Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[ChiefaRoo]

MGM

[MTG#10]

Are there any taxes/fees/penalties for rolling over a 401k into a Roth IRA?

The company I work for is being bought out by a much larger company. They said we cant contribute to 401k until we've been with the new company for a year. They gave us an option of rolling our existing 401k's to a new Roth IRA that they will set up, then once we're eligible can roll that money back over to their 401k program. But I just opened my own Roth recently so I figured I might as well dump it into that one.

[DaFace]

Originally Posted by MTG#10

Are there any taxes/fees/penalties for rolling over a 401k into a Roth IRA?

The company I work for is being bought out by a much larger company. They said we cant contribute to 401k until we've been with the new company for a year. They gave us an option of rolling our existing 401k's to a new Roth IRA that they will set up, then once we're eligible can roll that money back over to their 401k program. But I just opened my own Roth recently so I figured I might as well dump it into that one.

Do you know if your 401k is a traditional or a Roth? Traditional is much more common I think (you deduct it from your taxable income), but I would have guessed they'd roll it into a traditional IRA instead of a Roth if that was the case.

To your question, rolling a traditional into a Roth will incur taxes, but then your withdrawals won't be taxed. Rolling a traditional into a traditional won't incur any taxes since the taxation rules basically stay the same.

[Buehler445]

Originally Posted by MTG#10

Are there any taxes/fees/penalties for rolling over a 401k into a Roth IRA?

The company I work for is being bought out by a much larger company. They said we cant contribute to 401k until we've been with the new company for a year. They gave us an option of rolling our existing 401k's to a new Roth IRA that they will set up, then once we're eligible can roll that money back over to their 401k program. But I just opened my own Roth recently so I figured I might as well dump it into that one.

Shouldn’t cost anything, but the basis will be kind of jacked. If you roll a 401k into a Roth the amount in the 401k will be tracked as separate basis. The basis and associated gains will be taxable. Roth contributions and gains won’t.

I don’t know for sure but I don’t think you get the additional benifits roth gets you on the 401k basis.

It’s not a huge deal and you’re sure not the only person to do it. But it certainly adds complexity and makes retirement tax planning tougher.

[MTG#10]

Ugh. So what are my other options if any? Can I just leave it alone and let it continue to grow based on whatever the market does without adding anything for a year then roll it over to the new company's 401k? I guess I could take out what I would be deducting and put it in my personal Roth instead. This shit is stressful, we've bought out multiple companies since I've been there but I've never been part of a company that was bought out by someone else.

[DaFace]

Originally Posted by MTG#10

Ugh. So what are my other options if any? Can I just leave it alone and let it continue to grow based on the market without adding anything for a year then roll it over to the new company's 401k? I guess I could take out what I would be deducting and put it in my personal Roth instead. This shit is stressful, we've bought out multiple companies since I've been there but I've never been part of a company that was bought out by someone else.

It likely won't hurt anything if you can just leave it there, but I'd probably just roll it into a (new) traditional IRA and call it good. I have a trad that I basically just use as a dumping ground for the various 401ks I've had over the years so I don't have to keep track of a bunch of them separately.

Whoever you have your Roth with can help you with the process. They're always more than happy to help you give them more of your money.

[DaFace]

Originally Posted by Buehler445

Shouldn’t cost anything, but the basis will be kind of jacked. If you roll a 401k into a Roth the amount in the 401k will be tracked as separate basis. The basis and associated gains will be taxable. Roth contributions and gains won’t.

I don’t know for sure but I don’t think you get the additional benifits roth gets you on the 401k basis.

It’s not a huge deal and you’re sure not the only person to do it. But it certainly adds complexity and makes retirement tax planning tougher.

You sure you can leave it alone like that? When I talked to Schwab about it, they told me that you have to either leave it traditional or pay the taxes to convert it to a Roth.

[Buehler445]

Originally Posted by MTG#10

Ugh. So what are my other options if any? Can I just leave it alone and let it continue to grow based on whatever the market does without adding anything for a year then roll it over to the new company's 401k? I guess I could take out what I would be deducting and put it in my personal Roth instead. This shit is stressful, we've bought out multiple companies since I've been there but I've never been part of a company that was bought out by someone else.

Depends on the rules. Typically you can leave it in there. Sometimes there are investment minimums, it all just depends on the company.

A traditional IRA will have similar rules, and you can deduct the contributions (6,000 annual limit, much lower than a 401K).

The simplest is probably leave the money where its at and donate to your roth. But you don't get to deduct contributions (if you're needing that or if it even matters)

Second simplist is open a Traditional and roll it there and put your contributions there.

