting to Roth contributions) to a Traditional IRA. You almost certainly do not want to convert your existing Traditional contributions to Roth as this will cause a large amount of tax due right now. Since you already have an account with Vanguard, simply contact them if you’d like to go this route.

The other option would be to roll these into your new employer’s plan. There are a couple of reasons you might want to do this. Some employers actually have even better options than you can get on your own. Most don’t, but some large employers, especially universities, etc. have really good plans with exceptionally low costs - even lower than you can get on your own. The second reason would be if your income either now or in the future exceeds the limits for direct Roth IRA contributions. If that is the case, and you want to continue to be able to make Roth IRA contributions, you’ll need to use the ‘back-door’ loop-hole, and having funds in a Traditional IRA will complicate this.
 

Huntn

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Can you take your 401k from your old job and just roll it over/merge/combine/transfer it to the 401k at your new job?

I always assumed this was the logical thing people did, but it doesn't seem to be that common? Do you roll it into an IRA and just let it sit there til you retire and start your new 401k from scratch?

I am changing jobs and this is the first time I will be dealing with this, but I don't trust my current HR person to give me correct information based on past precedent. Ideally I would like to just transfer it to my new job's 401k and keep the train rolling.
Not an expert on this, but you can transfer 401k funds from one account/company to another without a tax penalty.
 

mlody

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I was in similar situation about 5 years ago. I left my 401k where it was and started a new one. My old one was with Fidelity with a decent choice of investments, so I didn't want to hassle. My new one is crap and no matter what I do, I barely can match the performance of my other one.
 

puma1552

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Thanks guys, I will have to see what my new company (very large global company, might have good options) offers for the 401k before deciding whether to roll it to them or roll it to Vanguard.

If I do just decide to roll it to Vanguard instead of my new company, how soon can I do that? As soon as the last contribution is made? Or is there generally a time limit before my 401k is "released" from my previous employer? Probably a better question for Vanguard, but it's convenient to just ask here. The HR guy at my old job is ***** worthless so no point asking him.
 

tzhu07

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Nov 12, 2008
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For index investing, I just want to bring attention to everyone here that although Vanguard has been the pioneer at this, Fidelity has recently beat them on expense ratios in all major index funds.

https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

Fidelity has really stepped up their game. Would be interesting to see how Vanguard reacts in 2019. But as of now, Vanguard is not the king anymore.
 
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zhenya

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For index investing, I just want to bring attention to everyone here that although Vanguard has been the pioneer at this, Fidelity has recently beat them on expense ratios in all major index funds.

https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

Fidelity has really stepped up their game. Would be interesting to see how Vanguard reacts in 2019. But as of now, Vanguard is not the king anymore.

Vanguard has already reacted by essentially getting rid of their Investor shares for many of their mutual funds, effectively lowering the expense ratio further for small investors. Remember that Vanguard doesn’t have the full line of expensive financial products that a brokerage like Fidelity does to subsidize a few loss leaders for them.

While costs are important, at the level we are now talking about (typically a few basis points, or .01-.05%), we are down to the point of statistical noise, whether you choose Vanguard or Fidelity. We’re talking about $50/year per $100,000 invested even on the highest end of that scale. At that point there are many more important factors at play - things like tracking error and tax efficiency will likely overwhelm this difference, and Vanguard tends to be the best in the business in regards to these factors. The latter issue is of course only important for your investments in non-tax-advantaged accounts, but will likely be orders of magnitude more important than these tiny differences in costs.
 
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ActionableMango

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Or is there generally a time limit before my 401k is "released" from my previous employer? Probably a better question for Vanguard, but it's convenient to just ask here. The HR guy at my old job is ***** worthless so no point asking him.
Every plan is different, so your questions cannot really be answered by anyone here. You should be asking your plan administrator (at the financial company, not HR).

For example, typically you can just leave your plan where it is, indefinitely. But only if you have a large enough amount in there to make it worthwhile for them to continue to administer, which is typically $5000. But maybe your plan doesn't let you do that. Or maybe it needs a larger balance. Or smaller. And if you don't have that minimum amount, they will pressure you to get it out. They might fine you. They might not. It might be after a certain time. Or a longer time. It's your plan--we can't answer these questions.

I've had three 401k plans at three different companies. They were all different.

The only consistency across the board was that all three 401k plans had severely limited investment choices. I would roll that 401k into an IRA.

It seems like you are still considering rolling your old 401k into a new 401k. I don't understand what benefit you think you will gain from that. All I see are negatives.
 
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