401-K: To Rollover Or Not To Rollover Introductory question: if it were economically better to roll half the 401(k) into an IRA, wouldn't the benefit be even greater if you rolled the whole 401(k) into an IRA?
It's pretty clear that if your tax rates (or those of your beneficiaries) are lower in retirement, you're better off keeping the money in your 401(k). That's assuming you would use the same investment, the only difference being an extra 5 basis points in expenses.
Say you continue employment for another decade. (After retirement, you'd have RMDs in the 401(k) so there would be little reason to keep the money in that higher cost vehicle as opposed to a lower cost IRA).
So your investment cost for not moving the money would be about 10 x 5 basis point = 1/2%. (This ignores the minuscule compounding effect of 5 basis points.) That is petty in comparison with the reduction in taxes (if any) post-retirement.
OTOH, even if there is no reduction in taxes, by moving $500K to the IRA, you'd lose the (investment) use of the taxes owed on $20K/year. That is, you lose the tax deferral value of keeping the RMD amount tax-sheltered.
At 40% (your current tax rate), that's $8K in taxes paid early that you won't have to invest. And you lose the use of an additional $8K each year for however long you still work and could defer RMDs with your 401(k).
Let's say that you get 5% return on your S&P 500 investment. If you leave the $500K in the 401(k), then each year, for so long as you work, you'll have an additional $8K earning 5% ($400) that you wouldn't have had by using the IRA. That's $400 extra the first year, $800 extra the second year, etc. The cost to you for those earnings is 5 basis points on $500K/year or $250/year.
Of course you'll owe taxes on those extra earnings once you withdraw them from your retirement plan. So the gain isn't quite this large, but it's still clearly positive. Even if your taxes don't go down in retirement.
The choice seems obvious. Saving 5 basis points is not worth the loss of use of tax money, let alone potential lower tax rates if distributions are deferred until (actual) retirement.
It might be worth the additional flexibility, but that's a whole 'nother story.
News: UBS to buy CS. An interesting thread,
Twitter LINK.
European AT1/CoCo market has sold off and may have been compromised despite supportive statements from the ECB, EBA (European Banking Authority), SRB (Single Resolution Board) that what happened to (Swiss) Credit Suisse AT1/CoCo bonds CANNOT HAPPEN IN THE EU.
ETNs in 2023 Surprisingly, there hasn’t been much discussion or analysis of ETNs (Exchange Traded Notes) in the aftermath of Credit Suisse disaster.
The ETNs are DEBT obligations of the ISSUER/sponsor. So, the health of the issuer is critical for the ETN holders. Yet, in all of the discussions of Credit Suisse issues, its ETN exposure wasn’t even mentioned. This even as in the UBS takeover/rescue of Credit Suisse, almost $17 billion of AT1/CoCo debt was extinguished by government order (a credit-event was declared) when that was ahead of the common stock (that finally had some residual value). But because it wasn’t an outright bankruptcy, the Credit Suisse ETNs should be OK for now as the debt obligation of Credit Suisse will become the debt obligations of UBS.
https://www.mutualfundobserver.com/discuss/discussion/comment/161485/#Comment_161485 Another risk of ETNs is that their CREATION/REDEMPTION mechanisms may be disrupted by the issuer, or the ETN may be discontinued/liquidated in what may be very UNTIMELY for the ETN holders. Some ETNs are +/- 2x or even +/- 3x that further magnify risks (they escaped the recent ETF reforms to limit LEVERAGE).
Credit Suisse US ETNs include those for gold, silver, oil, MLP with AUM of under $
500 million (tickers for Credit Suisse related stuff are avoided here as those may change). UBS also has ETNs related to equity and HY bonds with AUM under $200 million. It is unclear if UBS will maintain Credit Suisse ETNs.
No news is good news?
https://ybbpersonalfinance.proboards.com/post/985/thread
401-K: To Rollover Or Not To Rollover I have a $1M 401-K with a company which invests it in a Vanguard 500 Index Fund (and charges me $9K annually (0.09%) to manage it). I'm still working (and plan to continue), I max out my contribution, my firm makes a modest match, hence no RMD yet.
I have a $750K Traditional IRA, also in the Vanguard 500 Index Fund, which Vanguard charges 0.04% to manage. I must take a $30K annual RMD. I'm in the Federal 35% tax bracket.
I calculate that if I rollover half my 401-K into a traditional Vanguard 500 Index Fund IRA, my 401-K fee would be cut in half, but the RMD would increase to $50K. The additional $20K would be reduced to $12K by federal and state taxes.
I don't need the extra income. I already make use of QCD's for part of the current RMD.
The way I see it, a rollover would give me greater flexibility, but not much tax advantage.
Anyone have suggestion?
