Comments on: Changing Jobs and 401k Rollovers

By: Broke by Choice

Broke by Choice — Tue, 08 Dec 2009 23:51:29 +0000

Thanks for summing this all up. I have a friend who hasn’t opened their IRA and hasn’t rolled over money from an old 401k account. I am sending them this post because they have been dragging their feel for 9 months now.

By: JoeTaxpayer

JoeTaxpayer — Tue, 01 Dec 2009 17:52:05 +0000

Another reason *not* to roll – You have post-tax IRA money you can convert to Roth next year. By rolling the 401(k) to IRA, all IRA money is added up, and you’ll pay more tax on the Roth conversion. There is no keeping post-tax and pre-tax IRAs separate, it’s one IRA, with post tax component.

By: Mike

Mike — Tue, 01 Dec 2009 17:16:54 +0000

Hi Rick.

You’re exactly correct regarding the first two exceptions.

As to the reason it might make sense to keep appreciated employer stock in a 401k rather than rolling it into an IRA: the Net Unrealized Appreciation rules may allow you to roll it separately into a taxable account–and therefore sell it subject to LTCG tax rates rather than the ordinary income rates that apply to IRA distributions.

A little more info regarding all 3 exceptions can be found here.

By: Rick Francis

Rick Francis — Tue, 01 Dec 2009 16:22:52 +0000

Mike,

Good article- I was most interested in the exceptions.

>You expect to retire between age 55 and age 59½,

I guess the required ages for withdrawal without penalties are different?

>You expect to be sued in the near future, or

Better legal protection for 401K?

>Your old 401(k) includes employer stock that has significantly appreciated in value.

Why is this exception? Is there some special tax consequence for appreciation of employer stock? If you transferred to an IRA you could still hold that stock or sell and buy something more diverse like an index fund to reduce risk.

-Rick

By: Roger Wohlner

Roger Wohlner — Tue, 01 Dec 2009 14:15:58 +0000

Mike another good post. As a financial advisor I generally agree that I prefer to have a client roll their old 401(k) over to an IRA so we can take advantage of ETFs and other vehicles that would be available at the IRA custodian but not within their old 401(k). As you point out, however, this is not the right answer for all. As with much in my profession, the answer is “it depends.” Each investor’s situation is different and this decision should be based on the individual’s unique circumstances.