pdxhicap

My employer is currently switching from one 401k company to another. I have the option of taking the funds that I currently have in my 401k and:

1) Rolling it into a 401k with the new company.
2) Leaving it in the existing 401k.
3) Rolling it into an IRA.

My question is this.....Which is better, to have money in a 401k or an IRA?

Cynthetiq

roll it in the 401k if your company does any sort of contribution matching.

when you leave the company unless you have the cut off amount (varies by company) then you'll be forced to divest it and move it into an IRA.

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BigBlueWrecking

I would move the old money into an IRA. I prefer to have the money in my name as opposed to the trustee name. Also, you are not limited to any investment options like in a 401(k).

I would continue to put money in the new 401(k) though, so don't get me wrong. 401(k)'s are great, but it sounds like they are disbanding or terminating the old plan (which would be a wierd way to transfer from one 401(k) to another. It sounds like your HR department might not know what they are doing.) so I would move the old assets into an IRA. If you don't want to mess with it, just put it in the new 401(k) though as it requires less work on your part.

By the way Cynthetiq, future matching to a new 401(k) has nothing to do with what you so with the current money in there. If they are terminating the plan, it automatically vests.

madsenj37

look into Roth IRAs

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HamiC

If this is simply a question of your employer moving from one record keeper to another (i.e. from Fidelity to Vanguard).......and you are still actively employed by them (you have said "employer", as opposed to former employer)......then you will likely not be given a choice. The money will move to the new provider along with the 401k plan. It would not appear that you will have a so-called distributable event.

Warf Rat

401K's only have certain investment options, so an IRA gives more selection and a better chance of success.

Find a good broker and roll it to any IRA.

Good luck

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Cynthetiq

I completely missed that... good point.

if they are just changing management companies than it does not vest correct? and still stands by normal company vesting rules (in my case 20% per year until 5 years, I'm at 7 so it doesn't matter)

gar1976

While this is an option, it does have some issues.

When you roll the amount over, the amount rolled over is included in income in the year of the rollover. However, you do NOT need to roll over the entire amount, you can split some into the roth and leave some in the 401(k) plan.

If this is something you want to consider, post a new thread and I can give you some pros and cons.

gar1976

And there's a reason the company "suggests" rolling the money to your own plan. Your employer pays administration costs that increase as there are more participants, and if the number of participants hits a certain point, a requirement for audited financial statements is triggered.

So the more people they move off the plan, the better they are. If it gets rolled into an IRA, you will be required to pay any costs.

lytri

You should take your old 401k and roll it into a Traditional IRA. You can do this without paying any penalties. You can not roll it into a Roth IRA without paying penalties though. Because the 401k is a pre-tax account, it needs to be rolled into the pre-tax IRA, which is the traditional, otherwise tax (and probably early recovery) penalties will be assessed. You should also start putting money into the new 401k, to take advantage of your company's matching.

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gar1976

Rolling it into a roth won't necessarily generate penalties, IF you plan on leaving it in there for five years, or are over 59 1/2.

You will, however, need to report the amount rolled into a roth as taxable income in the year of the rollover. A good time to do this might be if you have huge losses coming through for some reason or another (pass through entities, etc.) and want to offset some of those losses with the gains from the rollover.

SCrubjay

One item frequently missed in the IRA/401(k) discussion is that of creditor protection.

Because the 401(k) is in trust, it is subject to the claims of only 2 creditors: divorcing spouses and federal taxes (not even the state is exempted). Though it is a macabre example, you only have to look as far as OJ to see the creditor protection value of pension trusts.