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401k Transfer

I just started a new job and the new 401k at the company is run through Fidelity. My previous employer also used Fidelity...So, I have a new (unfunded) 401k, a 401k from my previous employer and an IRA Rollover all there.
Just curious what others thoughts are about consolidation etc. I have other accounts there including my wife's,

I have 3 choices (IMO) -
1.) Leave it as is and just start funding the new 401k
2.) TRansfer previous 401k ti new one. *Note - I have to sell all positions an can only move Cash in this type of transfer. Considering the markets and some losses, is that wise or does it matter since I'd be getting in at a low point with my new positions?
3.) Rollover previosu employers 401k assets to my existing IRA rollover at Fidelity

Just looking for some perspectives and see if I'm missing anything - Thanks in advance!

Comments

  • Factors to consider:

    Old Fido 401k to new Fido 401k - typically, you would want to move from a poor plan to better plan. There may be minor differences still between the 2 Fido 401k, but they should be broadly similar. So, it's a wash.

    Old Fido 401k to Fido (Rollover ) T-IRA - There may be more flexibility and options in T-IRA. The 401k do have more rules and headaches, but they have the highest protections from creditors and in bankruptcy; most of these protections carryover to pure (Rollover) T-IRA; contributory T-IRA have variable state protections (some good, but some terrible). A lesser known benefit of 401k is that if you quit/retire early between 55 and 59.5, you can withdraw penalty-free from 401k right away; in T-IRA, penalty waiver only after 59.5.

    Do check online or by calling Fido - transfers/exchanges from Fido 401k to Fido T-IRA may be done overnight.

    BTW, in spite of "Rollover" in T-IRA name, there is no distinct Rollover IRA type. It is generally recommended not to mix contributions with rollover money and some brokers add a name "Rollover" to the T-IRA. But it is up to you keep it a pure T-IRA with rollover money only. In case of mixed/tainted T-IRA, the protection situation becomes muddy and federal vs state rules will apply to different types of contributions. So, why create a mess? And you are not here.
  • edited May 2022
    Great advice @yogibearbull

    Edit add: I would likely always move Old Fido 401k to Fido (Rollover ) T-IRA due to more choices available unless age was a factor as he said.
  • When moving money by cashing out and repurchasing on the other side, it doesn't matter whether the market is high or low. What matters is short term movement. Will the market go down during those few days you'll be in cash? Then you "win". But if the market goes up, you lose - selling at $X and repurchasing at $(X+Y). Short term, the odds tend to be 50/50.

    As Yogi mentioned, federal law provides unlimited protection in bankruptcy from creditors on money transferred from a 401(k) to an IRA. But only in bankruptcy. Federal law doesn't provide any protection from creditors if you don't declare bankruptcy (assuming you're not forced into involuntary bankruptcy by creditors). You'll have to rely on your state's laws to protect that money outside of bankruptcy.

    Even if you don't comingle IRAs, a creditor may demand that you prove that you haven't tainted the account. That means keeping records for the life of the IRA, showing the absence of any contributions.

    The age 55 benefit¹ applies only to the 401(k) at your current employer. If you're planning to tap into your money this way, that's an argument for moving money from the old employer's plan to the new employer's plan. Consolidation/simplification is another reason. IMHO the case against consolidating is the risk of the market moving up while the move takes place (first paragraph above). I try to make moves like that only when the market is fairly quiescent. Hardly the situation now.

    ¹ You must leave your employer in (or after) the year when you turn 55. You don't have to actually have to be 55 at the time. You might turn 55 in November but quit in June. That's okay.
    https://smartasset.com/retirement/401k-55-rule
  • great feedback...thanks!
  • Regarding option #2 - Transfer previous 401(k) to new 401(k).
    Since you have to sell all positions, this is a risky move in the current volatile market environment.
    I have the same concern for option #3 if assets can't be transferred in-kind into an IRA.
    You may be able to implement a work-around by selling non-transferrable funds and buying transferrable funds prior to initiating the transfer. You would need to analyze this maneuver to determine whether or not it could be potentially beneficial in your specific situation.
  • Regarding option #2 - Transfer previous 401(k) to new 401(k).
    Since you have to sell all positions, this is a risky move in the current volatile market environment.
    I have the same concern for option #3 if assets can't be transferred in-kind into an IRA.
    You may be able to implement a work-around by selling non-transferrable funds and buying transferrable funds prior to initiating the transfer. You would need to analyze this maneuver to determine whether or not it could be potentially beneficial in your specific situation.

    The liquidation requirement is only if I take old 401k and want to move that to the new 401k! They wont allow an 'in-kind' TOA. I have to sell and move the cash proceeds to new 401k.
  • edited May 2022
    I found out another small tidbit...my old 401k at Fido allowed almost any security purchase through their BrokerageLink program. The new 401k is MF only! No ETF's, Stiocks etc
    I can live with that but I started to dabble in ETF's ...SCHD, DIVO, FM, GLD

    So, the 2 factors are what I mentioned above - some limitations of new 401k product availablity AND the liquidation/No 'In Kind' Tranfers allowed! My best option might be to move old 401k to the existing IRA rollover!
  • I had rolled over from a Fidelity managed 401(k) to a Fidelity rollover IRA. Before I rolled over, I made sure that the funds invested in the 401(k) are all Fidelity funds that are also available to the retail and they rolled over those funds to the retail class of the same funds, preventing any out of market issues.

    It makes sense not to go from a brokerage linked 401(k) to one that only has select mutual funds. If you ever decide to rollover the 401(k) to an IRA, I would do it at Fidelity to make the rollover smooth, even if ultimately you move the money to a different brokerage.
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