Toughest is rolling it to a Roth.

[Buehler445]

Originally Posted by DaFace

You sure you can leave it alone like that? When I talked to Schwab about it, they told me that you have to either leave it traditional or pay the taxes to convert it to a Roth.

I’ve never done it but my understanding was the basis/gains were tracked separately.

Rules might have changed. Idk. I’ll yield if you talked to Schwab.

[eDave]

What stocks should I invest in GTAV? Everything sucks for me and I'm blowing through cash sniping from tall buildings.

[Buehler445]

Originally Posted by MTG#10

Are there any taxes/fees/penalties for rolling over a 401k into a Roth IRA?

The company I work for is being bought out by a much larger company. They said we cant contribute to 401k until we've been with the new company for a year. They gave us an option of rolling our existing 401k's to a new Roth IRA that they will set up, then once we're eligible can roll that money back over to their 401k program. But I just opened my own Roth recently so I figured I might as well dump it into that one.

I did a little poking around, and it looks like I might have been wrong about the basis thing (I know it was the case at one point, but I'm getting to be an old man, so it may have been awhile ago)

There isn't a ton out there, but the sites I could find that would commit to talking about it, called it a "Roth Conversion". Under a Roth Conversion you're taking your old account and changing its designation to a Roth.

It's possible there are roll options out there that don't do a "conversion" on your current contributions/gain. I'm guessing if it's possible it's complicated and commission chasing ****leheads don't want to do it. It's also possible it's not an option anymore.

If your company is offering to set up a ROTH you roll to, you should be able to ask the plan administrator in HR what the tax implications are of rolling your traditional 401K to a ROTH IRA. If they're doing the administration, they should be able to get you an answer.

Hope it helps.

[MTG#10]

I found a Q&A attached to my pay stub from Fri and now I'm even more confused.

It says even though we have to wait a year to be able to participate/receive company match, they can set us up an individual Roth IRA and take deductions from our checks to send to the Roth account. After a year we can roll this money over to the new company's 401k plan or leave it in the Roth.

It then says if we want to roll over our current 401k into the new company's plan with Transamerica we can do that as well. I'm confused, if we cant participate in their 401k until we've been there a year how can we roll our current 401k to theirs? Sounds like a contradiction...or I'm just not grasping it completely.

[Buehler445]

Originally Posted by MTG#10

I found a Q&A attached to my pay stub from Fri and now I'm even more confused.

It says even though we have to wait a year to be able to participate/receive company match, they can set us up an individual Roth IRA and take deductions from our checks to send to the Roth account. After a year we can roll this money over to the new company's 401k plan or leave it in the Roth.

It then says if we want to roll over our current 401k into the new company's plan with Transamerica we can do that as well. I'm confused, if we cant participate in their 401k until we've been there a year how can we roll our current 401k to theirs? Sounds like a contradiction...or I'm just not grasping it completely.

Sounds wonky as shit.

If it's me, I'd contact the provider of your previous 401K and see if they'll let you leave it in there for a year. I'd make contributions to your Roth or set up a Traditional IRA if you need the tax deduction.

The benefit to a Traditional IRA is if you are outyielding your 401K, you can roll your 401K out every year or two. Some of these brokerage houses have super low fees, and it may be possible.

I'm not sure I'd **** with any of their options until you can get a 401K going. Especially if you hate the new outfit and leave in 2 months.

JMO. Good luck my man.

[MTG#10]

Originally Posted by Buehler445

Sounds wonky as shit.

If it's me, I'd contact the provider of your previous 401K and see if they'll let you leave it in there for a year.

I think this is the best bet. I wonder if I could contribute to it on my own if they have contribution minimums? Or can 401k contributions only be done out of paychecks by employers?

[Buehler445]

Originally Posted by MTG#10

I think this is the best bet. I wonder if I could contribute to it on my own if they have contribution minimums? Or can 401k contributions only be done out of paychecks by employers?

To my knowledge the employer has to do it.

They lower your taxable income by the amount you contribute that comes through on your W-2. You can deduct traditional IRA contributions on your tax return, but to my knowledge there is nothing in that section about non-employee 401Ks.

Frankly, it might be a good experiment for you to set up a traditional IRA and see if you can beat the old employers and the new employers. I have my rolled over 401K in SPY and I'm betting that would beat the return of a more managed fund. My ROTH IRA is a target date fund that's pretty low load. Administrators gotta get paid too and all that shit.

Quite awhile ago Lew posted some data on the effect of compounding interest of the mutual fund load fees, Might be worth looking into.