401K Question

[kjs1976]

DH quit the job he had for 10 years this past September when he got hired with Lowes. He has a 401K with the previous company. He can also get a matching 401K plan through Lowes. Now that he likes his position at Lowes, we want to do the right thing financially.

What do we do to make the most out of the situation with the 401K he had with his other company? Do we get another 401 K with Lowes? I'm pretty uneducated to these things! HELP! PLEASE!

Thanks!!!!

 

[jocktheglide]

do a transfer to a roth......IRA. I forgot which one, but the one where he is not taxed on it to do the transfer. I do not know how the plan is at Lowes, but very few companies have good 401ks. you can always start a new 401k with lowes so thats not an issue from my understanding.

 

[LoveBWVVBR]

You need to do a direct rollover of that 401K plan into an IRA. We went with Vanguard (their S+P 500 Index fund is our favorite), but there are plenty of other low-fee mutual fund companies out there if you don't like Vanguard for some reason. T. Rowe Price is another good one. They have great "target" retirement funds. If you're going to be retiring in 2030, you pick that fund. Call the retirement center of the mutual fund company that interests you and they will walk you through the direct rollover. Oh, and congrats on not being like so many people out there who change jobs and actually cash out their 401K's!

 

[Toby'sFriend]

Most people would recommend that you transfer into some type of IRA, probably with a Mutual Fund Company like Vanguard or Fidelity.

Some company 401ks will allow you to transfer your old funds into them but most 401k plans only offer 10 to 15 fund choices. If you tranfer to a Mutual Fund company, you will have thousands of choices.

 

[bellarella]

You want to roll over his 401k from his former employer into a roll-over IRA. You need to be sure that you do an institution to institution transfer -- that is your former employer's brokerage sends the money/shares directly to your new brokerage. If a check gets cut to you all sorts of bad penalties kick in, so you want to make sure it goes from one institution to another. I would look into setting something up with either Vanguard or Schwab. Both of these places offer low fee mutual funds.

One thing, though, is that your DH getting a new 401k really is irrelevant to what to do with the old one. In most cases, when you leave an employer you want to take your 401k with you and put it into a roll-over IRA. This gives you much more control over your money. A 401k is not an investment, it is a classification. Some employers only offer a few funds or stocks as choices for their 401k money. When you have that money reclassified as a roll-over IRA when you leave, you get to choose how you invest it (with some limits, but you probably won't brush up against any of these). If you left the money with the previous employers plan that doesn't mean you can't have another 401k open.

You should also start investing in a company's 401k plan as soon as you are eligible. If a company lets you start investing the day you start work, that is the day you should start. There is no reason to wait to see if you like the job before you start a 401k. Now a lot of employers have minimum amount of time that you have to work there before they will let you open a 401k (or get matching funds), but there is no reason for you to hold back once you are eligible. If you end up quitting the worst thing that will happen is that you won't have enough money in the 401k to force the employer to let you stay in the plan and you will have to open a roll-over IRA (which is generally the best option anyway) -- well you could cash it out, but that is a bad idea.

Good luck!

 

[LadyShiva]

ONLY roll the 401K over if the options are better in another plan. You have to spend some time reading the fund performances between the 2 plans to determine if it would be better to roll the 401K over to your new plan.

By the way, a Roth IRA is different from a 401K. Roth contributions are after tax, 401K is pre-tax. Roth is good if you plan on being in a higher tax bracket when you retire, but not many people are. Most people actually are in a lower tax bracket when they retire, and therefore a 401K would work better for you. You also have a larger amount originally to invest with a 401K, because taxes haven't been taken out. You can also have a Roth IRA in addition to an employer's 401K. You can contribute $15,500/year tax free to a 401K. Roth IRA, I believe, has a lower limit, but I can't recall that number right offhand. You can designate up to 25% of your paycheck to a 401K plan.

I left a 401K at Oracle because it was earning so much and I could still control it online (I just couldn't contribute any more). I now work at another large company, but the fund options aren't as high-earning, so I don't have plans to move the money. Rolling a previous 401K into a new plan has no tax consequences -IF- it is rolled over properly. You must roll 100% in 30 days.

For a quick read, hit up any of the Money links from CNN's webpage and look up 401K or retirement planning.

Hope that helps!
Brandie

 

[Benducci]

You can designate up to 25% of your paycheck to a 401K plan.

You need to ask your benefits person. The plan document stipulates the % you can defer up to. If the document says so, you can designate up to 100% of your paycheck up to the annual limit, which is $15,500 for 2007. Depending upon your husband's age, if he is over 50, he can also do a catch-up contribution. Again it depends upon the plan document so you really need to get a hold of the Summary Plan Description which should be given to you by the benefits' person.

The old 401(K) is entirely separate from the current 401(k). I would advise talking to your accountant and/or a financial planner to see what options you have.

 

[LadyShiva]

You need to ask your benefits person. The plan document stipulates the % you can defer up to. If the document says so, you can designate up to 100% of your paycheck up to the annual limit, which is $15,500 for 2007. Depending upon your husband's age, if he is over 50, he can also do a catch-up contribution. Again it depends upon the plan document so you really need to get a hold of the Summary Plan Description which should be given to you by the benefits' person.

That's right... Sorry, I just did my benefits today for my new job and I could only do 25%. Sorry for the confusion there!

Brandie

 

[Nicsmom]

I would definitely look at the new plan's Summary Plan Description and/or talk to the benefits person at both the new and old employer. Look at fees, if any, for leaving the old plan. What types of investment choices are in the old/new plan? Do you have the option to stay in the old plan? If so, do you like the plan: investment choices, fees, customer service? If you move it to an IRA, again look at the fees, investments. Usually in a 401(k) you employer will pick up the admin fees. An IRA may have fees. If you move the money over to the new 401(k), you may be able to use it to fund a loan if the need arises. There is a lot to consider when transfering your assets. Take your time and do your research. Good luck!

