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I left a corporate job and started my own business, which is being run as a corporation.

I have a 401k from my previous employer that I can either roll into a traditional IRA (not a Roth or SIMPLE IRA) or into a 401k or similar qualified plan setup through my small business corp (say a defined contribution money purchase plan or something like that).

Could someone advise me on the pros/cons of moving the money into a traditional IRA versus a 401k setup by my business? Is one setup more restrictive than the other?

I would be looking for the money to be put into a self directed brokerage fund structured as a traditional ira or a company 401k plan

thank you all
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I left a corporate job and started my own business, which is being run as a corporation.

I have a 401k from my previous employer that I can either roll into a traditional IRA (not a Roth or SIMPLE IRA) or into a 401k or similar qualified plan setup through my small business corp (say a defined contribution money purchase plan or something like that).

Could someone advise me on the pros/cons of moving the money into a traditional IRA versus a 401k setup by my business? Is one setup more restrictive than the other?


I believe you'll probably have to pay someone to set up a 401(k) for your business. You can maintain an IRA free of fees any number of places. Check out IRS Publication 560 for the info on 401(k) requirements and you'll probably dash for the nearest IRA.

Phil
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Besides higher fees for accounting and admiistration, rolling over to an employere retirement plan rather than an IRA also limits your ability to get your money out. You can remove money from an IRA penalty free to pay qualified higher educational expenses or the first $10,000 for investment in a new home. Your heirs will be free to keep money in the IRA after you go, as in a "stretch" IRA over their life expectancies. Also, for beter or worse, certain retirement plan distributions require spousal consent. If circumstances or laws change, it might be advantageous to move IRA money to Roth. This is not likely to be possible with an employer retirement plan.

I highly recommend that you put the existing 401K money into an IRA.

Even though your employer retirement plan is not suitable for all of your retirement money, it still can be designed for maximum efficiency in deferring taxes on new retirement investments.
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In addition to the higher costs and additional red tape associated with a 401K, it's much more restrictive than an IRA. Typically, a 401K might offer a half-dozen or so index-type funds, between which you allocate your funds and contributions. With a self-directed IRA, say at a discount broker, you can choose from the entire universe of stocks, and likely thousands of mutual funds. At most such brokers, there's no fee to set this up, little or nothing in the way of annual fees (possibly depending on the size of your account) and minimal commissions.

This is a no-brainer: the IRA wins. (Though as WPatch notes, a 401K is still useful for new contibutions.)

Lorenzo
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<I left a corporate job and started my own business, which is being run as a corporation.

I have a 401k from my previous employer that I can either roll into a traditional IRA (not a Roth or SIMPLE IRA) or into a 401k or similar qualified plan setup through my small business corp (say a defined contribution money purchase plan or something like that).

Could someone advise me on the pros/cons of moving the money into a traditional IRA versus a 401k setup by my business? Is one setup more restrictive than the other?>

Something to consider, 401(k)assets are protected if you are sued but IRA assets are not protected in all states.

Choc
not an attorney and not trying to practice law
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Something to consider, 401(k)assets are protected if you are sued but IRA assets are not protected in all states.

401K's are only protected under federal law(ERISA)if there are other employees(non-ownerm non spouse)covered by the plan, which seems not to be the case here. State law may or may not p;rotect 401k or other employer retirement plans.

So, it is unlikely that 401k rollover aids in asset protection, and in just about every other category the IRA rollover wins by a landslide.
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Thank you all for your help. i've been putting off making the decision pending doing more investigation starting with the basics, and that's a lot to wade through.

Well, i'll still be doing some due diligence research, but your points are well taken and at least give me a good shove in the right direction.

so now i am predisposed to the IRA. I also heard that if you put the funds into a "rollover ira". in this case you cannot make additional contributions and do not comingle the funds with other ira funds, and that allows you at a later date to move the money back to an employers 401k if you decide to do so.

with regards to setting up a 401k, i have heard that traditionally setting up and managing 401k's are a tricky business. but i did notice that a number of discount brokers (firstrtrade, ameritrade, brownco) offer standard/boilerplate plans that have been used previously and/or have had an irs determination made that it is a qualified plan. so that led me to believe that you could adopt one of those pre-approved plans that would keep expenses to a minimum. still will take developing a better understanding of 401k plans that most people want to know. and then there is the problem that if the laws change, how do you make sure you keep up to date / comply without a professional in the area monitoring it?

per your advice, i concur that putting my rollover funds into an ira is the best route. how about for new funds? could anyone give perspective on the pros/cons of choosing between using a traditional ira, sep ira, simple ira, or a qualified 401k plan? as i indicated before, i am doing business as a corporate entity. currently have no employees but could have some in the relatively near future.

again, thanks all for your help.
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