5 ms·

On a completely unrelated note: I don’t understand why people keep money in prior companies’ 401K plans. I always role mine over to my Vanguard account.

sgarman 1y ago
Well they sold some retirement accounts to Ascensus which you have to have your own account and login for so maybe they will move your 401k too some day and you will be in the same boat as these guys.
isaacdl 1y ago
I'd love to move the account (especially after this!), but unfortunately I can't because of what is basically an annoying side-effect. My current employer doesn't offer a 401k plan, and the only option I have for contributing to a Roth IRA is via backdoor contributions. Such backdoor contributions (which are basically an IRS-sanctioned loophole) have to start in a Traditional IRA account, and you cannot have any other/pre-existing Traditional IRA funds at the time of the contribution. So, I have nowhere to move the 401k funds besides an IRA account, but I have to leave my traditional IRA accounts empty so that I can do a backdoor contribution. I wish the federal government would just get rid of the salary cap for direct contributions to a Roth IRA, since they basically already allow it via the obnoxious and convoluted path.
- raw_anon_1111 1y ago
  What the actual f%%%! I just looked it up. Not that I didn’t believe you. I just never looked into it. For reference for others… https://investor.vanguard.com/investor-resources-education/article/how-to-set-up-backdoor-ira https://investor.vanguard.com/investor-resources-education/a... I’m both under the limit to contribute to a Roth since I am married and my company offers an “after tax 401K” (different than a Roth 401k) and I’m over 50 so I can do catch up contributions. I’m a long way before I need to worry about backdoor contributions.
  - deleted 1y ago
    [deleted]
- paxys 1y ago
  FYI you can do backdoor Roth contributions even if you already have an IRA with funds in it. It's just more complicated because you have to follow the pro rata rule.
  - koolba 1y ago
    The PITA of that is that you have to keep track of the post tax additions pretty much for ever afterward or you’ll end up paying double tax on them.
  - zackify 1y ago
    And if you have hundreds of thousands or millions in the traditional. The pro rata rule would make your backdoor contribution 90+% taxed so it would be pointless
    - floundy 1y ago
      No. Pro rata is Latin for “in proportion.” It’s one dollar for one dollar. If you add $7k to your tIRA to do the backdoor Roth, you also must convert $7k of existing funds which becomes taxable income. So you pay your marginal tax rate, on half the amount. IMO not that big of a deal to contribute $7k, convert $7k, and pay $2-3k in taxes to get $14k in the Roth space that will grow tax free forever. Most people are too pre-tax heavy in their retirement strategies anyway.
      - aobdev 1y ago
        I'm not familiar with the strategy you're describing, but this is not how it works for the majority of backdoor Roth contributors. If you have $100k pre-tax in a trad IRA, contribute 7k after tax for the purpose of rolling into a Roth, then you will owe income tax on the proportion of 100/107*7k, or $6,542. You're still limited to 7k annual (for 2025) so the 14k you describe must be something else.
    - silisili 1y ago
      The confusion here is that trad IRAs can be pretax or posttax dollars. This rule only matters if you have pretax dollars in an IRA that you want to also use posttax dollars to backdoor. To be clear, it wouldn't be taxed at 90% in this example. It's that 90% of the conversion amount would be taxed as ordinary income. AFAICT there's no extra paying taxes here or anything. Your pretaxed dollars are being taxed, instead of posttax dollars not being taxed.
- yieldcrv 1y ago
  you can create a solo 401k that contains both a traditional and roth account, and roll over from your old employer's 401k to the traditional solo 401k, and do a conversion to the roth account there are caveats to this, like always being attached to your solo 401k plan makes you ineligible for contributions to an IRA all the time, but you will be able to have rollovers into the IRAs, you also might decide that the solo 401k is a superior product to IRAs in every way if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity corroborate that with your licensed professionals. many gurus overlook the solo roth 401k mostly due to SEO and their audience of professionals that associate "401k" with "corporate employer thing", as opposed to something at parity with a traditional and roth IRA and expanded in capability
  - isaacdl 1y ago
    This is really interesting. I'd considered a solo 401k at one point because a made a small amount of self-employment income in one year, but decided against it because it wasn't enough to be worth the hassle, and I didn't expect to keep having self-employment income. Now I wish I had gone through it, just so I'd have a place to roll over this old 401k. (Of course, now that I look, Vanguard doesn't do solo 401ks anymore and redirects to Ascensus, so might just be frying pan to fire anyway.)
