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401k to IRA: Pros and Cons, How to Do It
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- Опубліковано 5 сер 2024
- See what you need to know when you leave your job and you’re thinking of moving money to an IRA.
You may have the opportunity to roll funds from your 401(k) plan to an IRA that you control. There are several advantages to doing so (like potentially lower fees, more investment choices, and better control over distributions and beneficiaries).
But there may also be disadvantages to making the move. For example, if you leave your job after age 55 or you plan to do Roth conversions, it could make sense to leave your money in your former employer’s 401(k)-at least temporarily.
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We cover some of the pros and cons of a 401k to IRA rollover here. While there may be other aspects to consider, you’ll learn about some of the biggies, and you’ll be off to a decent start.
Remember that you don’t need to roll the money over immediately. If it makes sense to wait and do it later, that’s often an option. Just verify with your former employer to see what’s available to you.
Read about this topic and download sign up for free downloads and retirement planning resources here: approachfp.com/how-and-why-to...
Timestamps:
00:00 Does it Make Sense to Roll Now or Later?
00:36 More Control Over Costs and Investments
02:21 More Tax Withholding Options
02:51 Easier Withdrawals and Money Transfers
04:33 Other Advantages: Beneficiary Setup, Frozen Plans, Flexibility
06:16 RMD Advantages (Required Minimum Distributions)
07:46 Disadvantages of Rolling Over: Age 55
08:42 Other Disadvantages: Lower Costs? Creditor Protection
09:54: Roth Conversion Pro-Rata Rule: Disadvantage of Rolling Over
11:00 How to Roll From Your 401(k) to an IRA
12:24 Avoid Potential Problems With Rollovers (Logistics of Payee)
Be sure to research issues on creditor protection. This might be a good start in your journey as it relates to IRAs: www.irahelp.com/slottreport/y.... Another topic that we don't dig into here is Net Unrealized Appreciation (NUA). If you work for a company that offers or provides stock, that may be a complicating factor deserving more attention, but most people I speak with don't have that issue.
Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.
IMPORTANT:
It's impossible to cover every detail and topic in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
Thank you so much for the clear instructions. I feel confident dealing with the retirement prep after watching a series of your videos. Many other people are on the same important topic but you are the very best!!!
Thank you for the kind words!
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I have 401K and in that account I have After Tax contribution. Can I rollover after tax contributions to Traditional or Roth IRA?
Also, Can I not roll over the earnings, keep the earnings in the 401K?
That's a good question, and a first step might be to ask your employer if you can pick and choose which money types to roll out or keep. Beyond that, my standard disclaimer would apply: Like most important questions, it would be irresponsible of me to try to answer in UA-cam comments without knowing more about your situation and the context. I've basically decided to not even attempt to answer technical questions in the comments. I'd feel terrible if I just gave quick advice and ended up leading viewers astray (with expensive consequences for you), and I could spend all day answering questions. I'm sure the answer is available online somewhere, or you can always run that by your CPA, plan administrator, or financial professional for individualized guidance. Thanks, and best wishes.
Thank you for the great info. So If I roll over my 401k to a traditional Roth IRA, I get the current value of my 401k in buying power in the new IRA account?
When you leave the 401(k), you typically get the market value of your investments on the day they process your distribution request. That value can rise and fall, but yes, they generally cut a check for the current value. Then, you typically re-deposit the funds in an IRA and eventually reinvest.
That whole process can take some time.
Note that if you're not 100% vested in contributions your employer made on your behalf, you don't get to take that money. But you're always 100% vested in your own contributions. You can learn more about vesting here: ua-cam.com/video/KWffAznGNZA/v-deo.html
I did some 401 conversion to a traditional ira, in my early 50s, now lm wondering lf l did a wrong move?
It's tough to say without knowing all of the details. Given the way I'm reading your comment (and my wild guesses about the situation), I'm not sure you made a bad move. It might depend on what exactly you moved the money into-the fees and expenses, restrictions, investment options, services provided, any employer stock, etc., among other things.
Thanks for your reply.
My biggest concern was the taxes it would cost me , because l moved it too early? Is there an age restriction on converting to IRA from 401k?
An IRA is not a 401K if you start a new job? Am I correct? There are no % company matches if I roll my former employer's 401K plan into an IRA at my new job?
You are correct: An IRA does not become a 401(k) when you start a new job. The employer would have their own 401(k) program (assuming there is a 401(k) available).
It's also correct that you generally don't get a company match for rolling a former employer's plan into an IRA or into your new job's 401(k). Matching typically applies to contributions you make to a 401(k) through payroll ("salary deferral" contributions, for example), but not to "rollover" contributions.
Hi. What can I do? I have an outstanding loan balance with my Walmart/Merril Lynch 401K and I'm starting a MUCH better job on monday. Meril will not accept 401K loan payments since I'm leaving Walmart. Before I was able to make bi-weekly paycheck payments towards my 401K loan. What CAN I do? I want to roll my 401K over with my new job. I think.
I would ask the new employer if they can accommodate the loan from the old plan. But unfortunately, I would not be optimistic about that happening. You could also ask the old employer if there's any way for you to pay off the loan with a lump sum (that's assuming you have the cash available, which isn't always the case-people typically borrow because they need extra cash flow). It's great to hear that the new job is an improvement.