basic question re: rolling over to new 401k vs. IRA


S

screenaccount

Hi. I've currently got a 401K in one of Fidelity's Freedom Funds, and
an IRA in one of Vanguard's Target Retirement Funds. I need to roll
over funds from a 401K with a previous company into one of them.

I know a small bit about investing and such, but not really enough to
be dissatisfied with the investment options of one or the other. I do
prefer Vanguard to fidelity, but that's possibly just because I'm more
familiar with it.
From what I can tell, the main advantage of rolling over into an IRA is
that you get more choices for where you can put your money. If my
investment strategy is pretty simple, though, meaning I don't need a
lot of choices, does the IRA option still have any advantage over the
401k?

Thanks.
 
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J

jIM

Hi. I've currently got a 401K in one of Fidelity's Freedom Funds, and
an IRA in one of Vanguard's Target Retirement Funds. I need to roll
over funds from a 401K with a previous company into one of them.

that you get more choices for where you can put your money. If my
investment strategy is pretty simple, though, meaning I don't need a
lot of choices, does the IRA option still have any advantage over the
401k?
The IRA might have some disadvantages, might have some advantages.
Here are some questions:

1) What are to account balances in each IRA and 401k?
2) Do any of these 3 accounts have account fees?

some things to consider:

a) you can take loans against a 401k
b) you can invest an IRA in many more choices than a 401k
c) you can roll a IRA into a Roth IRA at a later date
d) Roth IRA's have favorable withdraw rules relative to a traditional
IRA
 
D

Dave Dodson

Hi. I've currently got a 401K in one of Fidelity's Freedom Funds, and
an IRA in one of Vanguard's Target Retirement Funds. I need to roll
over funds from a 401K with a previous company into one of them.
You don't give your age. If you terminated from the previous company in
or after the year you turned 55, and are below age 59.5 when you can
take unlimited penalty-free distributions, and you want to take
distributions, it may be better to leave your account in your 401(k).

Dave
 
D

Dave Dodson

Hi. I've currently got a 401K in one of Fidelity's Freedom Funds, and
an IRA in one of Vanguard's Target Retirement Funds. I need to roll
over funds from a 401K with a previous company into one of them.
You don't give your age. If you terminated from the previous company in
or after the year you turned 55, and are below age 59.5 when you can
take unlimited penalty-free distributions, and you want to take
distributions, it may be better to leave your account in your 401(k).

Dave
 
W

woessner

From what I can tell, the main advantage of rolling over into an IRA is that you get
more choices for where you can put your money. If my investment strategy is pretty
simple, though, meaning I don't need a lot of choices, does the IRA option still have
any advantage over the 401k?
On all the important points, IRA's and 401k's are pretty much the same.
Like you said, IRAs offer you a lot more investment choices. But IRAs
also offer a lot more flexibility when it comes to the rules. For
example, you can always take a withdrawal from an IRA, regardless of
the situation. And there are a bunch of exceptions under which you
don't have to pay the 10% penalty. See:

http://beginnersinvest.about.com/cs/iras/a/aairafees.htm

Rolling the money in to an IRA opens up the possibility of converting
it to a Roth IRA. In addition to possibly being more advantageous from
a tax perspective, the Roth IRA is even more flexible than a
traditional IRA when it comes to withdrawals.

You'll also want to investigate service fees and expense ratios. It's
been my experience that 401k funds generally have higher expense ratios
than their IRA counterparts. Your 401k may be exempt from those pesky
service fees. But if your IRA balance is high enough, your provider
may waive their service fees.

So there's a lot of things that go in to it. I, myself, generally
prefer to roll in to an IRA. If you want to keep it simple, like you
said, just consolidate in to a single IRA.

--Bill
 
S

screenaccount

Sorry. I'm 36.

Mike


Dave said:
You don't give your age. If you terminated from the previous company in
or after the year you turned 55, and are below age 59.5 when you can
take unlimited penalty-free distributions, and you want to take
distributions, it may be better to leave your account in your 401(k).

Dave
 
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J

jIM

The new 401k is about $3500. The IRA (it's a Roth) is almost $9800. The
amount I'm rolling over is around $11K.

The Vanguard IRA has no fees. The Fidelity 401k (my current one) has
managmeent fees of 0.01%.

The old 401k (from Morgan Stanley, ADP Retirement Services) consists of
a bunch of funds, and the website didn't make it easy to look through
them for fee info. Glancing through a couple of them, though, the funds
may have fees between 0%-3%.
Your have little control over the 401k.

A Roth IRA and a Rollover IRA are charactarized differently. You can
CONVERT the rollover to a Roth, but would owe taxes on the rollover.

A Roth could not be rolled into a 401k (unless someone proves me
wrong). The Rollover IRA COULD be rolled into the 401k.

The fees I was asking about were more along the lines of "$10/year or
$2/month" for the Rollover and Roth accounts. Fund expenses are
another issue. There are possible expenses for the account itself,
then additional fees for the funds in many cases.
 
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M

Mark Freeland

jIM said:
A Roth IRA and a Rollover IRA are charactarized differently. You can
CONVERT the rollover to a Roth, but would owe taxes on the rollover.

A Roth could not be rolled into a 401k (unless someone proves me
wrong).
That's correct. You can roll over a Roth 401(k) into a Roth IRA (or
into a new employer's Roth 401(k)), but you cannot roll over a Roth IRA
into a Roth 401(k).

Here's the IRS page of FAQs on Roth 401(k)s (designated Roth accounts)
http://www.irs.gov/retirement/article/0,,id=152956,00.html

Here's the specific question of rolling over Roth 401(k)s into Roth IRAs
and Roth 401(k)s:
http://www.irs.gov/retirement/article/0,,id=152956,00.html#22

Going the other way (from Roth IRA back into Roth 401(k)) is not on this
page; you have to go directly to the Jan 26, 2006 proposed IRS
regulations, and look at Q-5 on pp. 49-50 (there are multiple Q-5's;
make sure you find the right one).
http://www.irs.gov/pub/irs-regs/14645905.pdf
 

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