Former employer 401k. Pick best option for this scenario!

Mar 28, 2020 23 Comments

I have ~20k in previous employer's fidelity 401k account. What are best action items considering current market, tax implications, etc.?

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TOP 23 Comments
  • Amazon
    carrier

    Go to company page Amazon

    carrier
    Don't rollover to IRA, you will end up paying tax. Microsoft vs former employer 401k pick whichever charges less fees or other feature you prefer.
    Mar 28, 2020 9
    • Uber
      domin8

      Go to company page Uber

      domin8
      You guys seem to love paying taxes. Here is what experienced people do. Watch and learn. If you work for a corp, max out 401k. Keep it there until you work there. Then rollover to IRA.
      Next you grow up and start your own company. In this case you run your own 401k or SEP-IRA and pump upwards to 50k tax free. When you done, rollover to the same nice and juicy IRA. Enjoy actual tax deferred growth.
      Mar 29, 2020
    • Amazon
      carrier

      Go to company page Amazon

      carrier
      You still don't get it.

      That implies you are only contributing to your 401k and failing to take advantage of the ability to also contribute to your IRA. You are forgoing the ability to contribute additional tax protected savings.

      It's you who loves paying taxes.

      If you left that money in a 401k (including an individual 401k if you decide to start your own business) it will not interfere with your ability to make those backdoor Roth contributions in future years.

      As long as it stays in any kind of 401k the option to do Roth IRA contributions is still there, whether you leave it where it is, move it to a new employer, or set up an individual 401k for your small business. It'll be tax protected in any of those alternatives.

      But if you roll it into an IRA you are now prevented from ever making a tax free contribution to your IRA other than by rolling over from a 401k. The backdoor Roth method is closed to you, you can't do it anymore without paying taxes on the conversion due to the pro rata rule.

      You have denied yourself a primary way of making tax free contributions and limited yourself to only the 401k contributions.
      Mar 29, 2020
  • ASAPP
    cantsaywho

    Go to company page ASAPP

    cantsaywho
    Amazon above has no clue what they’re talking about. You don’t pay taxes for rolling over to your personal IRA after you’ve left the company, assuming you rollover into a similar account (traditional 401k into a traditional IRA for example).

    Look at what your fund options are between the various accounts and compare the fund fees. If you decide to convert from traditional to Roth, you will be paying your marginal tax rate on the entire balance. Can’t give you much more advice than that since we don’t know your plan details, income, future plans, etc.
    Mar 28, 2020 5
    • ASAPP
      cantsaywho

      Go to company page ASAPP

      cantsaywho
      OP never said he was doing a backdoor Roth. Like I said in my post, it’s hard to give advice without knowing the details of his situation. Your original post gives incorrect information because the act of rolling over incurs zero taxes. You should’ve specified you were talking about a backdoor Roth in your original post.

      Also, if he has a current 401k plan he can roll his traditional IRA into his new 401k at any time and avoid the pro-rata rule if and when he decides to do a backdoor Roth. The pro-rata rule is only an issue if he doesn’t have a current 401k, but he obviously has one as it’s one of the poll options.
      Mar 31, 2020
    • Uber
      PfMe27

      Go to company page Uber

      PfMe27
      Amazon is mentally challenged and obsesses over taxes because he has already lost so much in the markets. The only way to redeem these losses is to knowledge drop some saggy bawlsack advice to feel better
      Mar 31, 2020
  • Cruise
    atbellevue

    Go to company page Cruise

    atbellevue
    If I have a chase traditional ira account and chase Roth IRA account, can I rollover my 401k to traditional ira account, and rollover my after tax contribution to Roth IRA!
    I know that back door roth conversion is for roll over from traditional ira to Roth IRA.
    Just curious that can we put money into the traditional ira account by ourself if we already maxed out 401k
    Mar 29, 2020 3
    • Cruise
      atbellevue

      Go to company page Cruise

      atbellevue
      If I keep two ira account, 401k rollover to traditional ira, after-tax contribution rollover to Roth IRA, do not put any after tax money in traditional ira until I am retired.
      So I don’t do backdoor at all,
      Is this a good strategy?
      Mar 29, 2020
    • Amazon
      carrier

      Go to company page Amazon

      carrier
      No, IRS will consider the two accounts together as one pool of money under the pro rata rule. You will be forced to pay tax when you do the after tax rollover to Roth regardless of how many accounts you spread it across. They won't be treated separately.

      There's an easy way to avoid this: just leave the 401k money in a 401k and don't roll out over to an IRA. It can stay there, tax protected, until you retire. Rolling it to an IRA just causes problems.

      You can either keep it in the former employer 401k, roll it into a new employer 401k, or if you start a small business roll it into an individual 401k. Just don't roll it into an IRA.

      (If your 401k is invested 100% in Roth there's no problem rolling it into a 401k, it's only rolling Traditional into an IRA that causes problems.)
      Mar 29, 2020
  • Bloomberg
    C🦠r🦠na...

    Go to company page Bloomberg

    C🦠r🦠na...
    No reason to roll it over. 401Ks are protected from creditors, IRAs aren’t.
    Mar 29, 2020 1
  • New
    TC 440k

    New

    TC 440k
    You might want to do a rollover because
    1. Management fees
    2. Investment choices
    3. Safety. Your account currently is under _their_ plan. I had the nasty experience where my employer pulled out part of the matching from 2 years ago to pay for some mistakes on their end unrelated to my 401k.
    Rollover from like 401k to like IRA and back is tax free. I rolled over from netbenefits to a Fidelity IRA through their wizard. Zero taxes, zero management fees, now zero trading costs & fractional shares in the IRA.
    Mar 28, 2020 0