    - yieldcrv 1y ago
      > now that I look, Vanguard doesn't do solo 401ks anymore Vanguard wouldn't need to know it was a solo 401k, they would just see a trust being signed up. There are other institutions that you can go into mutual funds or get similar exposure from who are more acclimated to solo 401k entities though.
  - PopAlongKid 1y ago
    >if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity No, your scenario is not "very easy". No custodian is going to handle a solo 401k based on one dollar of self employed income (and 1099-NECs aren't issued for such tiny amounts anyway). You are also overlooking the overhead of maintaining a 401k, such as plan updates every time related federal tax law changes, or the potential IRS reporting requirements, which can generate significant penalties if overlooked.
- PopAlongKid 1y ago
  >the only option I have for contributing to a Roth IRA is via backdoor contributions Here's a simple idea: roll over your 401k, and then take the $7K (or whatever) you were going to put into the Roth and instead use it to pay the tax on a conversion of $20K. Much bigger bang for the buck.
mtillman 1y ago
I tend to agree. However, Guideline (an excellent service imo) has admiral class vanguard funds which aren't always available in rollover IRA accounts. I hope Guideline doesn't go away or become exclusively Gusto (irrespective of what they said in the announcement).
jvolkman 1y ago
The process is somewhat archaic (often involving mailing around paper checks) and I imagine many people just don't want to deal. Rolling over pulls your money out of the market which means you could miss a good day (or a bad day). I left a trail of 3-4 accounts until just recently, when I rolled them all over to my current Vanguard 401k. They were all invested in the same Vanguard fund so there's not much change other than simplicity.
- raw_anon_1111 1y ago
  With Vanguard at least, while you still have to get a paper check from your employer. But you can electronically deposit it into your IRA account by taking a picture of your check.
paxys 1y ago
If you work for a large company it is possible that they have negotiated better pricing for their 401k plan than what Vanguard or some other brokerage offers off the shelf. For example Vanguard charges 0.08% for its target date retirement funds, but the one I get on my old employer's plan (BlackRock LifePath) is just 0.037%. And the retail price for that LifePath fund is a whopping 0.17%.
- alright2565 1y ago
  With how low fees have gotten, I think the more likely and more damaging situation is that where people's employers have negotiated much worse pricing for their captive audience. I wouldn't give 0.08% vs 0.037% a second thought any day. That's only difference of $400/yr on $1M!
  - paxys 1y ago
    Compound it over 30+ years and even those few bps add up to a significant amount.
    - dangus 1y ago
      Not really. If you start with a million dollars it’s adding $400 a year and compounding beyond that. But the median person doesn’t have that much in their portfolio…well, ever. For most people micromanaging below 0.01% is like gaining a cup of coffee every year.
      - paxys 1y ago
        The question was - I don't understand why people keep money in their old 401k accounts. The answer is - there are situations where it is favorable to do so. It may or may not be favorable for you, and it may or may not be favorable for the median person. But these situations exist. And everyone can check for themselves and make the best decision insted of arguing over a blanket "X is better" or "Y doesn't make sense".
        1y ago
ryukoposting 1y ago
In some cases it's a goddamn nightmare to get the money out. I've been trying for a year to get my money out of a Capital Group Roth. Every single support agent is utterly powerless, they're effectively holding my money hostage.
- Schiendelman 1y ago
  Generally, you want to ask your new financial institution to initiate the transfer for you. Fidelity especially is good about this. They figure out how to get it transferred to them, generally by sending an actual letter if all else fails.
  - ryukoposting 1y ago
    Yeah, when I say "I," I actually mean me, my CFP, and his office assistant. Capital Group might be the United Healthcare of retirement funds.
    - Schiendelman 1y ago
      Yep, ask your brokerage company to do this, not those individuals. Fidelity and Vanguard are very good at solving this for you.
itake 1y ago
I’ve always followed this advice as well, but rolling a 401(k) to an IRA limits your ability to do a backdoor Roth. Unless your Vanguard has a 401(k) account and it already then your golden, I’d advise rolling your previous balance into your current employers account first
