Wanted some opinions on the best path for retirement savings accounts. To make things simpler we had combined 3 of my wife’s old 401k’s into one traditional IRA with Fidelity. While I like the flexibility of investment options, I’m wondering how optimal this is as no new money is going into the account. Her current 401k is steadily growing and this seems like a job she will be at for at least the next 5 years. Has anyone ever rolled back a traditional IRA into a 401k? Fees are rock bottom in the 401k (we have 75% in an S&P 500 with a .02 expense ratio). I’m no longer seeing this as a benefit and would rather one pool of money over two separate ones as I mostly invest in low cost index funds that I can get from the 401k. Any insight is appreciated as the traditional wisdom has been to roll into an IRA and not out of one.
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Replies (4)
Emuemmy
6 months ago
If you were to transfer your IRA into a 401k, which I’m not even sure is possible, you’d be putting yourself at the mercy of both the market and your employer. Here’s what I mean.
My husband’s job has extremely high fees on their 401k plan and the investment options are poor, but he contributed because he didn’t have anything saved for retirement at the time. If the market suddenly took a major downturn and his portfolio dropped significantly, and then he got laid off, he’d be left with three choices: roll it over, cash it out, or leave it in the old 401k. Realistically, rolling it over would be the only sensible option because of the high fund and administrative fees they charge. No new contributions plus high fees is a bad combination.
If the money were rolled into an IRA instead, he could simply wait out the bad market without worrying about excessive fees draining the balance. Many of the brokerages don't charge any fees so if we were in VTSAX we would still have the same amount of shares we bought when we rolled it over.
Just leave your money at Fidelity, invest it and don't worry about.
Roberto Sánchez
8 months ago
The fact that money isn't going into the account is mostly irrelevant. The top-level concerns or pros/cons are essentially:
2 accounts:
- Roth conversion is likely to be easier/simpler going TradIRA->RothIRA at the same institution than 401(k)->RothIRA at different institutions
- Flexibility for strategies like 72(t) is easier to manage with 2 accounts (or possibly more, depending on precisely what you want to do)
- Any Traditional IRA balance is likely to make a back door Roth IRA contribution essentially a no-go (which you may or may not care about)
1 account (401(k)-only):
- simpler financial life (one less account to manage)
- penalty-free access potentially several years early (i.e., via the rule of 55, which may or may not be helpful depending on your age and precise retirement plans)
So, depending on the factors it might just boil down to "I want one account instead of 2", which is perfectly fine. I basically did the same thing, where I combined several different traditional accounts into a single 401(k) because I found that it was the best approach for my circumstances.
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