Should I - and can I still - rollover my 401k?
December 31, 2021 2:10 PM   Subscribe

I left my previous workplace in fall 2019 and kept those two retirement accounts in previous employer's Fidelity 401k & 403b setup, and also started a new current employer 401k with TIAA. Recently, the Fidelity 403b got rolled into the Fidelity 401k. I'm not sure what that means for me materially, if anything. Additionally, I have a Vanguard Roth IRA. Should I be consolidating or nah? Can I even since it's been years and/or is there a timeout at any point?

So I now have three retirement accounts:
- old Fidelity 401k (no longer adding contributions)
- current TIAA 401k (actively adding to)
- current Vanguard Roth IRA (actively adding to)

If it matters: I am 35 years old. My two 401k accounts are both long-term stock-heavy ones, and my Roth IRA is a more conservative and bond-focused one since it doubles as my savings account and I might want to use some or all of its contributions in the next few years in a down payment on a house if I can't save enough outside of it in time.
posted by vegartanipla to Work & Money (4 answers total) 5 users marked this as a favorite
Your 401(k)s are pretax so they can't be consolidated directly with a Roth. (You would have to do a conversion to the Roth, which would require paying the taxes currently being deferred on the whole amount. Unless your tax rate is very low right now, that's probably undesirable.)

For the 401(k)s themselves, it's a matter of convenience, really. Do you have any reason to prefer the funds available at Fidelity over the ones at TIAA? Are you paying higher account fees at one or the other? Do you find it annoying to keep track of two separate accounts? These are the major concerns to balance against each other.
posted by praemunire at 2:13 PM on December 31, 2021

Whether or not you can roll your Fidelity 401(k) to the TIAA 401(k) depends on TIAA/your current employer. You would have to call TIAA to determine if your current employer's plan allows you to combine the accounts.

There's no "time limit" for consolidating accounts.

I would look at the following:
1. Am I being charged any fees at Fidelity? (You can call Fidelity to determine if there are any fees for holding the old account without being an employee)
2. What are the expense ratios if the funds invested in at Fidelity and TIAA? (If there there no fees and the expense ratios on the investment options at Fidelity are better, I would leave it at Fidelity)

If the investment options and fees are similar, then I would combine the 401(k) accounts to help things simple.
posted by skunk pig at 6:41 PM on December 31, 2021 [3 favorites]

Another option is to open a new “traditional” (non-Roth) IRA, and roll the old Fidelity 401(k) into this new IRA. This doesn’t trigger any taxes, since a traditional IRA has the same tax-deferred status as a 401(k). (It also has no direct tax advantages.) The only real difference is that the IRA is managed by you directly, rather than by your former employer.

Some reasons you might choose this option:
  1. An IRA will generally give you more investment options, if you want to choose investments that aren’t offered in the Fidelity 401(k).
  2. You can open the rollover IRA at Vanguard and transfer your assets there, if you prefer the fund selection there or if you just prefer to have fewer places to log in to manage your accounts.
  3. You can make additional contributions to the rollover IRA each year (but note that the combined contributions to your Roth IRA and traditional IRA are limited to $6000 per year).
  4. Your former employer might close your 401(k) account in the future, and you will then be forced to do a rollover within 60 days to avoid tax penalties. Doing it now while the account is active may be slightly easier and less annoying.
  5. In the future, when you leave your current employer, you can roll over the TIAA 401(k) into the same rollover IRA, further simplifying your account management.
There’s no time limit on this; you can roll your old 401(k) plan into a traditional IRA whenever you choose.
posted by mbrubeck at 12:52 PM on January 1 [2 favorites]

As long as your new 401k will accept it, you can roll the old one in, no time limit. Assuming you have good low-cost index funds in the new 401k and aren't being charged high fees for the account itself, I would recommend that, for simplicity. People do lose them! And having a lot of different accounts is an energy barrier to good allocations/diversification goals.

I would not, at this point, convert the 401k funds to Roth; you'd have to pay taxes on that conversion.

If you are higher-income or might become so, I would also advise against rolling them to a traditional rollover IRA, because that will prevent you from using the "backdoor Roth IRA" method, if/when your income exceeds the Roth contribution limits.

You mentioned that your Roth IRA is where you aim for conservative investments. I would recommend inverting that. First, you can always access your contributions (but not the gains on them) without penalty, unlike your 401k.

Second, you aren't taxed on Roth distributions later in life: that makes it very, very valuable space for more ambitious growth, because that growth won't be taxed. Your 401k distributions will be taxed. So most people aim for higher growth, with more risk, in Roth accounts.
posted by Dashy at 3:07 PM on January 3 [1 favorite]

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