- raw_anon_1111 1y ago
  A backdoor Roth isn’t the be all end all people think it is. It only matters if you think your tax rates will be higher in retirement than they are now for most people that won’t be the case. The other case is when you are trying to manage IRMAA in retirement and it helps that you can withdraw from Roth accounts. But you can also just contribute to a Roth 401K or a Roth. Yes I know Roth limits for married and single.
  - itake 1y ago
    > for most people that won’t be the case. I've had the same belief, but I've started questioning it. In retirement, your income (mostly) matches what you spend. Someone in their 20s or 30s may have both lower income and lifestyle costs (roommates, cheaper cars, no kids, etc) than they will at age 65. At age 65, you're probably maintaining 1 or more homes, supporting a partner (and kids), maybe drive a more expensive car and have much higher healthcare costs. If your lifestyle costs are more comfortable than your ramen noodle 20s and higher lifestyle costs put you in higher tax brackets, wouldn't most people actually have higher taxes in retirement?
    - raw_anon_1111 1y ago
      How many people retire with minor kids or even kids in college? And if you are retiring with high fixed expenses and worrying about buying new expensive cars - you’re doing it wrong. Anecdotally, at even 51, we (wife 49) have been focusing on reducing our expenses since 2022. Our youngest son (my stepson) graduated in 2020. I slightly pivoted to a career that is mostly remote first (strategy cloud consulting + app dev). We sold our house in the burbs in 2024 that we had built in 2016 for twice the price we paid for it, downsized to one car that is below the median price of a new car in the US, downsized to a condo 1/3 the size of our old house (and less maintenance), moved to state tax free Florida, paid off some lingering debt. I “retired my wife” in 2020 because of a combination of not wanting her to be in the school system at the height of Covid, so she could explore her passion projects, so we could travel after Covid lifted and I started making significantly more working at BigTech remotely (no longer there). Our fixed expenses - money we have to spend to live - is around $8K a month all in and that’s going to go down some in 2028. We don’t live “miserly” at all. Our flexible expenses include lots of travel between short getaways and longer month long stays away from home, concerts etc. My entire idea is to do most of our expensive traveling while I’m working and healthy instead of waiting until I retire. I see retirement as us staying in another country for extended periods of time - we are starting that next year while I’m working. It’s also the last thing we want to do is have more than one home. Why would we do that and give up the optionality of just renting an AirBnb for long stays in different places both domestically and internationally?
georgeburdell 1y ago
My old company’s 401k has a (now closed to new investors) fund that has returned 3-4% above the index average for over a decade.
analyte123 1y ago
Something no one else mentioned so far is that, depending on your state, some IRA funds can be subject to judgments or non-exempt from bankruptcy, whereas 401k accounts are untouchable for anything except federal tax liens and divorce.
- raw_anon_1111 1y ago
  I forgot to mention that, when my wife started teaching fitness classes as a “working hobby”, I made sure she had an umbrella policy.
rcleveng 1y ago
I think if your old company plan is with Vanguard and your new company plan is not as good as Vanguard, you leave it in the old company plan as a 401k.
deleted 1y ago
[deleted]
rsanheim 1y ago
because its a huge hassle that many financial services companies have no incentive to facilitate or make easy or discoverable. And for many folks a job change is a stressful event even in the _best_ of circumstances. I know when I was laid off a week after covid lockdowns, the last thing I was thinking about was how to roll over my 401k as the market collapsed and I began interviewing and trying not to freak out. having retirement and health benefits coupled to employment is antiquated and stupid, but changing tax code and finance system around 401ks is probably the least of our problems in the US.
- raw_anon_1111 1y ago
  I have had 10 jobs now and had to rollover my 401K 6 times. I call the financial institution, they send me a check made out to “Vanguard FBO (for the benefit of) $MyName” and mail it to Vanguard with a form. Now you can do it electronically by taking a picture of the check. When I’m done with the company I’m done. I sold all of my RSUs when I worked for BigTech as soon as they vested and diversified too.
refurb 1y ago
If you put it in a rollover 401k you can’t do a backdoor Roth IRA contribution without exposing it being taxed.

