So, as I mentioned in a post yesterday, my wife and I are moving to a new city for a new job for me. That means that I'm leaving everything associated with the old job behind, including my old 401(k). Recall you have a number of options when you leave a job when it comes to your 401(k), including leaving it in your old plan, rolling it over to an IRA or cashing it out (the last of which I would never advocate for because it means you'll immediately owe taxes (the retirement plan sponsor is required to withhold 20% for tax purposes) as well as a 10% early withdrawal penalty on the money because as soon as you withdraw it it becomes taxable income, plus you won't have it to grow for future use when you do retire.
Now, do know that you only have 60 days within which to make your decision. If you don't do anything then your money stays in the former employer's plan. (Do note that my now former employer, like many from what I understand, will cash you out if your balance in your 401(k) account when you leave is below $5,000). This may be a good call if your former employer is a huge company with really low fees and great fund choices.
The process of actually rolling it over is quite easy. I really like T. Rowe Price and have all of our IRAs there (both traditional and Roths) and they have made it really easy in the past-all I had to do was give them account numbers at the old place and they took care of the rest. When rolling over my wife's federal government Thrift Savings Plan when she changed jobs, I had a bit more trouble because there were all sorts of confusing forms serving no apparent purpose other than to confuse people that we had to fill out, but I guess that is to be expected with a government plan. Note that what I am talking about with TRP doing the work is a trustee to trustee transfer but you can also have the former employer's plan administrator send you a check which you then forward to the new place you are rolling over into, but that strikes me as too much work and they are still required to withhold the 20% for tax purposes. If you roll it over within the 60 days, you will get it back when you file your taxes.
My dilemma now is this: do I rollover to my Roth IRA or the traditional IRA I have used for previous rollovers? In a perfect world I would prefer to roll it over to the Roth, but I am not sure I want to increase our taxable income to possibly put us in a different tax bracket (no idea if this would actually happen, too lazy to run the projections right now). (Remember that converting the 401(k), because it is a traditional 401(k) to a Roth would be a taxable event for me). The amount in question is about $9,000 so it might not make a huge difference. Now, the process could be different depending on who your IRA trustee is, but TRP will let me just check a box to roll the 401(k) into my Roth IRA.
The 401(k) is with BB&T and is invested in a Vanguard index fund. I could leave it there because I love the fund, and BB&T has been fine, but I like TRP a lot more and am reluctant to have yet another retirement account hanging out there-I prefer to keep it as simple as possible.
Any thoughts?
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