topic Re: 401(k) vs IRA rollover decision time in Personal Finance

401(k) vs IRA rollover decision time

Horseshoez — Tue, 08 Jul 2025 11:56:59 GMT

I'll be changing jobs in the next week and have a fairly tidy sum of money in my current employer's 401(k) plan, and I'm trying to figure out which is in my best interest, move the money into my new employer's plan (which I have yet to see, so I don't know what my options are with this plan yet), or roll the money over to an IRA.

On the surface, the two most important factors from my perspective are:

Pro 401(k): I'm 68 and am planning on working until I'm at least 72 or 73, so RMDs of an IRA may come into play whereas with a 401(k) I should be able to defer any RMDs until I retire.
Pro IRA: In my experience, 401(k)s have limited options when it comes to where to invest the money, however, IRAs are pretty much open to whatever I want to invest in.

I'd love to hear thoughts from the collective here on which of the two options might be best for me. Having said that, I suppose a third option would be to split the rollover, say half to an IRA and half to the new 401(k) plan.

Re: 401(k) vs IRA rollover decision time

AndySoCal — Tue, 08 Jul 2025 14:08:36 GMT

In the times that I have done this in the past have used the IRA option. Some 401K plans will allow you to bring funds from other 401k plans into their 401k some will not. Look at the new 401k plan then make a decision. If you go the IRA route use the provider to provider option.

Using myself as an example it would from company 401k to Vanguard. On the Vanguard side I would give the instructions on how to invest the money that is being rolled over

Re: 401(k) vs IRA rollover decision time

NoHardLimits — Tue, 08 Jul 2025 16:25:16 GMT

@AndySoCal wrote:
In the times that I have done this in the past have used the IRA option. Some 401K plans will allow you to bring funds from other 401k plans into their 401k some will not. Look at the new 401k plan then make a decision. If you go the IRA route use the provider to provider option.

Using myself as an example it would from company 401k to Vanguard. On the Vanguard side I would give the instructions on how to invest the money that is being rolled over

I also followed the above strategy. Rollover IRAs to Vanguard (and also Schwab), and then do self-directed investing.

Re: 401(k) vs IRA rollover decision time

coldfusion — Tue, 08 Jul 2025 17:37:21 GMT

This shouldn't be a decision you have to rush into - there won't be any immediate need for you to transfer out of your existing employer's 401K plan although for your own sanity you will want to confirm what if any timeline restrictions exist with a potential transfer into your new employer's plan. As you point out the relative quality of the plans between your old and new employer (I saw who your new employer is, congrats BTW), including what suitable options exist for someone your age, is very relevant.

What do you see as the likelihood you'll continue to work full time much past 73?

Off the top of my head I'd suggest a default of moving your 401K money into rollover IRAs of your choice at the investment brokerage of your choice unless either the options available in either your old plan (i.e. keep your money there for now) or upcoming new plan are a great fit.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Tue, 08 Jul 2025 20:17:36 GMT

Thanks for the advice folks; a few comments on your comments, in no particular order:

While my experience is relatively limited, I have never seen a 401(k) which didn't allow you to roll money from a previous employer's plan into the new one.
Regarding the Rollover IRA option; I absolutely agree, the self directed investment option is a huge benefit versus a 401(k) plan which only offers several dozen mutual funds to choose from.
Regarding rolling the money into Google's 401(k) plan; as has been pointed out, I don't yet know what it looks like, so I can only make some assumptions on other plans my wife and I have been involved with; it may be way more flexible than others. That said, the benefit of choosing this option opens up the possibility of avoiding RMDs if I work past 73.
As for how much longer I'll be working, that is a tough one; I love what I do and Google subscribes to the "Golden Handcuffs" philosophy in that they grant sizeable chunks of equity annually which vest on a rolling four year schedule, so regardless of when I retire, I'll be walking away from many thousands of unvested RSUs (Google calls them GSUs), so the "just one more year" syndrome will definitely be in effect when it comes time to consider retirement.

