Rolling a 401K over to an IRA

[CooterBrown 18289]

I'm about to start a new job.  I have my existing 401K that I can either leave in the 401K at my soon-to-be ex-employer, roll to the new 401k, or roll it to an IRA.

My current 401K has some under performing target date options but does have the Fidelity S&P 500 (FXAIX) which I have always have 100% of my retirement in. I've been gruntled with the returns.

However, as I get down to my last 8 years of working with a planned retirement age of 59 1/2, I want some more flexible investment options as I near the finish line that an IRA would provide.

Are there any reasons NOT to roll it to an IRA?  I'll never need a loan or an early withdrawal like you can do in a 401K.  Are there any pre or post retirement disadvantages to an IRA versus a 401k?
 

 

Edited January 5 by CooterBrown

[Firemans4Horn 18533]

ERISA governed plans (401k’s) have better creditor protections than IRA’s. 
 

The general investor sucks ass when given too many choices (self directed brokerage IRA) so sometimes the limited options in a 401k helps protect the investor from themselves. Not saying this is you; but the 50th percentile investor in a 401k plan is probably going to have a worse outcome when they roll over the funds and start doing themselves. 

[tx 3 putt 78725]

Are you doing this on your own or with a financial advisor ?

Edited January 6 by tx 3 putt

[StassneyHorn 6780]

Seems like you covered it

You can loan yourself money from your 401k, but have to pay it back with interest

You can access 401k at 55 years old with no 10% penalty if you end up leaving your job that year or after (you seem set at 59 1/2)

If someone tries to sue you, you have better protections in a 401k than an IRA

[TwiceHorn 32091]

On 1/5/2024 at 10:08 PM, Firemans4Horn said:

ERISA governed plans (401k’s) have better creditor protections than IRA’s. 
 

The general investor sucks ass when given too many choices (self directed brokerage IRA) so sometimes the limited options in a 401k helps protect the investor from themselves. Not saying this is you; but the 50th percentile investor in a 401k plan is probably going to have a worse outcome when they roll over the funds and start doing themselves. 

This is true as 401ks are federally exempt from creditor claims, in bankruptcy and out.

No such federal protection is provided for IRAs.  But, Texas law, if you live here, and maybe your state too, also exempts IRAs from creditor claims.

[Horns99 172]

Haven’t seen anyone mention it, but if you don’t already have a Rollover IRA & you create one it will potentially screw you if you do back door Roth Conversions. If you already have one, then you should already know this. It’s the 1 big downside to rolling over a 401k to an IRA.

[HRSchenker 2341]

I rolled my old 401k into a self directed 401k that gives me a ton of flexibility and allows me to do roth conversions. I'd never roll a 401k into an IRA.

[txduck87 1021]

I rolled my old 401k into a self directed 401k that gives me a ton of flexibility and allows me to do roth conversions. I'd never roll a 401k into an IRA.

Why? Rollover IRA gives you both of those things as well.

[HRSchenker 2341]

56 minutes ago, txduck87 said:

Why? Rollover IRA gives you both of those things as well.

Rollover IRA isn't exempt from the pro-rata rule 

[Nice Guy Eddie 13740]

15 hours ago, HRSchenker said:

Rollover IRA isn't exempt from the pro-rata rule 

How many people does that actually impact? And is the impact meaningful? Isn’t it something to do with after tax dollars in your pretax account and then you want to convert it to a Roth IRA. 

[TeeDubya 3362]

On 1/18/2024 at 2:43 PM, HRSchenker said:

Rollover IRA isn't exempt from the pro-rata rule 

This.  If you ever exceed the income limitation for contributions to a Roth IRA, having a traditional or conventional IRA will slaughter you in taxes IF you want to do a backdoor Roth conversion. 

Edited February 22 by TeeDubya