To Roll Over or Not to Roll Over 401(k)? Advice?
Due to COVID, I was furloughed from my previous job. Thankfully, I was able to find new employment in education.
Since education has a pension structure instead of a 401(k) structure, I am left with the decision of what to do with my fully vested 401(k) from my previous employer (which - due to the hot stock market - currently sits at just under $8,500.)
- Leave my 401(k) alone at Principal.
- Convert my 401(k) to my Roth IRA - held at Vanguard.
- Roll over my 401(k) to a regular IRA (that I would have to set up with Vanguard)
Other pertinent information:
- I am 44 so what is that ... another 23 years before retirement?
- I don't really expect my tax bracket to change by the time I retire, but who knows. I assume taxes will continue to increase.
- I don't expect to use/need the money before I retire.
- I could pay the taxes on a Roth IRA conversion, however, it's a chunk of change during unpredictable times.
What do you think I should do YNAB hive?
Historically, we’ve always rolled over old 401(k) funds into an IRA (not Roth). And then contributed to our Roths separately. The only exception is the 401(a) from when my husband worked at a University and that held the matching contributions which are unable to be moved until he’s 59 or something.
Do you have any other Traditional IRAs? We’re right around your age and just started doing back door Roth contributions. Well, just me for now, because I have no Trad IRA that would be subject to the “pro-rata” rule and he does (and that’s another complicated tax calculation altogether). If you think your future earnings could increase in the coming years to the point where tax-deferred contributions to an IRA would be disallowed, then you might want to avoid contributing to a new Traditional IRA (unless you already have one anyway).
It also comes down to the investment product choices at the firm where your account currently sits. My husband’s various employers rarely had decent choices, except maybe the 401(a) still at Fidelity. So I liked just rolling it into the same Schwab Rollover IRA each time and diversifying it there.
So I guess I would do it the way we have in rolling it into a new traditional Ira, avoid paying the taxes, and instead use that tax “savings” on making sure you max your Roth contributions this year.
Vote 2 for : Never leave it with your prior firm . You're locked into their limited list of investments and fee structure. With a self-directed IRA, you have many more opportunities for diversification and fee minimization.
Roth versus regular / the advice previously was Roth, always...but I don't think that's as straightforward anymore, given your relative youth and the direction we're heading as a country in debt. There's a lot more I can say on this, but here's the gist:
If the US finds itself, in 20 to 30 years, unable to meet its Social Security burden - does anyone really think what will be called 'Roth millionaires' by the then political class, will escape taxation? The government has shown its perfectly find with double taxation already, so I wouldn't bet on it. My personal view is take the tax deduction NOW, not the promised one that could evaporate.
Quite frankly there's not enough information in this post to make a recommendation (filing status, current tax bracket, etc.), but here's my take...
Most people will be in a lower tax bracket when they retire, and even if you don't and it's the same you may have an opportunity in the future to convert it while in a lower tax bracket than you will be in 2021, so it doesn't make sense to convert it at this time. Roll it to a traditional IRA or into the workplace plan.
If you expect that you might at some point have income that precludes the possibility of making Roth contributions, keeping it in a 401k will allow backdoor Roth.
Whether to roll over from the 401K and whether to convert to Roth are actually 2 different questions. I would highly recommend the rollover to Vanguard because it gives you many more investment options and is usually the most cost effective option (usually) as many 401K providers levy a monthly or quarterly service charge. I don't mean to contradict @nolesrule but I think that converting your current pre-tax 401K money to Roth at age 44 probably makes sense as long as you have the cash on hand to pay the taxes. However, that question should probably go to an investment advisor instead of this forum.🙂
Lots of good insight and opinion here. Thank you all for weighing in. I'm going to discuss with my tax advisor, as well, but the majority here seem to think moving the 401(k) over to Vanguard is wise. Still need to decide wether to convert to the Roth or not. After reading all these responses, now I'm leaning towards just leaving it in a regular IRA. Thank you for your help! :)