Investments: Episode 46
It's Movember Day 23 and the Mo is thinking about Thanksgiving.
Please stop by my Movember page and donate what you can.
Now that the mustache has spoken it's on to the show...
What should you do with that 401(k) at your old employer?
My wife’s friend Stacy asked earlier today whether she should rollover her 401(k) to a Rollover IRA and then to a Roth IRA conversion.
Back in episode 20 I discussed Roth 401(k)s and the way things broke down there was that contributing to a Roth made sense if you valued more retirement spending over more current consumption. 50% more spending in your retirement years or 8% more spending pre-retirement?
However what Stacy is asking is a different question. She has a pool of money in a traditional 401(k) account at a company where she is no longer employed. What should she do?
This is a two part question. 1) Should she move the money? 2) If so where should she move it to?
The answer to question 1 is yes. There is no practical reason to leave your account under the stewardship of your former employer. Unless, maybe they offer access to an asset that you would NOT be able to acquire elsewhere. Highly unlikely!
You want ease of management and portfolio flexibility. Both can be had in a brokerage account. You could roll to your new employer but there’s no value there either unless you gain access to special investments.
Now, onto Rollover IRA or Roth IRA.
Rollover first to your new institution. Then convert. Ideally you’d be able to pay the taxes out of another account. Thus leaving your account intact.
The 59 1/2 Rule still applies. 10% penalty if you take funds out before.
There are Roth qualification rules. $105K 2010 $107K 2011 for singles. $167K $169K for couples.