Comments on: 401k Rollover: Should I Roll my 401k into an IRA?

By: Mike

Mike — Fri, 12 Mar 2010 14:45:18 +0000

I've never once seen a 401(k) that doesn't charge an administrative fee. The problem is that it's so poorly disclosed that most participants have no idea they're being charged. And you're correct about rolling it into a traditional IRA as opposed to a Roth: If you roll it into a traditional IRA, the rollover will not count as taxable income. See this page for more info about rolling a 401k into a Roth.

By: SJ

SJ — Fri, 12 Mar 2010 14:28:22 +0000

there is no mention of any kind of tax consequences by doing this, as I am assuming that we are not rolling over to a ROTH.
Why would I roll over to an IRA if my previous employers administrator (fidelity) may charge no fees for administration or so I thought? I never thought that they could charge fees for administering the 401k account. That is an interesting revelation, atleast for me.

I think one can get over that $3000 minimum at Vang. assuming that people have already more than that amount in 401K’s unless one starts a new job.

By: Mike

Mike — Thu, 18 Feb 2010 23:24:04 +0000

Hi Tony. Generally, no. There are, however, some circumstances in which you can take what's known as an "in-service withdrawal." You can find more information on that topic here.

By: Tony

Tony — Thu, 18 Feb 2010 23:02:53 +0000

Can i roll over my 401K if im still working at my present Job?

thanks

By: Jason @ Redeeming Riches

Jason @ Redeeming Riches — Wed, 30 Sep 2009 02:26:24 +0000

Good clarification Evolution of Wealth! If it’s over $5,000 they can strongly encourage you, but not force.

By the way, “whoever has the money is the boss” as I like to say. So usually it’s better to get the $ out of the employer’s plan and into your own Individual Retirement Account.

The employer can change funds and companies pretty much at any time leaving you with not much control. Your own IRA allows you to control your own investments.

By: Evolution of Wealth

Evolution of Wealth — Wed, 30 Sep 2009 02:07:16 +0000

@Ruth – If your account is over $5000 an employer cannot force you out of the 401k plan. Between $1000 and $5000 they can do a force rollover to an IRA and with less than $1000 they can send you a check after proper notice.
Mike brings up some good points on whether to roll it over or not. One more thing to add is if you passed away and wanted the money to be passed on properly it is more advantagous to pass it on in an IRA.

By: Mike

Mike — Tue, 29 Sep 2009 22:23:56 +0000

Hi Ruth.

As to your specific question, I don’t know the answer as to whether or not they can make you roll it over. I’d suggest asking at the Boglehead forum.

I’m not sure I understand your reasoning though. If you were to roll it into an IRA, as long as you chose no-load funds, you wouldn’t be paying any commissions to do so. Or, if you created an ETF portfolio at a discount brokerage firm, the commissions you’d be paying would be minimal (probably a grand total of less than $50).

In contrast, if you leave it in the 401(k), you’ll probably be paying an administrative fee that more than negates the fees that would be involved in an IRA (assuming you don’t take it to a broker who would attempt to sell you some expensive funds). In addition, it’s likely that the costs for the funds in your 401(k) far exceed the costs of funds you could choose in an IRA. (Though I can’t say for sure without knowing the specifics of the options in your 401(k)).

Either way, I’d suggest asking at the Boglehead forum to get some more opinions on the matter.

By: Ruth Vowell

Ruth Vowell — Tue, 29 Sep 2009 22:06:43 +0000

I retired at 65 and left. employment. With the economy I lost 40,000 in my 401K but have regained 20,000 b ack. My ex-employed wants me to withdraw or rollover the 401K since I no longer work there. I would like to keep it there until I recoop the other 20,000 as I will loose money in fees, etc. reinvesting it. The reason they want me to withdraw it is that if they reach a certain number of people in the plan they will have to pay a $7,000 fee of some type. Can they force me to roll it over. I do not think it is in the plan as other people have left theirs there for years.

By: Evolution of Wealth

Evolution of Wealth — Thu, 03 Sep 2009 01:37:27 +0000

I stand corrected.
So then the benefits of the 401k are that you would have more flexibility of withdrawals if and only if you seperated service after age 55.
Otherwise, the only penalty free access before age 591/2 is through IRA rule 72t distributions using one of IRS calculation methods. That once started need to be continued to age 59 1/2.
Fair enough?

By: Jason @ Redeeming Riches

Jason @ Redeeming Riches — Thu, 03 Sep 2009 01:16:52 +0000

@Evolution of Wealth

I’ll have to respectfully disagree with you.

The lump sum distribution could be a requirement found in the Summary Plan Discription from your employer – they might put their own restrictions on it, but the IRS does not.

This is from Publication 17 on the IRS website:

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:

From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees), ”

It puts no stipulation whatsoever on how the money is withdrawn. You can take as much, as little or even periodic withdrawals from an IRS standpoint.

Also, Ed Slott – known as the IRA Guru – says this at his website http://irahelp.com in response to a question about someone stopping their payments from their 401k.

“they can be stopped anytime as far as the IRS is concerned. There are no tax code rules. However, the plan might have some stipulation that the monthly withdrawals must be taken for a certain time after you start them. That would be a plan requirement and have nothing to do with any IRS requirement.”

Basically, you’ll want to check with your employer to make sure they allow this, but most of the time they do. The IRS doesn’t care how you take it.