sgarman 1y ago

Well they sold some retirement accounts to Ascensus which you have to have your own account and login for so maybe they will move your 401k too some day and you will be in the same boat as these guys.

isaacdl 1y ago

I'd love to move the account (especially after this!), but unfortunately I can't because of what is basically an annoying side-effect. My current employer doesn't offer a 401k plan, and the only option I have for contributing to a Roth IRA is via backdoor contributions. Such backdoor contributions (which are basically an IRS-sanctioned loophole) have to start in a Traditional IRA account, and you cannot have any other/pre-existing Traditional IRA funds at the time of the contribution. So, I have nowhere to move the 401k funds besides an IRA account, but I have to leave my traditional IRA accounts empty so that I can do a backdoor contribution. I wish the federal government would just get rid of the salary cap for direct contributions to a Roth IRA, since they basically already allow it via the obnoxious and convoluted path.

raw_anon_1111 1y ago
What the actual f%%%! I just looked it up. Not that I didn’t believe you. I just never looked into it. For reference for others… https://investor.vanguard.com/investor-resources-education/article/how-to-set-up-backdoor-ira https://investor.vanguard.com/investor-resources-education/a... I’m both under the limit to contribute to a Roth since I am married and my company offers an “after tax 401K” (different than a Roth 401k) and I’m over 50 so I can do catch up contributions. I’m a long way before I need to worry about backdoor contributions.
- deleted 1y ago
  [deleted]
paxys 1y ago
FYI you can do backdoor Roth contributions even if you already have an IRA with funds in it. It's just more complicated because you have to follow the pro rata rule.
- koolba 1y ago
  The PITA of that is that you have to keep track of the post tax additions pretty much for ever afterward or you’ll end up paying double tax on them.
- zackify 1y ago
  And if you have hundreds of thousands or millions in the traditional. The pro rata rule would make your backdoor contribution 90+% taxed so it would be pointless
  - floundy 1y ago
    No. Pro rata is Latin for “in proportion.” It’s one dollar for one dollar. If you add $7k to your tIRA to do the backdoor Roth, you also must convert $7k of existing funds which becomes taxable income. So you pay your marginal tax rate, on half the amount. IMO not that big of a deal to contribute $7k, convert $7k, and pay $2-3k in taxes to get $14k in the Roth space that will grow tax free forever. Most people are too pre-tax heavy in their retirement strategies anyway.
    - aobdev 1y ago
      I'm not familiar with the strategy you're describing, but this is not how it works for the majority of backdoor Roth contributors. If you have $100k pre-tax in a trad IRA, contribute 7k after tax for the purpose of rolling into a Roth, then you will owe income tax on the proportion of 100/107*7k, or $6,542. You're still limited to 7k annual (for 2025) so the 14k you describe must be something else.
  - silisili 1y ago
    The confusion here is that trad IRAs can be pretax or posttax dollars. This rule only matters if you have pretax dollars in an IRA that you want to also use posttax dollars to backdoor. To be clear, it wouldn't be taxed at 90% in this example. It's that 90% of the conversion amount would be taxed as ordinary income. AFAICT there's no extra paying taxes here or anything. Your pretaxed dollars are being taxed, instead of posttax dollars not being taxed.
yieldcrv 1y ago
you can create a solo 401k that contains both a traditional and roth account, and roll over from your old employer's 401k to the traditional solo 401k, and do a conversion to the roth account there are caveats to this, like always being attached to your solo 401k plan makes you ineligible for contributions to an IRA all the time, but you will be able to have rollovers into the IRAs, you also might decide that the solo 401k is a superior product to IRAs in every way if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity corroborate that with your licensed professionals. many gurus overlook the solo roth 401k mostly due to SEO and their audience of professionals that associate "401k" with "corporate employer thing", as opposed to something at parity with a traditional and roth IRA and expanded in capability
- isaacdl 1y ago
  This is really interesting. I'd considered a solo 401k at one point because a made a small amount of self-employment income in one year, but decided against it because it wasn't enough to be worth the hassle, and I didn't expect to keep having self-employment income. Now I wish I had gone through it, just so I'd have a place to roll over this old 401k. (Of course, now that I look, Vanguard doesn't do solo 401ks anymore and redirects to Ascensus, so might just be frying pan to fire anyway.)
  - yieldcrv 1y ago
    > now that I look, Vanguard doesn't do solo 401ks anymore Vanguard wouldn't need to know it was a solo 401k, they would just see a trust being signed up. There are other institutions that you can go into mutual funds or get similar exposure from who are more acclimated to solo 401k entities though.
- PopAlongKid 1y ago
  >if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity No, your scenario is not "very easy". No custodian is going to handle a solo 401k based on one dollar of self employed income (and 1099-NECs aren't issued for such tiny amounts anyway). You are also overlooking the overhead of maintaining a 401k, such as plan updates every time related federal tax law changes, or the potential IRS reporting requirements, which can generate significant penalties if overlooked.
PopAlongKid 1y ago
>the only option I have for contributing to a Roth IRA is via backdoor contributions Here's a simple idea: roll over your 401k, and then take the $7K (or whatever) you were going to put into the Roth and instead use it to pay the tax on a conversion of $20K. Much bigger bang for the buck.

