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401k from old employer

Hello,

I have a 401k account from my old employer at Wells Fargo. I am little confused whether to continue there indefinitely or if I should be opening an IRA at Fidelity or Vanguard.I am trying to educate myself but I am little lost from where to start and what questions to ask.Appreciate if someone here can give me  some direction.

 

Thanks

 

 

 

 

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Frequent Contributor

Re: 401k from old employer

Compared to an IRA, 401ks charge extra fees and have a limited selection of funds. Unless the 401k gives you access to something spectacularly good, I see no reason not to roll it over into an IRA.

I’ve just completed my third 401k rollover. In my case, I was also concerned about the administrator’s competence and integrity, as well as the company’s competence, integrity and solvency. I wanted greater control over my money.

Do you not have an IRA? If you’ve been working, why ever not?

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Re: 401k from old employer

I rolled over my various 401ks to both Fidelity and Vanguard.  At least I had a larger choice of funds there.  If you do that, they roll it over into a Rollover IRA.  If you have more than 1 401k, I would rollover each one into a separate account.  If you stay with Wells, you probably get to choose among a small set of funds and they could have higher expense ratios than you can get elsewhere.

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Re: 401k from old employer

I rolled my old 401k into a Schwab account. Then when I leave another company, I can roll that 401k into my Rollover account at Schwab. That way I have my regular investment account via the same web site that my Rollover account is at. I would never leave an account at a old 401k. The investment options are limited. 

Good luck. 

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Re: 401k from old employer

My spouse and I both have Rollover IRAs at Fidelity. Hers was funded from a rollover from a prior employer. Mine are being funded from my current 401k. When I turned 59.5 I became eligible for in service distributions. I now let the 401k build to about $50k and roll over about $40k to my Rollover IRA. I have better investment options in the Rollover IRA. 

Capital
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Re: 401k from old employer

If 401k/403b plan is good, with low-cost fund options and unique & wide fund options, one can stay in the plan. That also provides better protection from creditors or in bankruptcy.

Otherwise, rollover/direct-transfer into T-IRA. For better protection, keep rollover money separate. Note that only state protections [which vary a lot] apply for contributory T-IRA.

We have done both. Wife's 401k was rolled over, but I have kept my 403b.

YBB
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Re: 401k from old employer

As @yogibearbull pointed out, 401k’s have some advantages like bankruptcy protection, in some cases lower fund expenses, institutional and/or advisor only fund availability and 401k fees. Fund fees can be reimbursed/offset by your employer.

Personally, I have zero 401k administrative expenses and rock bottom index fund expenses. 

With that said, when the time comes, I probably will rollover my 401k plan to consolidate accounts and to have more fund/stock/EFT options available.

Each 401k is different and you need to know how much your 401k charges in both administrative fees, fund expenses and fund selection. 

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Re: 401k from old employer

@yogibearbull Yogi, I rolled over a 401k to what is called at Vanguard a “rollover IRA”.  Another IRA I have there is called a “traditional” IRA.  And finally I rolled over my cash account pension plan and it is also called a rollover IRA.  I thought the rollover IRAs would retain their protection.  Did I get that wrong?

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Re: 401k from old employer


@gilvkona wrote:

@yogibearbull Yogi, I rolled over a 401k to what is called at Vanguard a “rollover IRA”.  Another IRA I have there is called a “traditional” IRA.  And finally I rolled over my cash account pension plan and it is also called a rollover IRA.  I thought the rollover IRAs would retain their protection.  Did I get that wrong?


The naming of IRA is for convenience only. Typically, if a broker/fund is asked to open a blank T-IRA to get rollover money, its name may be Rollover T-IRA [or Rollover R-IRA]. It is correct that Rollover T-IRA [i.e. T-IRA with rollover money only, whether "Rollover" is in the name] have better protections as many [but not all] of the protections for 401k/403b carryover.

But one can also put rollover money into an existing T-IRA with own/personal contributory money. This may create a mess as either only the lesser state level protections may apply to such mixed/tainted T-IRA, or the courts and lawyers will have to sort out what is contributory and what is rollover while the whole T-IRA is tied up. Sometimes people overthink saving T-IRA fees [if any] or consolidation, and lose sight of the big picture.

YBB
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Re: 401k from old employer

@yogibearbull I have always kept my accounts separate.  So I think you are saying if someone came after me, I might get more protection for those labeled “rollover” but I would have to prove the source.  That would be a challenge since both companies have been taken over by other companies at least twice and I don’t even have an old statement.  My insurance guy told me to up my liability insurance to cover the entire amount.  I sure hate to pay a premium I don’t need to.

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Re: 401k from old employer


@gilvkona wrote:

@yogibearbull I have always kept my accounts separate.  So I think you are saying if someone came after me, I might get more protection for those labeled “rollover” but I would have to prove the source.  That would be a challenge since both companies have been taken over by other companies at least twice and I don’t even have an old statement.  My insurance guy told me to up my liability insurance to cover the entire amount.  I sure hate to pay a premium I don’t need to.


If the T-IRA has only rollover money [whether its name has "Rollover" or not], then it isn't a problem. Broker statement(s) from the time of rollover will show the amount as rollover - locate/download and save those statements.

Moreover, rollovers from multiple employers can be in the same T-IRA, but again, keep good records

If one switches such T-IRA(s) to another broker, hang on to the old records.

Problem is more with mixed/tainted T-IRA where rollover(s), personal contributions and related earnings all get commingled.

