Is it better to rollover my 401k into an IRA, Roth IRA or my new employers 401k?

Question

I am about to leave my job for a new position. I am 24 years old and have about 5k in my 401k. Is it better for me to roll it over into an IRA, Roth IRA or into my new employers 401k program?

Answer 1

As an FA, I generally recommend an IRA rollover...more investment choices. Drawback...can't take a loan from it but then again you really should avoid borrowing from your retirement savings.

As for rolling to a Roth. It's called a Roth conversion and is possible but you have to meet certain income requirements (<100K married or single) to be eligible. You will have to pay current taxes on it though.

Good luck. feel free to email if you have any specific questions.

Answer 2

If your new employer gives you any kind of employee match, that is well worth having. Also, the limits on contributions into a 401K are much higher than into an IRA, so the 401K is worth having. If the new scheme has a good mix of funds from which you can choose, it will just be more convenient to roll the money from the old one into the new one.

If you don't think the fund choices are good, then if you are in your 20s a ROTH is going to be better; if you are close to retirement, a traditional IRA might make more sense. Given that you have a small amount in the 401K the tax penalty in converting it to a ROTH will be small.

Answer 3

Roll over into a traditional IRA..... the money in your 401K is pretax dollars. You contribute a Roth IRA with aftertax dollars. You should keep separate from your new job's 401K. You can have them manage it but in a separate account. I don't remember the reason but when you combine it is called "comingling" and it is better to not do that. Talk to a financial advisor though who is up to par on all the IRA laws. They've changed drastically since I've learned about them as a bank manager years ago.

Answer 4

I don't believe you can roll it directly into a Roth IRA. For tax purposes, an IRA and your new employers 401(k), if it accepts rollovers, or treated the same. An IRA usually offers more investment options.