I got let go from my job recently. I have about $10,000 in my 401k that’s not been growing much this year. Since I’m no longer with that employer, I want to move it somewhere better, but I have no idea what ‘better’ even means. I’m not very savvy with money or investments, to be honest.
Yes, you can roll it over into an IRA. If you’re just getting started with investing, you might want to put it into an S&P 500 index fund.
What’s the difference between keeping it in a 401k and moving it to an IRA? I max out my 401k and also do a backdoor Roth IRA, but I see this conversion option on my 401k page.
If you open a rollover IRA, you can’t do a backdoor Roth without dealing with the pro-rata rule. So you could either convert it to a Roth and pay taxes now, or stop future contributions until your income drops.
You get more control over what you invest in.
Yeah, you get full control.
You can roll it into a Roth IRA, but you’ll have to pay taxes on the amount you roll over. It all depends on your tax bracket. It’s up to you whether you want to roll it into a Roth or a regular IRA.
I rolled mine over because my old employer’s 401k options weren’t great. They didn’t even have an S&P 500 index fund! Be sure to crunch the numbers on a Roth conversion and think it through. If you’re still 20 years away from retirement, it might make sense. But if you’re closer, maybe just keep paying taxes when you take it out.
Any recommendations on which company to go with? Is Fidelity a good choice, or is there something better?
I’ve been with Fidelity for years and they’ve been the best, compared to others I’ve had to deal with, either by choice or through work.
Why Vanguard over Fidelity? What’s the main difference?
I’ve been reading up on it since I left my job. I’m tired of the 9-to-5 grind with no return, so I figured I’d give investing a try. My second cousin is a big-time investor, but we’re not close, and he’s overseas, so I can’t just ask for advice. Thanks for the tips!
Well, with $10K, you can expect to make around $300 a year, but that’s a very safe bet. You’ll still need to keep working, though.
Oh, I’m not planning to quit work and live off $10K, haha. That’s just the amount I have in my 401k. I want it to at least do something instead of just sitting there.
Once you pick a brokerage, they’ll have rollover forms. Just fill them out and they’ll handle the process for you. After that, you can invest however you want.
Yeah, just roll it into an IRA. You can either leave it there or convert it to a Roth if your tax rate is low. But remember, converting means paying taxes on the full amount. Fidelity can help with the whole process.
You can roll your 401k into a Rollover IRA or your new employer’s 401k.
Can you roll it into a Roth IRA? I keep hearing about the backdoor Roth.
No, rolling it into a Roth would be a conversion, not a rollover.
If you convert a traditional 401k to a Roth IRA, you’ll owe income tax on that amount.
A backdoor Roth is a way to contribute to a Roth if your income is too high for regular contributions. If you don’t hit that income limit, you don’t need a backdoor Roth; just contribute to a Roth IRA normally.
If you do need a backdoor Roth, then don’t roll your 401k into a Traditional IRA because it will trigger taxes due to the pro-rata rule.