Re: 401(k) vs IRA rollover decision time

iced — Tue, 08 Jul 2025 22:59:12 GMT

@Horseshoez wrote:
Thanks for the advice folks; a few comments on your comments, in no particular order:
While my experience is relatively limited, I have never seen a 401(k) which didn't allow you to roll money from a previous employer's plan into the new one.
Regarding the Rollover IRA option; I absolutely agree, the self directed investment option is a huge benefit versus a 401(k) plan which only offers several dozen mutual funds to choose from.
Regarding rolling the money into Google's 401(k) plan; as has been pointed out, I don't yet know what it looks like, so I can only make some assumptions on other plans my wife and I have been involved with; it may be way more flexible than others. That said, the benefit of choosing this option opens up the possibility of avoiding RMDs if I work past 73.
As for how much longer I'll be working, that is a tough one; I love what I do and Google subscribes to the "Golden Handcuffs" philosophy in that they grant sizeable chunks of equity annually which vest on a rolling four year schedule, so regardless of when I retire, I'll be walking away from many thousands of unvested RSUs (Google calls them GSUs), so the "just one more year" syndrome will definitely be in effect when it comes time to consider retirement.

Knowing you're dealing with Google's 401k changes the conversation. I'm also living in the world of trillion dollar valuation tech companies, and our 401k is IMO strictly better than an IRA. I get access to funds at lower fees than I would in a traditional IRA, and I have full flexibility to do open brokerage accounts under the 401k to invest in any individual stocks or non-plan funds I want. I can borrow against it (but never, ever will). In fact, I cannot think of a single thing I can do in a traditional IRA that I can't do with my 401k.

I would be surprised if Google's plan isn't substantially similar.

I still keep a separate IRA (and Roth IRA) that's an annual dump bucket for backdoor Roth rollover contributions, but other than interest earned on those contributions that sit for a day before rolling over, it's empty, and anything outside of that bonus Roth I kept in the corporate 401k.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Wed, 09 Jul 2025 01:00:00 GMT

@iced wrote:
Knowing you're dealing with Google's 401k changes the conversation. I'm also living in the world of trillion dollar valuation tech companies, and our 401k is IMO strictly better than an IRA. I get access to funds at lower fees than I would in a traditional IRA, and I have full flexibility to do open brokerage accounts under the 401k to invest in any individual stocks or non-plan funds I want. I can borrow against it (but never, ever will). In fact, I cannot think of a single thing I can do in a traditional IRA that I can't do with my 401k.

I would be surprised if Google's plan isn't substantially similar.

I still keep a separate IRA (and Roth IRA) that's an annual dump bucket for backdoor Roth rollover contributions, but other than interest earned on those contributions that sit for a day before rolling over, it's empty, and anything outside of that bonus Roth I kept in the corporate 401k.

Thanks! Your information is reassuring; I've been leaning toward rolling over into Google's 401(k) plan, and now I'm leaning even further. I won't actually get to see the plan for another ten or so days, but if I like what I see, I'm going to initiate the transfer immediately.

FWIW, back in late May when I was informed an offer was forthcoming, I cancelled my 401(k) contributions with my current company so I could take as much advantage of Google's 50% match as possible for 2025. My current company was purchased by a firm from Pune, India several years ago; two years ago they cancelled our independent 401(k) plan, which included Safe Harbor and a minimalist match of up to 4% of our contributions (dollar-for-dollar for our first 3% and then fifty-cents per dollar for the next 2%); their plan had no match and no Safe Harbor. In my case, I've been contributing the IRS max and maxing out the "Catch-Up" contributions for years now; so, what happened when our plan got converted? The plan administrator audited our contributions and said, "Oops, sorry, you are a highly compensated employee, and as such, you are ineligible to contribute the full IRS limited amount. So, we're executing a taxable distribution and sending you a check!"

