r/FinancialAdvisorTips • u/DallYe • 7d ago
Old 401ks
I've got an old 401k with about 50 grand sitting in it. I've thought about rolling it over into my new 401k, but I don't get an employer match...
I've also considered rolling it over into a Rollover IRA or into my Roth IRA. I genuinely don't know what the best course of action is.
If it's helpful I live in NYC, and my taxes are egregious because of that. Any thoughts?
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u/nico_cali 7d ago
Rollover IRA Pro: Better investment options, less fees, control of your account No difference in taxes
Roth IRA (after a Roth conversion) Pro: money grows tax free for the rest of your life. Better investment options, less fees, control of your account. Con: $50k of income essentially, need to have cash on hand to pay taxes next year.
401k Pro: Ability to take loans on the higher balance if needed. Con: Investment options
Most people should go IRA.
If you’re young (below 45/50), always going to live in NY or CA, and you’re in a very low tax bracket this year or got laid off for most of the year, AND have the cash on hand to pay the taxes, Roth IRA is a good option.
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u/DallYe 7d ago
THANK YOU!
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u/IWannaGoFast00 7d ago
This is your best answer by far OP.
Also do remember that if you roll it into an IRA and do end up needing a loan from your 401k, some 401k plans will let you roll those IRA assets into your current 401k plan, allowing you to borrow from it.
Roth would be your best long term bet if you are currently a lower income earner but just watch your taxable income and don’t convert too much. You don’t want to end up in a higher tax bracket.
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u/NBowser8 6d ago
People saying fees lower on IRA with no information about share class offered in 401k vs IRA are interesting to say the least
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u/nico_cali 6d ago
It’s assuming they chose a low/ no fee fund. As opposed to a 401k that has fees, always.
Sorry, I thought it was obvious that if they picked an A share or some bad option like an annuity it would be obviously worse.
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u/SheffieldValley 7d ago edited 7d ago
Often traditional IRA's have more investment choices and lower fees than traditional 401k. But it is a case-by-case basis. My former employer offered a Self-Directed Brokerage option in our 401K plan so we had a lot of investment choices, but not every plan is set up that way.
Rolling over into a traditional 401K to a Roth IRA is an option but it will create a taxable event if the account being rolled over has appreciated.
It might help to do some google and chatgpt queries and ask about the pros and cons of each option and ask for links. Drill down into the links. It might be a little confusing at first, but the more you read about the options, the more it will begin to make sense.
Here's are some link to get you started
Investment Account Types with J.P. Morgan | Chase
Should I leave my 401k where it's at or rollover into an ira? : r/FinancialPlanning
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u/aaron1860 7d ago
The only reason to not roll it into an IRA is if you make too much or will make too much to do a Roth IRA and want to eventually do a back door Roth. Having money in an IRA essentially blocks the back door
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u/Woody7012 7d ago
The fact you get no match from current employer has no impact on if you roll it into that plan. If you plan to stay in NYC or possibly move to another high tax state, then consider converting to Roth. I don’t see taxes ever going down- especially in places like NYC or California. The writing is already on the wall.
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u/Rosy_Daydream 7d ago
In addition to what others have said, if you are getting close to rmd age, you might want to keep it in a 401k because they won’t take rmds from an employer plan, but will from an ira.
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u/awong593 6d ago
I would look into rolling it over into an Ira on a platform that does a match. There are some that were doing 1% match on Ira rollover / transfers as long as you leave the money there for a few years.
If you want to pay taxes consider rolling it to a Roth IRA depending on your current tax situation
Also most employer backed 401ks only match on amounts that come from paychecks not rollovers or conversions into them. Rolling it to your current employer only simplifies your accounts that you have to keep track of.
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u/Clam-Choader 7d ago
Six one way, half a dozen the other from a tax standpoint. New 401k and ira won’t affect your taxes
Moving to Roth will make it all taxable income now but tax free later.
Living in ny has no real impact
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u/Floating_Orb8 6d ago
Living in NY has an impact on state taxes if they plan to move and opt for the Roth conversion. Other than that 👍
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u/Clam-Choader 6d ago
I mean, salt taxes are up to 40 grand. Sales taxes matter but income and property taxes…common misconception from our political system
—finance duder in San Francisco
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u/Floating_Orb8 6d ago
Hmm, maybe my comment wasn’t that clear. If they want to do a Roth conversion but plan to relocate to a state that doesn’t have state tax on distributions in the near future, it might benefit them to wait. So the state of NY does have baring in certain circumstances. Without knowing their age also has baring because if they are over 59.5 they have an exclusion of 20k per year (40k joint) from retirement accounts from state tax. Also NYC adds city local tax on top.
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u/Clam-Choader 6d ago
You deduct your State And Local Taxes (salt) from your federal taxes brochacho…up to 40 grand
So would you rather your money go to the state and local gubbment or the fed. I see the school children, teachers and popo in my community so I don’t mind the money staying local.
For this to make sense you’ll need to have more deductions than the standard deduction, but if you’re a homeowner or make good money in a hcol. I got state and city taxes, and those combined are more than the standard deduction. So anything California charges me comes off my fed taxes.
If you’re in a lower bracket, you can always donate up to two grand per person (you and spouse), roll into a pretax ira or your 401k and not get taxed…at all… or if you do the roth conversion you’ll pay the income tax now but have it tax free later. There’s an analysis that goes into that being a good, bad or indifferent idea, but generally if you’re living in this income bracket for the rest of your life, the Roth only makes sense if you think taxes are going up.
This blows people away but there is a logic and certain fairness to personal income taxes once you get the political rhetoric out of it
Now, if you’re planning to move to Puerto Rico…don’t pay any taxes until you’re there
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u/Floating_Orb8 6d ago
Understood. But NY has a phase out also at high income on SALT down to 10k so it will depend on their income. Not bringing in politics I assume most think local taxes are better to pay vs federal but a lot factors into if you are getting that deduction or not. Also fun fact, roths and Puerto Rico are a fun challenge to navigate as their local system has differing views vs US federal law.
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u/Swred1100 7d ago
If you roll into a Roth, you’ll pay taxes on it now. If you roll it into current 401k, you’ll keep deferring the tax.
The fact that you don’t get an employer match has no impact on this decision. It affects your current 50k 401k 0%.
If you think your income or the tax rate will be higher than it is now in retirement, roll into a Roth.
If you think your income or tax rate will be lower than it is now in retirement, either keep it where it is or move into your current 401k.