YBB
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Re: 401k from old employer

Here’s a case that explains how the tracing of funds in an IRA works in California:

https://www.courtlistener.com/opinion/2244057/mcmullen-v-haycock/

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Re: 401k from old employer


@yogibearbull wrote:

If 401k/403b plan is good, with low-cost fund options and unique & wide fund options, one can stay in the plan. That also provides better protection from creditors or in bankruptcy.

Otherwise, rollover/direct-transfer into T-IRA. For better protection, keep rollover money separate. Note that only state protections [which vary a lot] apply for contributory T-IRA.

 


Not exactly


For 401k/403b plan assets, unlimited bankruptcy protection exists in both the employer plan as well as a rollover IRA. SEP and SIMPLE IRAs also have unlimited protection from bankruptcy creditors.

Contributary IRAs and Roth’s are protected from bankruptcy creditors up to a maximum of $1,362,800. 
State laws can protect TIRA and Roth IRA assets from creditors in amounts that exceed the federal limits. For example NJ exempts all IRA and Roth IRA assets from the claims of general creditors. NJ Law also protects IRA distributions paid to a retiree from claims of creditors which are not protected under federal pension law. Investors need to check the laws of their states.

Note state and federal laws do not protect retirement benefits from claims for child support, alimony, back taxes or frauldent transactions.

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Re: 401k from old employer


@gilvkona wrote:

@yogibearbull I have always kept my accounts separate.  So I think you are saying if someone came after me, I might get more protection for those labeled “rollover” but I would have to prove the source.  That would be a challenge since both companies have been taken over by other companies at least twice and I don’t even have an old statement.  My insurance guy told me to up my liability insurance to cover the entire amount.  I sure hate to pay a premium I don’t need to.


Don’t you have tax records for the distributions such as  a1099R as well as a statement showing where the distribution was deposited? The administrator of your retirement plan may have retained the records of the rollover.

Few taxpayers need to take advantage of the unlimited bankruptcy exemption for retirement plan assets since the bankruptcy exemption for Roth and T IRAs is currently $1,362,800 and many states exempt IRA/ retirement benefits from all creditor claims.

 

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Re: 401k from old employer


@astrokng wrote:

I rolled my old 401k into a Schwab account. Then when I leave another company, I can roll that 401k into my Rollover account at Schwab. That way I have my regular investment account via the same web site that my Rollover account is at. I would never leave an account at a old 401k. The investment options are limited. 

Good luck. 


One very good reason for not leaving 401k assets at a former employer’s plan is that it will be difficult to take a distribution if the employer files for bankruptcy, is merged with another company or the owners close down the business without terminting the plan and the plan fiduciary resigns. I have witnessed several horror stories where employees could not receive a distribution because there was no representative of the plan to authorize a distribution or the plan was mired in the employer’s bankruptcy proceedings which can take years to complete. I once advised an employee whose attempt to rollover a distribution from a 401k plan of an employer he left 15 years ago was thwarted because his employer’s plan had been merged with another company’s plan after he left and all of the records were shipped to Switzerland and could not be found. If there is no fiduciary plan participants have to wait for years for the dept. of labor to take over the plan and appoint a fiduciary. The cost of retaining the fiducary and plan administrators to process distributions and file reports will come from the plan assets which will reduce participant’s distributions.

Another reason to take the benefits out upon termination is that plans can change provisions In the future to the detriment of the employee. I remember a call from a plan participant who left an employer 10 years previously but did not take a distribution. Under the plan rules at the time he left his years of service entitled him to a100% vested benefit. When he requested a distribution he was informed by HR that his years of service only entitled him to a 60% vested benefit because the Plan vesting rules were changed after he left. Under federal pension law an employees vested benefit percentage can never be reduced. Lucky for him he saved a statement of benefits when he left stating he was 100% vested.

Final reason not to leave plan assets with former employers plans is if the employee dies and no one knows there are benefits held at the plan. I have seen many cases where a plan could not pay RMDs at 70 1/2 because the employee did not request a distribution and locator service could not find an address.

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Re: 401k from old employer

@Intruder 

So you’re saying if my TIRAs, Roth’s, and rollover IRAs are less than $1.3M, I am safe.  Did I get that right?  

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Re: 401k from old employer



@gilvkona wrote:

@Intruder 

So you’re saying if my TIRAs, Roth’s, and rollover IRAs are less than $1.3M, I am safe.  Did I get that right?  


Yes if the IRA owner files for bankruptcy. Whether IRAS are protected from other creditors claims depends on state law.

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Re: 401k from old employer

I guess I was trying to figure out was how much my umbrella policy should be.  Should it be for approximately my net worth or my net worth minus my tax deferred accounts.  Maybe I should start another topic?

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Re: 401k from old employer

There are 2 things:

1. 2005 BAPCPA extended federal bankruptcy protections to IRAs - unlimited for "rollover" IRAs [i.e. with only workplace rollover money], and up to $1 million [inflation-adjusted every 3 yrs; so now $1.36 million] combined [T-IRA + R-IRA] for personal contributory IRAs.

2. For non-bankruptcy liabilities [lawsuits, etc], protections for "rollover" IRAs still carryover from workplace plans. But more limited state protections apply for IRAs with personal contributions [or, that portion of IRA from personal contributions]. Some states have good protections but some are poor.

As has been mentioned, a divorce decree will split ANY IRA [or 401k/403b].

YBB
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Re: 401k from old employer

My memory could be wrong on this and others could correct but I think amounts rolled over from self employed workplace 401(k) does not count towards exempt rollover IRAs.  I think DC plans have to be ERISA covered too for the rollover IRAs to be exempt- I looked into this for somebody more than 10 yrs ago.

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