 

[bellarella]

ONLY roll the 401K over if the options are better in another plan. You have to spend some time reading the fund performances between the 2 plans to determine if it would be better to roll the 401K over to your new plan.

By the way, a Roth IRA is different from a 401K. Roth contributions are after tax, 401K is pre-tax. Roth is good if you plan on being in a higher tax bracket when you retire, but not many people are. Most people actually are in a lower tax bracket when they retire, and therefore a 401K would work better for you. You also have a larger amount originally to invest with a 401K, because taxes haven't been taken out. You can also have a Roth IRA in addition to an employer's 401K. You can contribute $15,500/year tax free to a 401K. Roth IRA, I believe, has a lower limit, but I can't recall that number right offhand. You can designate up to 25% of your paycheck to a 401K plan.

I left a 401K at Oracle because it was earning so much and I could still control it online (I just couldn't contribute any more). I now work at another large company, but the fund options aren't as high-earning, so I don't have plans to move the money. Rolling a previous 401K into a new plan has no tax consequences -IF- it is rolled over properly. You must roll 100% in 30 days.

For a quick read, hit up any of the Money links from CNN's webpage and look up 401K or retirement planning.

Hope that helps!
Brandie

Yes there is a difference between a Roth IRA and a 401k. But no one had mentioned a Roth. What was spoken about was a *Roll-over* IRA, which is different from a Roth. It is a vehicle which allows you to take control over the money that used to be in a 401k. And 99% of the time the options will be better than the plan of your previous employer because you can invest in pretty much anything you want to. You don't have a set menu like you do with your employer. You have the same control over the money that you do with a Roth, but it is in a traditional IRA with the same pre-tax status, tax upon withdrawal as a 401k.

 

[runwad]

Definetely take your time and research!!! Worst mistake of my life when I left my old job I rolled my 401k into my new jobs plan. My new jobs funds suck plain and simple. I wish I'd of educated myself first and learned about Vanguards plans and rolled it into an IRA there. Now I"m stuck in with all my money in a crappy plan making mediocre gains each year!! Only way I can get out of it is if I quit or they terminate me. So take your time leave the 401k money in old plan until you're really sure what you want to do with the money.

 

[Stein]

I agree you should roll it over into a traditional IRA. You can use the IRA to buy anything you could in your old 401 plus about 10,000 other choices. I cannot think of a good reason to leave it.

 

[jocktheglide]

Oh, and congrats on not being like so many people out there who change jobs and actually cash out their 401K's!

that would probably be me something I would do to start over and go back to school....

 

[figgy4me]

Depending on the options, I would leave it where it is -- as long as it is making good money. If it were me, presently-- I would definitely leave mine alone. DH's I would move in an instant...... He has fewer options and I don't seem to know/like them.

 

[maryssasmom]

I am a 401k Plan Manager and I couldn't reccommend more than to keep contributing to a 401k. I am afraid of there not being social security when I retire and will need to live off what I save so you are much better off putting a little bit away and hopefully, if the new employer allows, get an employer match. Rolling the old 401k over I think is the best option.

 

[kjs1976]

Thanks for all your advice!!! This is more than helpful, but now I'm waaayyy confused!!!!????? Dh just thinks he can leave it, which tells me he knows nothing about it. Now I have all of your info and I need to sift through it and try to make sense out of it so I know which direction to go in!

 

[bellarella]

There has been a lot of conflicting advice on this thread, people talking about different things but making reference to the same point. Here are your basic options.

The first thing you need to know is that what you do with your DH's plan at his old job has *no* impact on whether you can start a 401k with Lowes. As soon as Lowes lets you start contributing, you should.

As to what can be done with a 401k when you leave a job, here are the usual options:

1. Leave the plan at your former employer. If there is not much money in the plan (I want to say $1,000 or less, but I'm not sure) they can make you take your money (you would have two choices, have them cut a check to you (bad idea) or transfer to a new institution (good idea)). But if you have more than the minimum, you *can* keep plunking along in your former employer's plan, but you can't contribute more money to that plan. (But you can contribute new money to your new employer's plan if they have one.)

2. Roll the money into your new employer's plan. You need to check what rules your new employer has about accepting a roll over from another plan. You will only be able to invest the money in the funds which the new employer offers.

3. Roll the money into a *roll-over* IRA (which is different from a Roth IRA). This means that your employer transfers the money directly to an institution or brokerage of your choosing into an account designated as a roll-over IRA. Once the money is there you can invest it however you like.

4. Take the money directly yourself. This is the worst option. You will pay taxes and penalties on the money if a check is written to you.

Of these options, generally it is best to roll your money over to a roll-over IRA. This gives you complete control over the money to invest it how you see fit. Occasionally an employer will offer very low fee funds and absorb some of the costs, so that it is worth your while in staying with a current or former employer. But generally speaking you will be able to find lower fee funds outside an employer's 401k.

I have to say for us we always look forward to leaving an employer so that we can get back control of our 401k money and put it where we want it.

 

[crisi]

I'd recommend getting the money out of his former employers plan, either by rolling it to the new employer or a rollover IRA - unless you are really close to retirement or something. What happens when you are young is you leave these plans sitting around as you move from job to job. And your employers switch providers a few times, and then the employer gets bought by someone or goes under and doesn't exist, you move and the statements don't get forwarded and - 40 years later when you are looking for your money no one seems to have a clue where it is.

 

[Stein]

I have to say for us we always look forward to leaving an employer so that we can get back control of our 401k money and put it where we want it.

I couldn't agree more. I had an offer last year and a big "pro" was being able to move the 401(k) money.