What to do with an old 401k?

[kb4ns]

I know we've got some financially smart folks here, so help me out guys / gals.

I have an old 401k from when I worked for the state (University of Memphis Police) years ago. I've been getting the statements quarterly and every time I get one, I think to myself "I should probably roll that over into my current 401k or something". I just don't know what to do with it (or how). I just don't want to do something that'll make me lose any of its value.

I didn't work there for more than a year and a half or so, so it's not very much (less than $700). What should I do with it?

[Guest db99wj]

Roll it over into your current one, or other retirement instrument like an IRA. I would go ahead and put it into your current 401K because of the amount. A direct roll over will help you avoid paying taxes/penalty on it.

Contact your current 401K tell them you got some money in an old one, they will either give you a form, or request a form from your old 401K. Follow their directions. You will be good to go.

When you file your taxes next year, you have to disclose it, Turbo tax walked me through it.

Enjoyed the coffee the other day.

[oldogy]

Find out what the real rate of return on the 401 is prior to doing anything. Are they charging you a service fee of any kind that would reduce the ROR?

oldogy

[Guest db99wj]

Find out what the real rate of return on the 401 is prior to doing anything. Are they charging you a service fee of any kind that would reduce the ROR?

oldogy

A lot of times, a dormant 401K will start getting an inactive fee, around $15, which will kill any ROR on $700. $700 by itself, no matter the ROR, is not going to do much in an old account.

[kb4ns]

With the economy the way it has been, my old 401k was losing value most quarters. Finally turning around a bit now. I'm looking at the last statement and don't see much in the way of fees. It shows an increase of $11.44 in value and -$2.64 in expenses, and a ROR of 1.77%.

[Guest db99wj]

With the economy the way it has been, my old 401k was losing value most quarters. Finally turning around a bit now. I'm looking at the last statement and don't see much in the way of fees. It shows an increase of $11.44 in value and -$2.64 in expenses, and a ROR of 1.77%.

Ahh, my old one was set up as an IRA, and started getting fees. I would move it to the new one.

[kb4ns]

Ahh, my old one was set up as an IRA, and started getting fees. I would move it to the new one.

Thanks. I'll check with the company doing my current 401k and get the forms. My biggest thing was not wanting to lose money. Not that it's a fortune or anything, but still.

Half of it was contributed by the employer. Can that go with me? Or do I lose it?

[Guest db99wj]

Thanks. I'll check with the company doing my current 401k and get the forms. My biggest thing was not wanting to lose money. Not that it's a fortune or anything, but still.

Half of it was contributed by the employer. Can that go with me? Or do I lose it?

Not sure on that one????

[JReedEsq]

You should be able to keep it all if it was a straight match. On the other hand if they had a "vesting" period, that you had to wait before the matched portion becomes, yours, that changes things somewhat. I would suggest looking in to a Roth IRA. I'm no financial planner but my understanding is that on a Roth, you pay the taxes now so that you don't have to pay any on the interest when you retire. If you are young this equates to a significant tax savings in the long run. It may be tempting to cash it out since it doesn't seem like much. If you're young though, the magic of compound interest can eventually turn it in to a lot more.

[kb4ns]

It wouldn't surprise me if I could only take what I paid in since I didn't stay until retirement. I didn't donate much (I went to work there when I was 21, so retirement wasn't a big concern), so I've though about cashing it out and applying it towards bills, but I'm afraid that by the time I pay all the fees and taxes to cash it out, there wouldn't be much left.

[gnmwilliams]

Cash it out and buy yourself a hamburger. JK sorry. Either way you look at it, it's not gonna amount to much once you move it around. I'm not saying $700 isn't a lot of money, trust me, but in today's market of IRA's and 401k's, it's not a lot of money. I would just ask your current financial institution to transfer it for you into your new one and try not to be too depressed about it.

