Why We Aren't Rolling Over A 401(k)
It's generally advised to roll over a 401(k) to an IRA when you leave your employer.But, when hubs leaves M next week, his 401(k) is staying put.
Why?
1) The funds it's in now (institutional grade Vanguard index funds and a Russell non-US World SMA) are not available outside of the 401(k). We could retain the Vanguard index funds by doing an in-kind transfer, but not the SMA. We'd have to cash out the SMA and buy something else.
2) There's no tax penalty for spouses at time of inheritance. (NOTE: Not the case for non-spouse inheritance).
3) The expense ratios on the current funds are at an institutional grade; they are lower than retail-grade funds.
4) M, the employer, doesn't require employees to leave the plan when they leave the company. (NOTE TO SELF: need to make sure M would not require any non-spouse beneficiaries to take distributions upon inheritance).
5) We can start withdrawing, penalty-free, from a 401(k) at the age of 55; anybody can do this if they have left the company that sponsors the 401(k). . If they are still with the company, same "59 1/2" rule applies on withdrawals. (NOTE: For Traditional IRAs it's 59 1/2. For Roth IRAs there's no age minimum on withdrawing contributions).
posted by finance girl @ 11:55 AM
5 Comments:
Good decision. Point number four is usually the determining factor. I've worked at one company who didn't require that I move my 401k when I took another job, and I worked for another who gave me no option but to move it.
I feel smarter every time I read your page. Problem is that there is way way way too much for me to learn.
How would you go about re-educating someone?
Don't forget to factor in the administrative costs of the 401k. Sometimes the employer will pay them outright, but often, they are split among the 401k participants and charged to their accounts (in the background). Unfortunately, this almost never shows up on any statement they provide. You may or may not be able to find out this info by asking pointed questions of M.
hi critterknit, you bring up an awesome point. fortunately M does not have admin costs separate from expense costs of the funds themselves, but yes this absolutely, posivitely is on the list of "must know".
also, wrt 401ks if the funds blew i would absolutely recommend rollover (and then moving the $ into other funds), I'd say "start with whether or not the funds are high quality/low cost funds". hmmmm i should have included that.
hi david aw shucks, glad i can help! :-)
hi jsb yeah that would not give you the option of keeping it in that account for sure
Does M provide brokerage option? If so, it may be worthwhile option.
stocktrader07
finnews@blogspot.com
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