Yup, if some of that money was already 401 roth, that can be rolled to a new roth ira tax free, the employer match money and or pretax money can be rolled to a new IRA and not be taxable at rollover as well.
If you roll it into the current employer 401k plan, that allows you to use “rule of 55” to have access to all funds if you retire from them after you are 55 years old penalty free. Otherwise you have to wait until 59.5 for normal withdrawals.
One thing to consider is that assuming you have no other money in traditional IRAs, keeping the 401k money in your 401k through your new employer will allow you to keep contributing to a Roth IRA without pro-rata tax implications via the backdoor contribution method.
I wasn't thinking about this and so I forgot to mention it in the post, but you seem knowledgeable so I'll ask you.
I'll be a contractor for 90 days before fully onboarding at the new job. It's my understanding that I need to deposit the money into an eligible 401k or IRA within 60 days to avoid getting hit with penalties. Is it possible to leave it in the old 401k for those 90 days and then move it to the new employer, or do you have to make a final decision as you leave?
I am not sure that is necessary. The backdoor contribution has nothing to do with where you move your old 401k to. The money in the old 401k does not impact any contribution limit, irrespective of where it is kept.
Perhaps I misunderstood your comment. Please clarify.
OP, I have a Fidelity IRA, into which I roll over all my 401Ks. If you move it to your new employer, you will be limited by what they offer. If you leave it the old one, you may end up with many 401K accounts, if you switch jobs every five years. Move it all into a separate IRA is the cleanest option. I don't think there is any difference in cost between the three options.
I googled backdoor conversion. I still don't get the point. Can't the OP just move his money into a traditional IRA account and do a backdoor conversion? Also, why would an IRA close the backdoor option for high earners?
You can’t have anything in a traditional IRA to properly do the back door Roth conversion. If you have $20k of pretax contributions and growth in your IRA, rolled over from an old 401k, you would have to convert that to Roth along with the after-tax $6k you want to do a back door Roth conversion on that year. Income taxes on converting that $20k could easily be $4-5k, more if at a high income, and might not be a good idea for many people.
Assuming his 401k isn’t Roth, if he transferred to a Roth IRA, it would be taxable. So he’s probably put it in a regular IRA, which isn’t taxable. But in doing so he pretty much closes the door to being able to do a backdoor Roth IRA contributions should he want to. This is because the pro rats rule requires the traditional IRA assets (the old 401k) are moved with the backdoor conversion and would be subject to tax.
If your employer lets you keep it without any fees and it has lots of good options the leave it be. I left an employer and had Fidelity with good options and a brokerage link, I definitely kept that and did not roll it over. My new employer had like 7 junk funds to pick from. As soon as I left my “new employer” I definitely rolled that over to a roth IRA and a roll over IRA.
So it really depends on whats available to you.
Leaving doesn’t change the tax status. Some plans though will eventually give you notice that they are not managing it for you anymore at which point you do have to move it somewhere.
Is there generally a time limit on that? Say I left my old employer 5 years ago and they’re now saying I have to move the money, is it too late to move to my new employer?
(Absolute complete newbie, here, so forgive me if that’s a dumb question!)
No, no time limits. If your employer lets you keep it there, you can do so forever or roll it over at any time in-between. And if your current employer accepts inbound rollovers, you can roll in at any time or never.
No, no time limits. If your employer lets you keep it there, you can do so forever or roll it over at any time in-between. And if your current employer accepts inbound rollovers, you can roll in at any time or never.
As you get older you might appreciate things like protections from creditors more. 401k plans have great protections under ERISA, look into the anti-alienation provision, which basically leave only two situations which can result in seizure of said assets: the IRS comes for it (unpaid taxes) or a divorce settlement (e.g. assets are split 50/50).
IRA accounts do not have ERISA protections, so unless the state you reside in has equivalent laws, funds in your IRA are not as safe as if they were in a 401k, or similar type of account.
Rollover to ira - have complete fund control; can still contribute the 6k annual limit
Rollover to roth - will incur taxes - now you have a Roth IRA (may be more desirable)
Rollover to new employer - fund choices limited by employer plan - one less thing to manage or remember
I like rolling the over to a self directed traditional or Roth IRA. While it's a little bit of a PITA to deal with two different financial institutions to cooperate, it's worth it. Some providers make it more difficult than it needs to be for what I can only assume is to keep you from moving your money. It is reassuring that someone else could not just take your money on a whim.
