401K from old employer

4 Replies

I've still have an old 401K from an old employer and I'm trying to figure out what to do with that account. Should I leave it in there, roll it over to my current employer's 401K, convert it to a Roth IRA, etc? At this time I don't need if for real estate investing and I'm 36 so just looking for some thoughts. Any suggestions?

@Jared Hohensee

I always recommend moving 401k funds out of a former employer plan and into something you control.  If a former employer goes out of business or merges with another company, it can complicate your access to your funds. 

For simplicity, you could roll it into your current employer plan, but I would confirm with your current plan administrator that you can roll that out in the future without restrictions.

Whether a Roth conversion makes sense will depend on a lot of factors related to your age, income, investment goals, etc.  A discussion with a licensed financial or tax advisor would be the best place to start on that topic.

While you do not "need" the funds for real estate, that is not the point with IRA money anyway. "You" cannot use IRA money for your own ventures. The concept of a self directed IRA is about being able to diversify that tax sheltered retirement savings into an asset class that you know, and to potentially grow that capital more effectively in real estate, notes, etc. If you know real estate and have a network in Austin, you may want to consider having your IRA become a lender to other investors.

I always pull my 401K money out as soon as I can after leaving an employer. In the past, I rolled it into IRA's - my last custodian and favorite custodian for market-based investments was TD Ameritrade.

Now that I have an REI business, I've taken advantage of the ability to open a Solo 401K account w/ checkbook control, which blows away pretty much every other retirement vehicle IMO. I can still trade public securities, but I'm primarily buying interests in apartment complexes and doing some private lending w/ these funds. I also have a self-directed Roth IRA for private lending, since Roth IRA's can't be rolled into 401k's.

@Jared Hohensee

Leaving your 401k with the former employer or moving it to the new employer 401k in my opinion is not a good choice. There reason is very limited investment choices and limited control. It is better to roll it over into an IRA.

@Jared Hohensee

Sometimes it is best to leave it in a 401k from a bankruptcy protection perspective. Under the Bankruptcy Abuse and Consumer Protection Act of 2005, 401k plan assets are generally fully protected if the participant files for bankruptcy. IRAs, on the other hand, have a one million dollar inflation-adjusted cap, which currently stands at $1,245,475. 

One good thing, however, is that 401k funds that are rolled over to Traditional IRAs or converted to Roth IRAs, retain their unlimited bankruptcy exemption.