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Started new job. Rollover previous employer 401k to new 401k, IRA or Roth IRA?

I have a 401(k) account with my last company. I contributed 6% and company matched up to 6%. Now that I have left the company I wanted to know what I can do with this 401(k) account.

  1. Convert to individual IRA or Roth IRA account
  2. Continue contributing individually
  3. Cash Out (NO WAY!!)

I am leaning towards Option 2 since the account has given me good return 18.21% in 3 years.

Advice?

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azamsharp
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  • Are you talking about 401k maybe? – littleadv Jul 16 '12 at 18:02
  • yes I am talking about 401K – azamsharp Jul 16 '12 at 18:03
  • Then I suggest looking at this question: http://money.stackexchange.com/questions/842/started-new-job-rollover-previous-employer-401k-to-new-401k-ira-or-roth-ira – littleadv Jul 16 '12 at 18:06
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    Usually you're not allowed to contribute to the employers' plans individually. But you can transfer your investments to a IRA account without changing them, and continue getting the same returns. – littleadv Jul 16 '12 at 18:07
  • @littleadv by "transfer without changing" I know what you intend, but that exact process usually can't occur. Funds inside the 401(k) are usually a different class of fund. e.g. my .05% cost S&P fund must be sold, it can't be owned outside of the 401(k). I'd then have to buy a similar fund/ETF to replace it. – JTP - Apologise to Monica Jul 16 '12 at 18:34
  • @JoeTaxpayer yes, I mean not changing the types of investments. With 18% return, the differences in the management fees may be 1-2% at very most, but you still can keep the same balance. Although I must admit that keeping up 18% return over time seems like a very good capability, and the OP should probably be working on Wall Street... – littleadv Jul 16 '12 at 18:41
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    3 years ago, the S&P was 880. And up 54% since. The 18%/yr is both unremarkable and unsustainable. (smile-face) – JTP - Apologise to Monica Jul 16 '12 at 19:59
  • @JoeTaxpayer I called the 401K company and they told me that I can move the employer plan to an individual traditional IRA account and continue investing in the same funds. – azamsharp Jul 16 '12 at 21:40
  • Ok. That's a fine choice, then. – JTP - Apologise to Monica Jul 16 '12 at 21:42

1 Answers1

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You have a number of choices, of course. You can leave it with the current company, if they permit it. If you leave it there, you can't make deposits (so number 2 is out, not an option).

You can transfer the funds directly to an IRA, no tax consequence, and you are left with the investing choices up to you. This is the preferred choice for most as the IRA cost is usually far less than the costs inside a 401(k).

You can transfer the funds to the new employer 401(k). This has a number of benefits. 401(k)s offer a bit better level of protection from creditors. The 401(k) allows retirement withdrawals at a separation after age 55, as compared to the 59-1/2 for the IRA, and last, the 401(k) usually has a borrowing provision. While consensus is that 401(k) loans are 'bad,' I still believe they are preferable to any retirement withdrawal.

JTP - Apologise to Monica
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