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There is a long-standing question I have.... I've always been good about opening both IRAs and 401ks and have made several career moves over the past 10 years.

I now have multiple 401Ks that I've kept at various firms and monitor. Seems it would be easier to roll those all into my existing IRA to manage them.

Are there distinct advantages / disadvantages to doing so? Clearly, they would be "rolled" with no posession, so they stay tax deferred in any case. I've never heard a good argument for one vehicle vs. the other when either are available.......
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I wouldn't recommend you roll 401(k) money into an existing IRA. If you have several 401(k)s, you should think about rolling them into one new IRA. Why? For one, control. With an IRA, you have much more control over your money. You will also be in the position to possibly convert that money to a Roth IRA if you so choose.

The only disadvantage I can see to leaving a 401(k) plan is that you lose the ability to borrow your money. But, I would say that is a minor disadvantage.

JLP

http://AllThingsFinancial.blogspot.com
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>> The only disadvantage I can see to leaving a 401(k) plan is that you lose the ability to borrow your money. But, I would say that is a minor disadvantage. <<

The other one is if you retire at 55+ but before 59.5, you have access to 401(k) money without penalty even if you don't use 72(t). That's not true in an IRA.

#29
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The other one is if you retire at 55+ but before 59.5, you have access to 401(k) money without penalty even if you don't use 72(t). That's not true in an IRA.
Where can I read the rules about drawing 401k money at 55yrs old?



MEG
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" Where can I read the rules about drawing 401k money at 55yrs old?"

Hi MEG,

Sorry don't have an answer to your question... Just wanted to add, that you might want to investigate if there is a difference in the case of lawsuits, whatever... The 401K may be better shielded, not sure...

More questions than answers...

Regards, Ken
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MEG:

Where can I read the rules about drawing 401k money at 55yrs old?


Pub 575 has all the pertinents (caution: long).

http://www.irs.gov/publications/p575/ar02.html

Near the bottom, where they discuss the 20% withholding tax and/or penalties, it states:

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, etc.


One reason to not roll old 401k's into IRAs, but rather roll them into your new employer's 401k, if the new plan will allow it, is if you think you might want to retire before 59.5 and have few other assets on which to live during that 4 years. ALL the funds sitting in your last employer's 401k are eligible - even the ones that rolled in from other plans.

DH just changed jobs and it will be another 2 months before he is eligible to contribute to the new plan. Since both the old and new plans are administered by Fidelity, we're strongly considering this in order to allow us more flexibility. I haven't seen the fund choices of the new plan, but since it's Fidelity, we're very hopeful!

HTH
3MM

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I wouldn't recommend you roll 401(k) money into an existing IRA. If you have several 401(k)s, you should think about rolling them into one new IRA.

Why wouldn't you recommend to roll the 401(k) money into an existing IRA? The only disadvantage is that you are comingling 401(k) money with IRA contributions so you cannot roll the money back into a future 401(k) plan, but as most plans I have seen have limited investment opportunities, this disadvantage has never bothered me. In fact, I find it easier to roll my 401(k) money into my exising IRA when I change jobs just because it consolidates the money into one account, so is easier to manage.

Why do you object to doing it like this?
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Why do you object to doing it like this?

The one thing that occurs to me is that withdrawal rules on 401(k) money are somewhat mnore liberal than on IRA money. This may be a factor if you want to start tapping the money between 55 and 59 1/2.

--B+C
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Why wouldn't you recommend to roll the 401(k) money into an existing IRA? The only disadvantage is that you are comingling 401(k) money with IRA contributions so you cannot roll the money back into a future 401(k) plan, but as most plans I have seen have limited investment opportunities, this disadvantage has never bothered me. In fact, I find it easier to roll my 401(k) money into my exising IRA when I change jobs just because it consolidates the money into one account, so is easier to manage.

Why do you object to doing it like this?


I would object to doing this if the existing IRA is a non-deductible traditional IRA.

IF
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I would object to doing this if the existing IRA is a non-deductible traditional IRA.


I can understand that, but the post to which I responded made it sound like something that should never be done. Most folks have traditional deductible IRA's, so for them, I don't see where it matters that the 401(k) money be put into a separate IRA. And as far as being able to take 401(k) money sooner than IRA money, that is an argument for not moving the funds at all, and has nothing to do with keeping it in a completely separate IRA.
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I wouldn't recommend you roll 401(k) money into an existing IRA.

Is this just in case one might want to roll that money into a future employer's plan that hasn't been modified yet to allow rollins of contributory IRAs?
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The other one is if you retire at 55+ but before 59.5, you have access to 401(k) money without penalty even if you don't use 72(t). That's not true in an IRA.

It's true only from the employer's 401(k) or 403(b) that you had retired from after you turned 55; it does not apply to 401(k) or 403(b) plans from previous employers.