mtillman 1y ago

I tend to agree. However, Guideline (an excellent service imo) has admiral class vanguard funds which aren't always available in rollover IRA accounts. I hope Guideline doesn't go away or become exclusively Gusto (irrespective of what they said in the announcement).

jvolkman 1y ago

The process is somewhat archaic (often involving mailing around paper checks) and I imagine many people just don't want to deal. Rolling over pulls your money out of the market which means you could miss a good day (or a bad day). I left a trail of 3-4 accounts until just recently, when I rolled them all over to my current Vanguard 401k. They were all invested in the same Vanguard fund so there's not much change other than simplicity.

raw_anon_1111 1y ago
With Vanguard at least, while you still have to get a paper check from your employer. But you can electronically deposit it into your IRA account by taking a picture of your check.

paxys 1y ago

If you work for a large company it is possible that they have negotiated better pricing for their 401k plan than what Vanguard or some other brokerage offers off the shelf. For example Vanguard charges 0.08% for its target date retirement funds, but the one I get on my old employer's plan (BlackRock LifePath) is just 0.037%. And the retail price for that LifePath fund is a whopping 0.17%.

alright2565 1y ago
With how low fees have gotten, I think the more likely and more damaging situation is that where people's employers have negotiated much worse pricing for their captive audience. I wouldn't give 0.08% vs 0.037% a second thought any day. That's only difference of $400/yr on $1M!
- paxys 1y ago
  Compound it over 30+ years and even those few bps add up to a significant amount.
  - dangus 1y ago
    Not really. If you start with a million dollars it’s adding $400 a year and compounding beyond that. But the median person doesn’t have that much in their portfolio…well, ever. For most people micromanaging below 0.01% is like gaining a cup of coffee every year.
    - paxys 1y ago
      The question was - I don't understand why people keep money in their old 401k accounts. The answer is - there are situations where it is favorable to do so. It may or may not be favorable for you, and it may or may not be favorable for the median person. But these situations exist. And everyone can check for themselves and make the best decision insted of arguing over a blanket "X is better" or "Y doesn't make sense".
      - 1y ago

ryukoposting 1y ago

In some cases it's a goddamn nightmare to get the money out. I've been trying for a year to get my money out of a Capital Group Roth. Every single support agent is utterly powerless, they're effectively holding my money hostage.

Schiendelman 1y ago
Generally, you want to ask your new financial institution to initiate the transfer for you. Fidelity especially is good about this. They figure out how to get it transferred to them, generally by sending an actual letter if all else fails.
- ryukoposting 1y ago
  Yeah, when I say "I," I actually mean me, my CFP, and his office assistant. Capital Group might be the United Healthcare of retirement funds.
  - Schiendelman 1y ago
    Yep, ask your brokerage company to do this, not those individuals. Fidelity and Vanguard are very good at solving this for you.