Edited May 14, 2010 by gnmwilliams

[oldogy]

Yeah, from what you post the fees are eating into anything it is making. Roll it over into what you have and be aware if you do it there could be fees involved if one or both ends. Ask a lot of questions about fees. Be aware if you withdraw and do not roll over you'll pay income tax plus a penalty.

oldogy

[analog_kidd]

DO NOT ROLL IT INTO YOUR CURRENT 401k!!! Go find an investment broker like Edward Jones and open up an IRA. If you roll it into your 401k you are locked into whatever options your company selects for you. For most employees this is 10-20 different options. On the open market in an IRA there are litterally 10's of thousands of choices.

Also, when you roll it into your 401k that money is stuck there till you leave the company. If you are unhappy with the 401k performance, too bad. If you are unhappy with your IRA, move it to a different fund, or fire your broker and move it to another one.

There are fees involved with the IRA, but they are minimal, and you have fees inside the 401k too, they are just hidden better.

Plus a broker will handle all of the transaction for you. Basically you bring them an old statement and provide a signature on a form adn they handle the rest. It will be very easy. The hardest thing you'll hav eto do is pick out a broker from the phone book.

[analog_kidd]

Did'nt read the part about bein less than $700. With that in mind, I'd consider opening a ROTH IRA. You have to convert it from tax-diverted by actually paying tax on the amount right now, but when you retire and start drawing from it, it is totally tax free, including whatever intrest you gained.

The deal with converting it is this: you funded this 401k by pulling money out of your paycheck before they calculated your tax. So basically, you've never paid tax on this money. In a ROTH, you fund it with money that has already been taxed, but as it grows, you never have to pay any more tax -ever. So, the Gov't wants their tax money, which is why you have to convert it.

[kb4ns]

Did'nt read the part about bein less than $700. With that in mind, I'd consider opening a ROTH IRA. You have to convert it from tax-diverted by actually paying tax on the amount right now, but when you retire and start drawing from it, it is totally tax free, including whatever intrest you gained.

The deal with converting it is this: you funded this 401k by pulling money out of your paycheck before they calculated your tax. So basically, you've never paid tax on this money. In a ROTH, you fund it with money that has already been taxed, but as it grows, you never have to pay any more tax -ever. So, the Gov't wants their tax money, which is why you have to convert it.

So, if I understand correctly, it would be taxed when I open the Roth IRA?

[analog_kidd]

There is some paperwork that needs to be done, but essentially, yes you would be taxed. You can pretty much figure paying 20% -25% of it in tax. Your broker can help with that too. You can either pay for it out of pocket (recommended) or take it out of the $700, and then investing the $550 or so.

One cool thing about a ROTH, if you have one when you retire, a lot of people want to take a retirement trip, cruise, whatever. If you have a ROTH, you can dip into that to fund it. Let's say a cruise costs $10,000 for you and your wife. If you had only a 401k you'd take $10,000 out, plus whatever you need to live on for the year. You effectively increased your taxable earnings by the $10k, just to go on the cruise. With the ROTH, there is no extra tax burden. And there is some stupid rule that a ROTH has to be in place for a number of years (like 5-ish) before you can touch it. So start one now, let it grow and you'll be in good shape.

The younger you are, the more you should be considering a ROTH. It is an awsome investment vehicle.

BTW, I'm not a broker myself or some financial big shot. But I did take and teach the Dave Ramsey Financial Peace course at my church for several years. It's good, sound, simple advise that anyone can / SHOULD know.

Also, just for clarity, you would not be taxed for opening and transfering into a standard IRA, just a ROTH IRA.

Hope that helped.

[Guest db99wj]

There is some paperwork that needs to be done, but essentially, yes you would be taxed. You can pretty much figure paying 20% -25% of it in tax. Your broker can help with that too. You can either pay for it out of pocket (recommended) or take it out of the $700, and then investing the $550 or so.

One cool thing about a ROTH, if you have one when you retire, a lot of people want to take a retirement trip, cruise, whatever. If you have a ROTH, you can dip into that to fund it. Let's say a cruise costs $10,000 for you and your wife. If you had only a 401k you'd take $10,000 out, plus whatever you need to live on for the year. You effectively increased your taxable earnings by the $10k, just to go on the cruise. With the ROTH, there is no extra tax burden. And there is some stupid rule that a ROTH has to be in place for a number of years (like 5-ish) before you can touch it. So start one now, let it grow and you'll be in good shape.

