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You should ALWAYS roll over your employer 401k into a self-directed account

By Patrick   2016 May 1, 7:48pm   2 links   3,824 views   20 comments   watch (1)   quote      

I'm consistently amazed by the number of people who leave a job but don't roll over their 401k into a self-directed IRA account.

They just leave the money in a shitty employer-based 401k plan with very limited options, typically a dozen high-fee underperforming mutual funds, all of which paid to be allowed to trap current employees. You don't have a choice when you're an employee, because Wall Street lobbied to make sure you have no choice, but as soon as you quit or are fired, you are free!

I would not be surprised if there were half a trillion dollars in such plans, just being nibbled away at daily because former employees don't realize or don't care that they can simply take their money -- still tax deferred -- and put it in a self-directed IRA account at Schwab or somewhere like that.

Then not only are their absolutely zero fees if you just own stock in your IRA, but also you can trade stock in that account (even day trade) with zero tax liability until you retire, at which point you just have ordinary income tax to pay. And if you like the shitty mutual funds your employer had you trapped in, hell, you could buy those too. At least it would be your own choice at that point.

People, please, take your money out of your former employer's 401k plan as soon as possible every time you change jobs. Roll it over to your own personal IRA. (Don't take a taxable distribution!) The plan you are leaving will probably hide the rollover instructions, and make you wait 30 days or more, and charge you $50 to do half a page of paperwork, but at least you'll be free of those parasites and in control of your own money.

#investing

Comments 1-20 of 20     Last »

1   ja   2016 May 2, 2:11am     ↑ like (2)   ↓ dislike   quote    

Well, some employers offer decent funds. Like low Vanguard Target funds. And often you can find it with an even lower fee, since you get institutional class
Perhaps you should give some examples of what are bad funds.

2   BlueSardine   2016 May 2, 6:08am     ↑ like   ↓ dislike   quote    

and some employers offer the self-directed option in their 401k plans.( for a fee, of course )

So no need to wait until you leave...

3   bob2356   2016 May 2, 6:40am     ↑ like   ↓ dislike   quote    

Patrick says

Then not only are their absolutely zero fees if you just own stock in your 401k rollover, but also you can trade stock in that account (even day trade) with zero tax liability until you retire, at which point you just have ordinary income tax to pay

What sd-ira do you own that doesn't charge any fees? Mine all have fees. Actually the fees for self directed are usually higher than traditional.

Just owning stock sort of defeats the reason for having an sd-ira. Plus you can't write off any losses.

You can invest in any legitimate financial investment as long as it's not "self dealing", meaning no friends and family. Art, antiques, stamps, collectables are NOT considered investments by the IRS so that's a big no. With real estate you must use a professional manager and be hands off. It must be passive income. Otherwise the sky is the limit. I've done very well with private financing and tax sales.

4   Patrick   2016 May 2, 7:00am     ↑ like (1)   ↓ dislike   quote    

bob2356 says

What sd-ira do you own that doesn't charge any fees?

Charles Schwab. i never paid a dime in fees.

bob2356 says

Just owning stock sort of defeats the reason for having an sd-ira.

the ability to trade stock without any tax implications is what i'm after. if you want to own the exact same stocks for 20 years, ok, you have no taxes their either, but i change them now and then.

ja says

Perhaps you should give some examples of what are bad funds.

anything with a load above 0.1%.

yes vanguard index funds are pretty good.

5   SFace   2016 May 2, 9:23am     ↑ like (1)   ↓ dislike   quote    

If your employer does not offer a low cost index fund like the Vanguard, you should tell HR it is unacceptable.

For retirement funds, it is dangerous to buy/trade individual stocks. Most will just need one choice, a low cost index fund and a small mix of medium term bonds.

6   bob2356   2016 May 2, 10:48am     ↑ like   ↓ dislike   quote    

Patrick says

bob2356 says

What sd-ira do you own that doesn't charge any fees?

Charles Schwab. i never paid a dime in fees.

Really. I can't find self directed IRA anywhere on schwab's web page. Only self directed brokerage account. Got a link?

7   ja   2016 May 2, 10:50am     ↑ like   ↓ dislike   quote    

Patrick says

anything with a load above 0.1%.

I thought active managed funds were hot again, and the fee was a fair price to pay to management.
I understand for a SP500 investment, market efficiency is so high that index investment is just worth it. But what about foreign small cap? It's not worth to pay somebody to investigate the company?

8   just any guy   2016 May 2, 8:26pm     ↑ like   ↓ dislike   quote    

Patrick says

take your money out of your former employer's 401k plan as soon as possible every time you change jobs

Should I roll it over to a solo 401k or to a traditional IRA?

