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I thought when you retired, you had to leave your company plan and open an IRA. I thought this was,.....well,.....mandatory-like. I've never heard of this. Where I work, all do the roll. This link is the only thing I've ever seen. What say you?
You do not have to roll from a 401k to an IRA when you retire or change jobs. People often do it for different reasons, including consolidating investments or because IRA's typically have more options to invest in than many 401k plans. But no, you don't have to. I rolled over most of my 401k to an IRA after "retiring" from my work place of 40 years, but I did keep some money in the 401k because there were a couple closed funds I owned , PRWCX and GPGOX, that I would have lost. Also kept some there (T. Rowe Price) for sentimental reasons which I know doesn't make any sense financially.
Investopedia is another one of those sites that tends to get the general ideas right, but isn't that reliable on details.
If your 401K plan is under $5K, your employer has the option of forcing you out. If you've got more than $5K, you can keep the money there.
Note that for RMD purposes, each employer plan is considered entirely separate. Unlike IRAs, you cannot compute your combined RMD and then take the amount out from whichever 401Ks you want. You have to take the RMD from each 401k separately. (403(b) annuity withdrawals are allowed to be lumped together.) Also, 401Ks have RMDs even for Roths.
1. Cheaper/better options in employer plan. Often true in large employer plans, less frequently true in smaller plans. Don't jump out if you have good options.
2. NUA - may be subject to withdrawal penalty if under age 59.5. Not a good idea to bulk up on company stock simply in order to take advantage of this tax break (though a modest percentage may be reasonable). See Fidelity article for details: https://www.fidelity.com/viewpoints/personal-finance/company-stock
3. If you can trace your IRA money to a 401k rollover (e.g. by keeping it in a segregated IRA account), then it retains its unlimited bankruptcy protection. But as stated in the article, it may lose the protection it had against other creditor suits (depends on state law).
There is a term referred to as "in kind" which I believe allows shares to move "in kind" from one IRA to another. Important to ask both plans if this is possible and have them orchestrate (trustee to trustee transfer of shares in kind). This is one way to move closed fund shares as part of a rollover.
Thank you bee. I did ask the adviser at Schwab (when I opened the IRA) if I could keep closed funds from my 401k and the answer I got back was no. Maybe I didn't ask the question correctly. But basically I transferred all 401k money to a sweep acount in the IRA and had to start investing over again. I'd be interested to hear if other people's roll overs were done "in kind" as you mentioned.
Thank you bee. I did ask the adviser at Schwab (when I opened the IRA) if I could keep closed funds from my 401k and the answer I got back was no. Maybe I didn't ask the question correctly. But basically I transferred all 401k money to a sweep acount in the IRA and had to start investing over again. I'd be interested to hear if other people's roll overs were done "in kind" as you mentioned.
On two separate occasions, I encountered a scenario where in-kind transfers were not allowed in regards to closed funds when transferring to a Schwab IRA. On one of those occasions though, I was able to figure out a way to circumvent this in regards to one of my very favorite funds, RPMGX. My employer used T Rowe Price as the 401K administrator. While I couldn't transfer my RPMGX in-kind to Schwab, I could transfer this in-kind to an IRA at TRP if I had an account there. And then for some reason which I can't explain, I was able to transfer this in-kind over to Schwab from the TRP IRA.
Lots of paperwork, but good result. I still can't explain the rules on this. The only quirk is my holding has a flag associated with it, which prohibits me from adding to the holding.
Thanks @PressmUp. Without researching this farther, I'm going to guess transfers 'in kind' cannot be made from a 401k to an IRA, only from IRA to IRA. Thanks for the info. I'm happy keeping my 401k active to keep GPGOX and PRWCX for now, so I won't pursue.
This separation means employees are not allowed to access 401k savings without following the trust's rules, and employers may not use this money to fund business operations. I was unfortunate to have employer use my weekly 401-k allotment to fund his business. Had I not kept an eye on quarterly statement it's hard to think how long this would have gone on. Yes I did get money that was ear marked for 401-k returned with a (small) penalty included. Derf
Just found out that a buddy's 401k with FedEx will charge him $28 X4 per year if he doesn't move his money if/when he no longer works there. They'll let him keep the account, alright. But why stay in such a plan, eh?
What @msf so rightly said about 401/403b plans is true in my case. Due to reorganization at my employer and a 457 plan I started late in my career, I ended up with five different accounts requiring five separate RMDs. When our mortgage lender insisted on us showing a "monthly stream" of income, all five accounts now generate monthly deposits. Also have to deal with five 1099s at tax time. Cumbersome and never-ending. I laugh at the language in IRS forms that intones nonsense about adherence to the Paperwork Reduction Act.
Comments
If your 401K plan is under $5K, your employer has the option of forcing you out. If you've got more than $5K, you can keep the money there.
Note that for RMD purposes, each employer plan is considered entirely separate. Unlike IRAs, you cannot compute your combined RMD and then take the amount out from whichever 401Ks you want. You have to take the RMD from each 401k separately. (403(b) annuity withdrawals are allowed to be lumped together.) Also, 401Ks have RMDs even for Roths.
https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans
Comments on the article's bullet items:
1. Cheaper/better options in employer plan. Often true in large employer plans, less frequently true in smaller plans. Don't jump out if you have good options.
2. NUA - may be subject to withdrawal penalty if under age 59.5. Not a good idea to bulk up on company stock simply in order to take advantage of this tax break (though a modest percentage may be reasonable). See Fidelity article for details:
https://www.fidelity.com/viewpoints/personal-finance/company-stock
3. If you can trace your IRA money to a 401k rollover (e.g. by keeping it in a segregated IRA account), then it retains its unlimited bankruptcy protection. But as stated in the article, it may lose the protection it had against other creditor suits (depends on state law).
There is a term referred to as "in kind" which I believe allows shares to move "in kind" from one IRA to another. Important to ask both plans if this is possible and have them orchestrate (trustee to trustee transfer of shares in kind). This is one way to move closed fund shares as part of a rollover.
Lots of paperwork, but good result. I still can't explain the rules on this. The only quirk is my holding has a flag associated with it, which prohibits me from adding to the holding.
It's a mystery.
http://www.401khelpcenter.com/401k_education/bankruptcy_and_401k.html#.WNg9LxjMxsM
I was unfortunate to have employer use my weekly 401-k allotment to fund his business. Had I not kept an eye on quarterly statement it's hard to think how long this would have gone on.
Yes I did get money that was ear marked for 401-k returned with a (small) penalty included.
Derf