The younger you are, the more you should be considering a ROTH. It is an awsome investment vehicle.

BTW, I'm not a broker myself or some financial big shot. But I did take and teach the Dave Ramsey Financial Peace course at my church for several years. It's good, sound, simple advise that anyone can / SHOULD know.

Also, just for clarity, you would not be taxed for opening and transfering into a standard IRA, just a ROTH IRA.

Hope that helped.

Are you assuming that he is going to continue to put into it?

[analog_kidd]

Are you assuming that he is going to continue to put into it?

Yes, my example requires adding extra to this account, otherwise it would take around 35 years (in a really good market) for $500 to become $10k. I just gave the example of the cruise to make a point.

Since I'm just full of free financial advice today, and db99w brought up the topic of adding to the IRA, I'll throw this out there. You should be taking advantage of your employers 401k match to the fullest extent possible, but stop there. The rest that you want to invest goes into the IRA.

Your company is offering you free money, take every last cent of it. But in reality, what you put in to meet their match is not enough. You should be adding a lot more. Everything above the match goes to the IRA for the same reasons I stated above for transfering into the IRA. Take the company match because they are giving it away, but above that you want to be in control of the money, not have it locked up in your company 401k.

If you can swing the match, plus max out the IRA ( I think $3500 a year / person) then go back to the 401k and put whatever you can into it.

[Guest db99wj]

Yes, my example requires adding extra to this account, otherwise it would take around 35 years (in a really good market) for $500 to become $10k. I just gave the example of the cruise to make a point.

Since I'm just full of free financial advice today, and db99w brought up the topic of adding to the IRA, I'll throw this out there. You should be taking advantage of your employers 401k match to the fullest extent possible, but stop there. The rest that you want to invest goes into the IRA.

Your company is offering you free money, take every last cent of it. But in reality, what you put in to meet their match is not enough. You should be adding a lot more. Everything above the match goes to the IRA for the same reasons I stated above for transfering into the IRA. Take the company match because they are giving it away, but above that you want to be in control of the money, not have it locked up in your company 401k.

If you can swing the match, plus max out the IRA ( I think $3500 a year / person) then go back to the 401k and put whatever you can into it.

Cool, just wanted to clarify and make sure.

Should be diverse as possible in your investments, max out employer kicked in 401K, have some other stuff. Maxing out 401K, maxing out an IRA on your own, is golden. This market sucks, but has gotten better, and will grow with time.

I use to be in the business but it has been awhile.

[kb4ns]

I appreciate the help guys. I wish I was in a better situation to contribute more towards my retirement, but I have some bills I need to get gone first.

Thanks.

[marke]

cash it out and buy physical silver bullion in 1 ounce bars/rounds from APMEX.

[midtennchip]

I appreciate the help guys. I wish I was in a better situation to contribute more towards my retirement, but I have some bills I need to get gone first.

Thanks.

KB:

Part of my law practice is in ERISA/Employee Benefits. Been doing it for many years. If you have any questions, please feel free to call me at the office. I'll be glad to walk you through the details (no charge).

[kb4ns]

KB:

Part of my law practice is in ERISA/Employee Benefits. Been doing it for many years. If you have any questions, please feel free to call me at the office. I'll be glad to walk you through the details (no charge).

I appreciate it! I'm think I will get in touch with my current 401k administrator and see what they say about moving it over (fees, taxes, etc.). I may end up having to call you if they confuse me thoroughly enough.

[kb4ns]

The Roth IRA sounds like a really good idea, but I'm in no position right now to open any further accounts. It wouldn't make much sense to be contributing to something that gains a little interest while I have bills with higher interest rates. In a few years when I get out from under this huge pile of debt I created for myself, I'm definitely going to have to look into it.