9   FortWayne   2016 May 2, 9:09pm     ↑ like   ↓ dislike   quote    

Great advice btw. If you leave employer, they'll auto roll your 401k into something that has no risk almost, which also means no gains and just fees (read expenses). You have to control it yourself folks.

10   just any guy   2016 May 6, 10:37am     ↑ like   ↓ dislike   quote    

I did some research, and E-Trade offers a really good solo-401k option where you can do IRA rollovers, loans, and stock trades. Vanguard was pretty restrictive.

I do have a question though...how do I establish a solo 401k if I don't own my own business?

11   Ceffer   2016 May 6, 10:41am     ↑ like (1)   ↓ dislike   quote    

How come we can't cash out our retirement accounts without penalty to take for Las Vegas weekends and poker tournaments? Why is there no justice?

Of course, if we lose, the government should be obligated to compensate us.

12   CL   2016 May 6, 2:00pm     ↑ like   ↓ dislike   quote    

My wife left her job years ago, but I left her dough in her former employer's 401k. Can you exercise that option at any time?

13   bob2356   2016 May 6, 3:23pm     ↑ like   ↓ dislike   quote    

donny says

I did some research, and E-Trade offers a really good solo-401k option where you can do IRA rollovers, loans, and stock trades. Vanguard was pretty restrictive.

I do have a question though...how do I establish a solo 401k if I don't own my own business?

Patrick was talking about self directed IRA's. Different creature. Still haven't heard back where you find the schwab self directed.

14   marcus   2016 May 6, 3:28pm     ↑ like   ↓ dislike   quote    

Ceffer says

How come we can't cash out our retirement accounts without penalty to take for Las Vegas weekends and poker tournaments? Why is there no justice?

Of course, if we lose, the government should be obligated to compensate us.

I see what you did there.

15   just any guy   2016 May 6, 8:18pm     ↑ like   ↓ dislike   quote    

bob2356 says

Patrick was talking about self directed IRA's. Different creature. Still haven't heard back where you find the schwab self directed.

Oh ok...he said 401k, so self-directed IRA makes more sense. Disadvantages with rolling your 401k into an IRA is that you can't take loans out against it like you can with a 401k, and IRAs are less protected than 401k in lawsuits and bankruptcies.

16   FortWayne   2016 May 6, 8:21pm     ↑ like   ↓ dislike   quote    

CL says

My wife left her job years ago, but I left her dough in her former employer's 401k. Can you exercise that option at any time?

Unless there is some very rare contractual obligation that I'm not aware of, usually the answer is yes.

Just be aware some places will do transfers easily, others will send you a check which you have certain number of days to deposit before it's considered "income" and taxed at one hell of a rate.

17   Patrick   2016 May 6, 10:09pm     ↑ like   ↓ dislike   quote    

bob2356 says

Patrick was talking about self directed IRA's. Different creature. Still haven't heard back where you find the schwab self directed.

yes, that. you roll over a 401k into a self-directed ira. here's the schwab link:

http://www.schwab.com/public/schwab/investing/accounts_products/accounts/ira/rollover_ira

What are the fees and commissions?
$0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply1
Minimum required to open an account: $1,000
Commissions: $8.95 per online equity trade;2 $0 per Schwab ETF online trade in your Schwab account 3

i never paid any fees on it.

18   bob2356   2016 May 7, 6:22am     ↑ like   ↓ dislike   quote    

Patrick says

bob2356 says

Patrick was talking about self directed IRA's. Different creature. Still haven't heard back where you find the schwab self directed.

yes, that. you roll over a 401k into a self-directed ira. here's the schwab link:

@patrick. Sorry but a rollover isn't the same as a true self directed account. Schawb's rollover isn't what is called a self directed account at all. Self directed lets you invest in pretty much anything that gives you a return. The downside is the risk is all yours. http://www.marketwatch.com/story/self-directed-iras-risky-smart-or-both-2013-05-27

19   zzyzzx   2016 May 7, 6:47am     ↑ like   ↓ dislike   quote    

FortWayne says

ust be aware some places will do transfers easily, others will send you a check which you have certain number of days to deposit before it's considered "income" and taxed at one hell of a rate.

True, but I can do a 401K rollover into my IRA by logging into my T Rowe Price account and filling out the form there.... It's actually very easy.

20   just any guy   2016 May 7, 8:22am     ↑ like (1)   ↓ dislike   quote    

Important note - for those wanting to take advantage of the backdoor Roth IRA conversion because you make too much money to do direct Roth IRA contributions, don't do IRA rollovers because you'll get hit by the pro rata tax rule upon conversion.

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