401(k) Rollover -- What To Do With Your 401(k) When You Leave Your Job or Retire

When you leave a job, whether to retire, take another job, or leave the workplace for a time, an important question is what to do with your 401(k), 403(b) or other workplace retirement plan. In this video we walk through the three primary options:

1. Leave it with your former employer,
2. Transfer it to your new employer's 401(k), or
3. Roll it over to an IRA

We'll discuss the pros and cons of each option, along with some advanced strategies to consider.

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#retirement #investing #robberger

ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

LET'S CONNECT

DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.

[rob_berger]

One additional consideration is a backdoor Roth IRA. If you plant to make after-tax contributions to an IRA and then convert to a Roth IRA, you might want to keep 401(k) money in the 401(k) to avoid the pro-rata rule. Of course, Roth IRA conversions may end up being a thing of the past depending on what Congress does.

[bridgecross]

One thing to keep in mind if you keep a 401k account from a former employer in place: if that company ever goes out of business or is acquired by another company, they might wind down that 401K plan or switch the plan to another brokerage. Existing employees are given their options through the HR department, but as a former employee, you're long gone. You might have a long-forgotten account that you suddenly need to take action on. And if you somehow miss the communication from your old company, they may end up issuing a disbursement and sending you the funds. You normally have 60 or 90 days to get those funds into another qualifying retirement account, or risk owing income tax on the entire disbursement. It's just something I would rather not worry about; I would rather move the funds into an account which I control.

[TravelingtheWorld]

Another great video...thanks Rob. I just did a crazy rollover last month. Four 401Ks (all at Fidelity) and some of these had post tax contributions that qualified for rollover to a Roth IRA. It took all of 5-10 minutes to setup my new rollover IRA account at Fidelity and a 30 minute call with Fidelity (yes their customer service is outstanding) and they took care of everything in just over 48 hours. Wednesday night call. Thursday night they pulled the money out of the old 401Ks. Friday morning I was able to choose my investments in the new rollover account and my existing Roth IRA. Saturday morning, the funds were exactly where I wanted them. I know you partner with Capitalize but this was so incredibly easy that I thought I had done something wrong. Next year, I will probably split that account into a second broker but now I can do so from a single consolidated account.

[spambaffle]

A word of warning about rolling former employer balances into your current 401k. I did this and only discovered later that my employer's plan segregates this money as a "rollover source" and excludes it from their In Service Rollover Withdrawal option, so I am unable to do partial Roth Conversions with any of this money while I remain employed there. The HR department straight up told me that the only way for me to regain access/control of my lifesavings was to quit/retire. This wouldn't have been an issue if I had rolled the former employer accounts into an IRA.

[allbaugh]

The main reasons to rollover for me were to avoid the high expense ratios and pick a wider range of funds or individual stocks.

[MarkMatthewsNJ]

Nice video! love your style. One thing to really call out with the "Rule of 55" is that you HAVE to leave it in the 401k and withdrawal from there. I have a friend who started rolling it out into an IRA and was sadly surprised that from the IRA it no longer qualifies for the 10% exception. It sounds like common sense, but they had a financial planner give them this advice (and I imagine it was so that planner could get a commission!)

[TheDealHunter]

Excellent video. I have 2 401k's (1 current employer and 1 former employer). I plan on keeping both because they both offer a decent stable value fund which can't be found in IRA accounts.

[jamesodell]

Another way to take money out of an IRA when retiring before 59.5 is to make substantially equal periodic payments. The rules are complex and need be be followed carefully.

[frankgrandelski]

Another very good video.

One additional consideration, in the State of Connecticut, larger distributions UNDER $100k, from IRAs, are mostly/ fully taxed by State of CT. However, distributions, from 401ks, are 42% partially exempt (2021 tax year), from CT income tax.

Distributions from IRAs, UNDER 100k, become 25% partially exempt starting tax year 2023 from CT income tax, and fully exempt 2026.

I believe distributions from 401ks 42% partially exempt now, 2021, are fully exempt, starting 2025.

UNDER $100 k is the key amount in both cases. This amount is not indexed, 2021.

These rules probably apply to Roth conversions, so choose carefully, which accounts to draw/convert from.

Also choose carefully before, rolling over 401k, to IRA. We were encouraged by Schwab, ( but most financial institutions advertise and encourage people) to roll over 401k to IRA. I should have checked with CT CPA, before rollover. Up till a few weeks ago I did not realize, that CT, did not treat, IRAs the same as pensions, annuities and 401ks.

[frankshyu]

Thank you so much for sharing Rob, love your thorough information!

[ph]

Yeah, my mistake (sort of) was rolling everything out of my former employer's 401K and pension into an IRA, on the presumption I had a future job lined up in a couple months (start up company). So, of course, that fell apart. There is a verry squirrelly way to withdraw penalty free from an IRA prior to 59.5 (still taxed). It's called the Rulte of 72T in the IRS code and it uses a table to compute substantially equal payments for 5 yrs or 59.5, which ever is GREATER, if i recall correctly. It's very odd and easy to make a mistake and get pounded. So I declined that.

[jaclynbriggs]

What an amazing video Mr. Berger. It was so informative and I learned a lot . You had some really great advanced planning strategy ideas.

[krihanek]

Thank you, I think this is one of your best topics ever.

[anujgupta]

Mr rob excellent video.

One thing to remember is that, if you leave your 401k with previous employer, you will pay higher fees then you were paying when you were employed

[lleiden]

Rob,
Could you please do a video on VTWAX?

[leeharrell]

Enjoyed the video, did not know about the 55 rule!! Also, the new chair with writing directly behind your ear is distracting.

[janzelm]

Great program! Wish, would see your program.... before transferring my 401 Roth to IRA Roth....did not know about 5 years rule...Thanks anyway

[kevinbrashear]

Rob, can you discuss the rules for Roth conversions and the 5 year rules?
Various sites have some nuanced conflicts. I would like your take on the Roth conversion 5 year rules.
Thanks for your content. It’s helpful to me!

[cceerr]

If I understand correctly, you stated if you roll a 401k (defined contribution pension) into a rollover IRA you retain the ERISA protections. If that is true, can you also roll your lump sum payout of a defined benefit pension into that same rollover IRA to retain the ERISA protection? This rollover IRA would contain exclusively pension (defined contribution and defined benefit) funds. Also a consideration for maintaining some 401k money by only doing a partial rollover to IRA would be state tax. In Maryland an individual can exclude approximately 35K (adjusted annually) of pension income from state income tax after age 65. That would be 70k if MFJ. Must be from a defined contribution or defined benefit pension, not an IRA.

[bakntheday]

If you retire from a company and start drawing your 401k from that company can you go back to work somewhere else?