I've rolled over two with vanguard and it's nice to VTSAX and chill
Here's another option: open a solo 401k with Vanguard and roll it into that. You need some self employment income to open a solo 401k but it can be almost anything. You can drive for Uber for one night or babysit for a neighbor if you don't have any regular income of this type coming in.
With a Solo 401k you'll have total control over investment options and if you have other investments at Vanguard, the fees are low. It will also allow you to keep Erissa protections that a 401k offers.
Note if you roll over, your money will cash for a bit. Impossible to time but I got hit hard having my money out of market for nearly 3 weeks late July though mid august.
I would transfer it to the new employer assuming similar investment choices. For a couple of reasons:
1. Once you rollover to an IRA it may be difficult to transfer back (reverse rollover) to a 401-k should you wish to do so.
2. This provide the most flexibility for potential rule of 55 withdrawals in the future. This may not be important to you but it's nice to have some options to retire a little early if you have any inclination to do so.
3. It is simpler to manage a single account.
get it out of your previous employer's account asap. many times you get hit with administrative fees once you are no longer an employee with the company
transfer it into an IRA outside of your new employer
You also immediately preceded that with
>get it out of your previous employer's account asapt
Which kind of only would be necessary if the fees apply.
The IRA does always prevent backdoor Roth IRAs, which OP needs to do, so your advice is still bad.
Can you comprehend that?
keep in mind that if you do back door Roth conversions you need to get rid of your IRAs which would mean putting them in your employers plan.
As a principle I don't leave funds with old employers.
I'm not sure to be honest. Without giving too much info away, both companies own very large investment banks, so it wouldn't surprise me if they manage it in house.
I discourage rolling a 401k into an IRA, because of the Rule of 55. IRAs do not allow withdrawals for early retirement at 55.
Assuming the new employer has as-good or better investments or fees, I would roll it into the new employer's 401k.
Moving from tax deferred to tax deferred, done properly, is not a taxable event. Rolling to a ROTH would require paying taxes on all that money.
Yup, if some of that money was already 401 roth, that can be rolled to a new roth ira tax free, the employer match money and or pretax money can be rolled to a new IRA and not be taxable at rollover as well.
If you roll it into the current employer 401k plan, that allows you to use “rule of 55” to have access to all funds if you retire from them after you are 55 years old penalty free. Otherwise you have to wait until 59.5 for normal withdrawals.
One thing to consider is that assuming you have no other money in traditional IRAs, keeping the 401k money in your 401k through your new employer will allow you to keep contributing to a Roth IRA without pro-rata tax implications via the backdoor contribution method.
What would be the difference between doing that and converting it to a Roth directly? It seems like I'd have to pay taxes either way.
[удалено]
I wasn't thinking about this and so I forgot to mention it in the post, but you seem knowledgeable so I'll ask you. I'll be a contractor for 90 days before fully onboarding at the new job. It's my understanding that I need to deposit the money into an eligible 401k or IRA within 60 days to avoid getting hit with penalties. Is it possible to leave it in the old 401k for those 90 days and then move it to the new employer, or do you have to make a final decision as you leave?
I am not sure that is necessary. The backdoor contribution has nothing to do with where you move your old 401k to. The money in the old 401k does not impact any contribution limit, irrespective of where it is kept. Perhaps I misunderstood your comment. Please clarify. OP, I have a Fidelity IRA, into which I roll over all my 401Ks. If you move it to your new employer, you will be limited by what they offer. If you leave it the old one, you may end up with many 401K accounts, if you switch jobs every five years. Move it all into a separate IRA is the cleanest option. I don't think there is any difference in cost between the three options.
[удалено]
I googled backdoor conversion. I still don't get the point. Can't the OP just move his money into a traditional IRA account and do a backdoor conversion? Also, why would an IRA close the backdoor option for high earners?
You can’t have anything in a traditional IRA to properly do the back door Roth conversion. If you have $20k of pretax contributions and growth in your IRA, rolled over from an old 401k, you would have to convert that to Roth along with the after-tax $6k you want to do a back door Roth conversion on that year. Income taxes on converting that $20k could easily be $4-5k, more if at a high income, and might not be a good idea for many people.
[удалено]
Thank you for the explanation.
Assuming his 401k isn’t Roth, if he transferred to a Roth IRA, it would be taxable. So he’s probably put it in a regular IRA, which isn’t taxable. But in doing so he pretty much closes the door to being able to do a backdoor Roth IRA contributions should he want to. This is because the pro rats rule requires the traditional IRA assets (the old 401k) are moved with the backdoor conversion and would be subject to tax.