itake 1y ago

I’ve always followed this advice as well, but rolling a 401(k) to an IRA limits your ability to do a backdoor Roth. Unless your Vanguard has a 401(k) account and it already then your golden, I’d advise rolling your previous balance into your current employers account first

raw_anon_1111 1y ago
A backdoor Roth isn’t the be all end all people think it is. It only matters if you think your tax rates will be higher in retirement than they are now for most people that won’t be the case. The other case is when you are trying to manage IRMAA in retirement and it helps that you can withdraw from Roth accounts. But you can also just contribute to a Roth 401K or a Roth. Yes I know Roth limits for married and single.
- itake 1y ago
  > for most people that won’t be the case. I've had the same belief, but I've started questioning it. In retirement, your income (mostly) matches what you spend. Someone in their 20s or 30s may have both lower income and lifestyle costs (roommates, cheaper cars, no kids, etc) than they will at age 65. At age 65, you're probably maintaining 1 or more homes, supporting a partner (and kids), maybe drive a more expensive car and have much higher healthcare costs. If your lifestyle costs are more comfortable than your ramen noodle 20s and higher lifestyle costs put you in higher tax brackets, wouldn't most people actually have higher taxes in retirement?
  - raw_anon_1111 1y ago
    How many people retire with minor kids or even kids in college? And if you are retiring with high fixed expenses and worrying about buying new expensive cars - you’re doing it wrong. Anecdotally, at even 51, we (wife 49) have been focusing on reducing our expenses since 2022. Our youngest son (my stepson) graduated in 2020. I slightly pivoted to a career that is mostly remote first (strategy cloud consulting + app dev). We sold our house in the burbs in 2024 that we had built in 2016 for twice the price we paid for it, downsized to one car that is below the median price of a new car in the US, downsized to a condo 1/3 the size of our old house (and less maintenance), moved to state tax free Florida, paid off some lingering debt. I “retired my wife” in 2020 because of a combination of not wanting her to be in the school system at the height of Covid, so she could explore her passion projects, so we could travel after Covid lifted and I started making significantly more working at BigTech remotely (no longer there). Our fixed expenses - money we have to spend to live - is around $8K a month all in and that’s going to go down some in 2028. We don’t live “miserly” at all. Our flexible expenses include lots of travel between short getaways and longer month long stays away from home, concerts etc. My entire idea is to do most of our expensive traveling while I’m working and healthy instead of waiting until I retire. I see retirement as us staying in another country for extended periods of time - we are starting that next year while I’m working. It’s also the last thing we want to do is have more than one home. Why would we do that and give up the optionality of just renting an AirBnb for long stays in different places both domestically and internationally?

georgeburdell 1y ago

My old company’s 401k has a (now closed to new investors) fund that has returned 3-4% above the index average for over a decade.

analyte123 1y ago

Something no one else mentioned so far is that, depending on your state, some IRA funds can be subject to judgments or non-exempt from bankruptcy, whereas 401k accounts are untouchable for anything except federal tax liens and divorce.

raw_anon_1111 1y ago
I forgot to mention that, when my wife started teaching fitness classes as a “working hobby”, I made sure she had an umbrella policy.

rcleveng 1y ago

I think if your old company plan is with Vanguard and your new company plan is not as good as Vanguard, you leave it in the old company plan as a 401k.

deleted 1y ago

[deleted]

rsanheim 1y ago

because its a huge hassle that many financial services companies have no incentive to facilitate or make easy or discoverable. And for many folks a job change is a stressful event even in the _best_ of circumstances. I know when I was laid off a week after covid lockdowns, the last thing I was thinking about was how to roll over my 401k as the market collapsed and I began interviewing and trying not to freak out. having retirement and health benefits coupled to employment is antiquated and stupid, but changing tax code and finance system around 401ks is probably the least of our problems in the US.

raw_anon_1111 1y ago
I have had 10 jobs now and had to rollover my 401K 6 times. I call the financial institution, they send me a check made out to “Vanguard FBO (for the benefit of) $MyName” and mail it to Vanguard with a form. Now you can do it electronically by taking a picture of the check. When I’m done with the company I’m done. I sold all of my RSUs when I worked for BigTech as soon as they vested and diversified too.

refurb 1y ago

If you put it in a rollover 401k you can’t do a backdoor Roth IRA contribution without exposing it being taxed.