All,I am contemplating converting my 401K plan to a rollover IRA in Scottrade to decrease the impact of the fees I would incur over time. I want to invest part of that money in some good stocks that I can keep until I retire (20 years from now) and place the other part on an index fund like SPY. Should I be better off keeping my 401k intact with my company?thank you in advance for your thoughts. Mr. Green
I don't think you can roll over a 401K until after you leave the company. So if you are still there the point is moot.I think moving from a 401K to an IRA is pretty much always a good idea. You get to invest the money in whatever you want, as opposed to the limited choices in the 401.D.
I agree moving to an IRA could be a good idea. If you have made after-tax contribtutions to the 401k, you should withdraw them (no tax impact) and invest them through a taxable account. The IRS formula for reclaiming after-tax contributions from an IRA is horrible. Basically, you can't get all of your money out unless you exhaust all the funds in the IRA. Of course, if you convert to a Roth IRA, you'll only pay tax on the tax deferred contributions and after the conversion my point is moot.
Well, rolling it over to an IRA is definitely a good idea, because then you have more flexibility.On the other hand, planning on a 20 year hold for stocks is just plain foolish. While it is possible that there are some stocks good for that time period, lots of luck finding them. All of your holdings should be re-evaluated regularly. There are times to buy and times to sell. The same can be said for index funds. Trading IWM off the (8,55) moving average crossover improves performance significantly over buy and hold, for example.
billjam,If you have made after-tax contribtutions to the 401k, you should withdraw them (no tax impact) and invest them through a taxable accountThis is not a cut and dried fact. Look through this article from July 2012:http://www.kitces.com/blog/archives/360-Splitting-After-Tax-...Since the funds are considered as part of the 401k(they really are), you can't just take them out and put them in a taxable account.Maybe Phil will weigh in an this one.Whatever the OP does, he/she should discuss this fully with the plan holders on both sides of the rollover to make sure what is done is all above board. Running afoul of the IRS, even for a small amount, can become a huge issue in the future.Gene
Whether or not you can rollover vested amounts I think depends on your 401k rules.My company's plan allowed it so a year before I retired I rolled it over to a Scottrade TIRA and then continued to contribute during that year and when I retired I rolled the rest of it.I don't know if age is a factor or not. I was 62 at the time of the first rollover.
Since the funds are considered as part of the 401k(they really are), you can't just take them out and put them in a taxable account.I referred to after-tax contributions only being withdrawn at the time of the rollover. Every company has a limit on the percentage of salary that can be contributed to a 401k on a tax deferred basis. Employees may contribute more than that but it must be after-tax money. When I rolled my 401k I didn't even have choice. I was required to take a check for my after-tax contributions. Not the earnings on them, just the contributions. I deposited that check in my taxable brokerage account. I believe now you may have the option of leaving those after-tax contributions in the rollover IRA. I'm strongly recommending OP not do that because of the IRS formula for withdrawing after-tax contributions from an IRA. I know about this because after Reagan's 1986 tax changes I continued to contribute to an IRA even though I could not claim the tax benefit of those contributions. I benefited from the earnings being tax deferred but after 13 years of withdrawals I have only been able to recover 40% of those after-tax contributions.
Assuming you have the option to move your 401k funds to an IRA, your first consideration should be your existing 401K.Some plans are subsidized by your employer and can be less costly than an IRA. If you have a good plan with low costs and good investment choices, consider keeping it. Some companies do disappear, get acquired, go out of business. Your 401k is protected, but we hear from those who have trouble finding who has their money. If your company is an industry leader likely to be around long term, fine. If not, moving to an IRA is a good way to take charge of your funds, and you are free to pick your own custodian and move your funds in the future if your needs change or some other custodian has a better IRA.If you are an experienced stock picker, finding stocks that meet your requirements should not be difficult. You want a diversified portfolio. Otherwise, you should rely on mutual funds. An index fund is usually a good place to begin, but you may expand to include others as you become more experienced.
I just moved 90% of my 401K to an IRA while still employed by the company. I think each company can attach criteria to their plans. Now I did move from a full time VP to a internal part time consultant. Full time to part time may have been the trigger for me to do this.
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