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Should I roll over my 401k into an IRA? What should I do?

I have a 401k from when I used to work at Home Depot. The plan isn't too bad and I don't think the fees are an issue. I have $2000 in the account and I no longer work there so I'm not contributing to it anymore. I feel like I should transfer my 401k into an IRA so I can contribute to it more, but I don't want to do this if it's better off in my current account.

I appreciate any help I can get. Thank you.

Jan 24, 2014 by Chris from Seekonk, MA in  |  Flag
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18 votes


You should probably just roll it over into your own IRA. Most 401(k) plans have a minimum balance that they will allow former employees to leave their balances in the plan when they leave. Usually this amount is higher than the balance you mention you have. If this is the case, Home Depot will force you out of the plan anyway and send you a check for the balance. You would be better off to be proactive and roll it over before this happens as it could cause some tax issues. By rolling the balance to an IRA the funds will remain tax deferred for you.

My suggestion to you is to look for a good no load/no annual fee IRA account to put the money into. You could then put it into a balanced mutual fund to get a well diversified portfolio. You could look at Vanguard or Fidelity as starters. They offer a good selection of funds you could choose.

Good luck.

Comment   |  Flag   |  Jan 24, 2014 from Uniontown, OH

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13 votes
Rich Winer Level 20

Chris, I agree with the others that you should roll your 401K assets to an IRA. It will give you more investment options (nearly unlimited options) and likely save you money, if Home Depot allocates some of the plan's administrative costs among the plan participants. Look for a brokerage firm or custodian that doesn't charge any fees to open or maintain an IRA. Some custodians charge fees for small accounts. Avoid that. Good luck.

3 Comments   |  Flag   |  Jan 24, 2014 from Woodland Hills, CA
Rich Winer

To whoever gave me a negative vote: You would benefit everyone on this site if you would explain why you chose to do so. Of course that would require you to identify yourself, which I'm sure you would prefer to not do. My answer was essentially the same as my colleagues, so clearly you are just trying to cause problems that detract from the utility of this website, which is easier (although cowardly) for you to do anonymously.

Flag |  Jan 24, 2014 near Woodland Hills, CA
Tunc Tanin

Rich, I did not give you a negative note. However, your answer was missing certain points like the ability to withdraw at age 55 from 401k without the 10 percent penalty, creditor protection of IRA vs 401K( much better for 401K's in most states, fees( sometimes the 401k is a good deal), treatment of company stock inside of 401k( you should never roll over company stock to an IRA), making it difficult to do back end ROTH Ira's( much easier to do when you dont have any IRA accounts)

Flag |  Oct 11, 2014 near Somerville, MA
Tunc Tanin

I gave you a positive note too

Flag |  Oct 11, 2014 near Somerville, MA

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11 votes

Chris, the only thing I would add is. Most plans have a minimum balance requirement that balance is 5k if your balance is under that number and you don't roll it over you might end up getting with distribution that is taxable. Rolling it over to an IRA will prevent it.

Good Luck Michael www.VisionaryWealthMgmt.com

1 Comment   |  Flag   |  Jan 24, 2014 from Farmington, CT

This is true. I would look to roll it over to an IRA ASAP.

Flag |  Jan 24, 2014 near Saint Johns, FL

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8 votes
John N Dimatteo Level 7

Chris, by rolling your 401K over to an IRA you will have many more investment options to choose from than leaving it in your existing plan. Vanguard might be an option for you to consider. They have many mutual funds and ETF's to choose from. Their mutual funds and ETF's typically have very low expense ratios. Before choosing any investment you may want to seek the advice of a financial advisor.

Comment   |  Flag   |  Jan 24, 2014 from Chadds Ford, PA

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7 votes

It is not "better off" in the 401k. You can open a very low cost IRA at a firm like Vanguard and continue contributing with your choice of investments. In any case, many plans will require you to move money out when balance is less than $5000. I would strongly encourage you to maintain regular monthly contributions. Good luck.

Comment   |  Flag   |  Jan 24, 2014 from Bridgewater, NJ

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2 votes

Just throwing this out there since it hasn't been mentioned. You could also roll the Home Depot 401(k) into your new employer's 401(k) IF they allow it. With a balance of $2,000, you'll be subject to mutual fund minimums at most of the low-cost custodians unless you go direct to a mutual fund company...which then you'll be subject to only that company's mutual funds. Investing in ETFs would be your only way to avoid minimums while still being able to achieve diversification (this is the consensus above). So, if you rolled it to another 401(k), you would simplify your retirement plan strategy by having only one account to manage. Keep in mind your new employer most likely won't match rollover contributions, but this would also keep the account tax deferred and give you access to fund managers without pesky fund minimums. ETFs are unmanaged if that makes a difference to you. Good luck!

Comment   |  Flag   |  Jan 24, 2014 from Summerville, SC

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Tunc Tanin Level 10

Most of the time rolling over a 401K to an IRA will give you more choice. Most financial advisors believe that the more choice you have the better for you. More choice also means more complexity and more likely that you will hire a financial advisor. Sometimes the choices in your 401k are better then what you get in an IRA now. It all depends. Here are some reasons a roll over is a bad idea.

Some 401k plans still have GIC accounts and some of them have guaranteed minimums of 3% to 5% a year. In this low interest environment, no advisor is going to get you a better risk adjusted return then that.

If you roll over your 401k to an IRA, and you have to wait until age 59.5 to avoid paying the 10 percent penalty. With the funds in the 401k you can take them out age 55 and avoid paying the 10 percent penalty. You will still owe income taxes on the withdrawal, if you are age 53 and thinking about retiring early, I would not roll over into an IRA despite what other advisors will tell you.

If you a federal employee and you have thrift account, the fees you pay on that account are so low that you won't be able to find a lower cost account in the market.

If you roll over and you were thinking of back end Roth contributions, you will complicate things as now for the roth conversion tax calculations all your IRA balances will be included. Had you not rolled over the 401k and had no IRA accounts your back end Roth contribution would be much easier and have no tax consequences for you.

In addition,, most advisors including me advise against them in most cases, however, you can roll over an old 401k to your current 401k and get a loan. You cant get a loan with an IRA.

Finally, 401k balances have better protection then IRA's in bankruptcy. IRA's are only protected up to 1 million where as 401k's have unlimited protection. I raise this issue with surgeons a lot as they sometimes have large IRA balances and they were never told about this.

Comment   |  Flag   |  Sep 22, 2014 from Somerville, MA

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