Move previous job 401(k) to IRA?

Taxes
1

Question is from a 24 year old who is currently working a contract job.

I’m not sure of the dollar amount but can find out.

His previous employer’s 401(k) is with Fidelity and looks like a target 2060 plan index fund.

The current fees to keep it there are $10/quarter.

He’s wondering if it makes more sense to move the total to an IRA.

Any thoughts?

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2

Yup, rollover IRA. The process should be pretty straightforward. If his current taxable income is low, he could do a Roth conversion, but otherwise just a traditional IRA. This also lets him keep contributing

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Well dang that was easy! HA!

Thanks!

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The scariest part is to make sure the check they cut goes to the new IRA custodian without risking it as an early withdrawal. Just needs to make sure to get it in within 60 days

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One benefit of doing a Roth conversion: traditional IRA messes up the backdoor Roth, if he is high income (or will be in the future). Assuming backdoor Roth remains legal.

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Oooh thank you! He does have potential for six figure income.

7

He can keep it at Fidelity if he wants – I kept some of my old 401(a) money there when I had to roll it to an IRA (Fidelity managed our retirement accounts at old non-profit). And then I’ve been gradually converting it to a Roth I set up there as well. Has made it easy for me to track that particular pot of money (has grown from 40kish in 2015 to around 80 now – was up closer to 100k last January but, markets…).

I find their tools are really easy to use – just moved a bunch of cash over to my money market there for a sweet 3.89% return.

FZROX is a no-fee index fund that I have my invested money in there.

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Thank you!

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He could also roll it over into a traditional IRA and then do Roth conversion(s) in year(s) he’s in a lower tax bracket.

We do the backdoor Roth some years, so we don’t keep anything in traditional IRAs, to avoid dealing with the pro rata rule. We’re also in a fairly high tax bracket (22-24% federal + 10% local), so Roth conversion of pre-tax accounts doesn’t make sense. We’ve mostly left our 401k and 403b balances with our previous employers’ retirement plans. For one account that had particularly bad investment choices, we rolled it into my husband’s new employer’s 403b.

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This is all super helpful to him - he was shocked how fast I had replies :grin::grin: especially compared to the not-very-helpful-ness of his Google search results :wink:

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