Yet another new job

Last decade has had me in above normal number of job moves. Just got a new job and want to consolidate retirement accounts.

So another 401K needs to migrate. Just double checking

  1. Employer match is pre-tax correct?

  2. Any downside to adding it to an existing rollover IRA?

  3. Need to create rollover Roth for the rest.

  4. Or roll it all into my new 401K.

I’m 57 and 3 years from retirement.

Whenever I changed jobs, I rolled over my 401k to my Traditional IRA, which had much lower fees and more investment options.

Glad I did for those reasons alone, but also I like to Keep It Simple, and avoid having a lot of accounts scattered hither and yon.

Since then (during the March 2020 dip), I converted DH’s & my Traditional IRA’s to Roth IRA’s, but that was a separate step. I don’t know if rolling over a 401k directly to a Roth IRA is even an option.

1. Employer match is pre-tax correct?

Yes

2. Any downside to adding it to an existing rollover IRA?

Having pre-tax money in an IRA, rather than an employer plan, inhibits doing back-door Roth contributions to your IRA. If, because of income, you are ineligible to make contributions directly to a Roth IRA, you should consider moving all of the pre-tax money in your Traditional IRAs into your employer’s plan. Because employer plans are not allowed to accept after-tax money from an IRA, that will actually allow you to then convert any after-tax money that is left in your TIRAs directly into your Roth IRA, at little or no cost.

3. Need to create rollover Roth for the rest.

Do you not have a Roth IRA already? If not, you need to keep in mind that your Roth IRA withdrawals will not be qualified withdrawals until the Roth IRA has been in existence for at least 5 years. Until then, you will have to follow the ordering rules for distributions, even though you may be over 59 1/2

4. Or roll it all into my new 401K.

My suggestion would be to:

  • roll all of the pre-tax money from your 401(k) into your new 401(k)
  • roll all of the pre-tax money in your current TIRAs into your new 401(k)
  • roll all of the Roth money into a Roth IRA
  • if you had any after-tax money in TIRAs, do an immediate conversion into your Roth IRA

This presumes, of course, that you are happy with the investment options and fees associated with your new employer’s 401(k). Of course, since you only anticipate having to be in that plan for, at most, 3 years, you may not need to be totally satisfied, just satisfied enough for the next 3 years.

AJ

Whenever I changed jobs, I rolled over my 401k to my Traditional IRA, which had much lower fees and more investment options.

401(k)s having worse investments and higher fees used to occur a lot more than it does now. For instance, I am invested in the Vanguard Total Stock Market Institutional Trust in my 401(k) with an expense ratio of 0.01% If I purchased VTI or VTSAX (the same investment) in my IRA I would have to pay an expense ratio of 0.03% or 0.04% Now, the difference between 0.04% and 0.01% isn’t a huge deal ($200 - $300 annually on a $1MM investment), but it’s still cheaper in my 401(k)

I don’t know if rolling over a 401k directly to a Roth IRA is even an option.

If the money in the 401(k) is in a Roth subaccount, it’s the only option for a rollover. Since the OP asked separately about the pre-tax employer match, I’m presuming that the 401(k) money is in a Roth subaccount.

AJ

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Yes the 401K is a mix of employer match money and Roth 401K. I’m trying to get more money into Roth but I no longer qualify for the back door option and our tax bracket is high right now. First world problems.