Other advantages of keeping the funds in a 401(k) or 403(b):

1. A 401(k) or 403(b) (except for 401(k) plans where the only participants are the proprietor and the proprietor's spouse) has ERISA protection from creditors. Currently IRA protection from creditors is based on state law and varies between states. Such assets, however, are not protected from divorce proceedings.

2. Many 401(k) and 403(b) plans have loan provisions. IRAs do not have loan provisions (though there is a loophole to get a 60-day loan once a year: start a "rollover" by receiving the money, and completing that "rollover" before 60 days are up, even if that means redepositing the money in the original IRA, but you can do this only once per 12 months for any given IRA that either dispersed or received those funds).

3. Some 401(k) or 403(b) plans may offer unique or super-low expense investments (e.g., stable-value funds, some exotic offerings, or institutional shares).

On the other hand, an IRA does offer a number of potential advantages:

1. One can pick almost any investment, then pick the most appropriate custodian. So this means almost any investment is available, not just those in the employer's plan. (Sometimes this is handy for rounding out one's investment portfolio when the employer's plan is lacking or weak in a particular area.)

2. One can also shop for cost, such as using a discount broker, or no-load, low-expense mutual funds.

3. As an IRA, one can decide to convert part or all of it to Roth, thus paying the taxes then and later having the money grow potentially tax free. While a Roth conversion is not a "slam dunk", there can be times when it makes excellent sense, such as when one's income is lower than normal so one can convert at very low tax rates.

4. One may want different beneficiary information for different IRAs, possibly giving more flexibility than one could with a 401(k) or 403(b).
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I would object to doing this if the existing IRA is a non-deductible traditional IRA.

Any time there are taxes involved with the IRA, you have to pro-rate your "tax basis" (after-tax contributions) based on all Traditional IRAs, so you end up not being able to cherry-pick the Traditional IRA for the tax treatment.

If you could cherry-pick the Traditional IRA for the best tax treatment, then it would make sense to keep Traditional IRAs funded with non-deductible contributions separate from Traditional IRAs funded with deductible contributions. But, alas, that is not the case.
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Any time there are taxes involved with the IRA, you have to pro-rate your "tax basis" (after-tax contributions) based on all Traditional IRAs, so you end up not being able to cherry-pick the Traditional IRA for the tax treatment.

I said that just for simplicity of recordkeeping. It would be easier with regards to paperwork to convert a non-deductible traditional IRA to a Roth IRA if it isn't comingle with a 401k rollover (if in the future you are below the conversion limits).

IF
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I said that just for simplicity of recordkeeping. It would be easier with regards to paperwork to convert a non-deductible traditional IRA to a Roth IRA if it isn't comingle with a 401k rollover (if in the future you are below the conversion limits).

I can see how keeping them separate would be more complicated, not simpler.
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I can see how keeping them separate would be more complicated, not simpler.

Okay, I looked it up. Even on conversions to Roth IRAs, you treat all IRAs like one big IRA. But I don't see why you would say it is more complicated. The math is the same either way. Unless your broker charges IRA fees, it is just a personal preference if you maintain one or more IRAs.

IF

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But I don't see why you would say it is more complicated.

It is more complicated because you have more IRA balances and "basis" amounts you have to add up to figure out the "basis" applied to the specific transactions. If everything was in one big, happy IRA, you would have only one balance you would have to deal with.

In any case, it is definitely not simpler to have multiple IRAs, contrary to what you had stated in message number 45125.

I am not disputing that you might want separate IRAs for other reasons, but simplicity is not one of them.
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I wouldn't recommend you roll 401(k) money into an existing IRA.

I recently converted a 401K to a Rollover IRA. I then combined the Rollover IRA with my existing Traditional IRA for several reasons:

1) Simplicity - I like having fewer accounts.
2) Control - Access to more funds with my IRA
3) Fees - My traditional IRA with only had $4000 in it so I was being charged an annual maintenance fee. By combining this amount without my rollover fund I eliminate this fee. This was probably my main reason.

Lastly, I have been thinking about closing my fidelity IRA accounts and moving to Vanguard. Fidelity charges a $50 closing account fee (btw, I find it insane to charge someone a fee when they stop doing business with you, but that's a whole other story - if I stop going to my favorite restaurant are they going to charge me a $25 stop-dining fee?)

Anyway, by combining these accounts I would only have to pay $50 instead of $100 if I close the account.

JJasp
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Thanks to everyone for the robust commentary.

After reading all opinions, I agree with JJasp in 1-3 inclusive of the elusive "simplicity". Also key is flexibility - no 401K restrictions on investment choices.

The issues of withdrawls between 55 and 59.5 aren't a concern to me, so this looks like the right thing to do.

Last, and not mentioned in this is survivability. When my mother passed away, I found out that 401Ks must be liquidated and become immediately taxable. There is a provision that allows the recipient to keep the funds tax protected longer - with mandatory withdrawls over the lifetime of the oldest sibling (in the event of children), provided the original owner dies before mandatory distributions take effect.

Thanks again...Doneby51
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