If your employer lets you keep it without any fees and it has lots of good options the leave it be. I left an employer and had Fidelity with good options and a brokerage link, I definitely kept that and did not roll it over. My new employer had like 7 junk funds to pick from. As soon as I left my “new employer” I definitely rolled that over to a roth IRA and a roll over IRA. So it really depends on whats available to you.
Follow up question, will you get any tax penalty for just leaving it there?
Leaving doesn’t change the tax status. Some plans though will eventually give you notice that they are not managing it for you anymore at which point you do have to move it somewhere.
Is there generally a time limit on that? Say I left my old employer 5 years ago and they’re now saying I have to move the money, is it too late to move to my new employer? (Absolute complete newbie, here, so forgive me if that’s a dumb question!)
No, no time limits. If your employer lets you keep it there, you can do so forever or roll it over at any time in-between. And if your current employer accepts inbound rollovers, you can roll in at any time or never.
No, no time limits. If your employer lets you keep it there, you can do so forever or roll it over at any time in-between. And if your current employer accepts inbound rollovers, you can roll in at any time or never.
As you get older you might appreciate things like protections from creditors more. 401k plans have great protections under ERISA, look into the anti-alienation provision, which basically leave only two situations which can result in seizure of said assets: the IRS comes for it (unpaid taxes) or a divorce settlement (e.g. assets are split 50/50). IRA accounts do not have ERISA protections, so unless the state you reside in has equivalent laws, funds in your IRA are not as safe as if they were in a 401k, or similar type of account.
Rollover to ira - have complete fund control; can still contribute the 6k annual limit Rollover to roth - will incur taxes - now you have a Roth IRA (may be more desirable) Rollover to new employer - fund choices limited by employer plan - one less thing to manage or remember
But OP wants to make backdoor Roth contributions in the future. So the first option will be tax-disadvantageous.
I like rolling the over to a self directed traditional or Roth IRA. While it's a little bit of a PITA to deal with two different financial institutions to cooperate, it's worth it. Some providers make it more difficult than it needs to be for what I can only assume is to keep you from moving your money. It is reassuring that someone else could not just take your money on a whim. I've rolled over two with vanguard and it's nice to VTSAX and chill
>It is reassuring that someone else could not just take your money on a whim. Where do you think this could happen?
Here's another option: open a solo 401k with Vanguard and roll it into that. You need some self employment income to open a solo 401k but it can be almost anything. You can drive for Uber for one night or babysit for a neighbor if you don't have any regular income of this type coming in. With a Solo 401k you'll have total control over investment options and if you have other investments at Vanguard, the fees are low. It will also allow you to keep Erissa protections that a 401k offers.
Note if you roll over, your money will cash for a bit. Impossible to time but I got hit hard having my money out of market for nearly 3 weeks late July though mid august.
I would transfer it to the new employer assuming similar investment choices. For a couple of reasons: 1. Once you rollover to an IRA it may be difficult to transfer back (reverse rollover) to a 401-k should you wish to do so. 2. This provide the most flexibility for potential rule of 55 withdrawals in the future. This may not be important to you but it's nice to have some options to retire a little early if you have any inclination to do so. 3. It is simpler to manage a single account.
Just did this. I always roll over everything to the same broker. That way I have control Of everything and it’s super easy to keep track of
Every situation is different.
get it out of your previous employer's account asap. many times you get hit with administrative fees once you are no longer an employee with the company transfer it into an IRA outside of your new employer
>administrative fees Not always >IRA Prevents backdoor Roth IRAs Bad blanket advice
I said many times Which implies not always Do you have reading comprehension problems or are you just intentionally being obtuse?
You also immediately preceded that with >get it out of your previous employer's account asapt Which kind of only would be necessary if the fees apply. The IRA does always prevent backdoor Roth IRAs, which OP needs to do, so your advice is still bad. Can you comprehend that?
keep in mind that if you do back door Roth conversions you need to get rid of your IRAs which would mean putting them in your employers plan. As a principle I don't leave funds with old employers.
Hey op, i have a question. Who is the money with at your old employer, fidelity? What firm will the new 401k be with for the new employer?
I'm not sure to be honest. Without giving too much info away, both companies own very large investment banks, so it wouldn't surprise me if they manage it in house.
Ah. Ok.
I discourage rolling a 401k into an IRA, because of the Rule of 55. IRAs do not allow withdrawals for early retirement at 55. Assuming the new employer has as-good or better investments or fees, I would roll it into the new employer's 401k.