Our group has had several "all-hands" meetings over the last year; it turns out the vast majority of our associates were deemed "highly compensated" and spanked for our excess contributions. Not surprisingly, there has been a mass exodus of talent at every level.

Re: 401(k) vs IRA rollover decision time

iced — Wed, 09 Jul 2025 16:00:09 GMT

@Horseshoez wrote:
Thanks! Your information is reassuring; I've been leaning toward rolling over into Google's 401(k) plan, and now I'm leaning even further. I won't actually get to see the plan for another ten or so days, but if I like what I see, I'm going to initiate the transfer immediately.

FWIW, back in late May when I was informed an offer was forthcoming, I cancelled my 401(k) contributions with my current company so I could take as much advantage of Google's 50% match as possible for 2025. My current company was purchased by a firm from Pune, India several years ago; two years ago they cancelled our independent 401(k) plan, which included Safe Harbor and a minimalist match of up to 4% of our contributions (dollar-for-dollar for our first 3% and then fifty-cents per dollar for the next 2%); their plan had no match and no Safe Harbor. In my case, I've been contributing the IRS max and maxing out the "Catch-Up" contributions for years now; so, what happened when our plan got converted? The plan administrator audited our contributions and said, "Oops, sorry, you are a highly compensated employee, and as such, you are ineligible to contribute the full IRS limited amount. So, we're executing a taxable distribution and sending you a check!"

Our group has had several "all-hands" meetings over the last year; it turns out the vast majority of our associates were deemed "highly compensated" and spanked for our excess contributions. Not surprisingly, there has been a mass exodus of talent at every level.

Most employees in these companies fall under the highly compensated umbrella, so traditional IRA contributions (and most deductions are off the table. You can still do a after-tax IRA contribution of $7k (or whatever the max happens to be that year) and backdoor roll it into a Roth IRA, though both your 401k and IRA will eventually fall behind your brokerage balance anyway (those RSUs really get rolling after 3-4 years).

Also, don't forget to max the HSA too.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Wed, 09 Jul 2025 16:13:14 GMT

@iced wrote:
Most employees in these companies fall under the highly compensated umbrella, so traditional IRA contributions (and most deductions are off the table. You can still do a after-tax IRA contribution of $7k (or whatever the max happens to be that year) and backdoor roll it into a Roth IRA, though both your 401k and IRA will eventually fall behind your brokerage balance anyway (those RSUs really get rolling after 3-4 years).

Also, don't forget to max the HSA too.

Yup, already doing the backdoor Roth IRA and the max HSA thing as well.

Re: 401(k) vs IRA rollover decision time

SouthJamaica — Thu, 10 Jul 2025 21:33:45 GMT

@Horseshoez wrote:
I'll be changing jobs in the next week and have a fairly tidy sum of money in my current employer's 401(k) plan, and I'm trying to figure out which is in my best interest, move the money into my new employer's plan (which I have yet to see, so I don't know what my options are with this plan yet), or roll the money over to an IRA.

On the surface, the two most important factors from my perspective are:
Pro 401(k): I'm 68 and am planning on working until I'm at least 72 or 73, so RMDs of an IRA may come into play whereas with a 401(k) I should be able to defer any RMDs until I retire.
Pro IRA: In my experience, 401(k)s have limited options when it comes to where to invest the money, however, IRAs are pretty much open to whatever I want to invest in.
I'd love to hear thoughts from the collective here on which of the two options might be best for me. Having said that, I suppose a third option would be to split the rollover, say half to an IRA and half to the new 401(k) plan.

I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Fri, 11 Jul 2025 00:50:51 GMT

@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.

Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".

Re: 401(k) vs IRA rollover decision time

NoHardLimits — Fri, 11 Jul 2025 01:21:14 GMT

@Horseshoez wrote:
@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.
Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".

Your RMD could very well be $100k. It all depends upon your age and the combined balance of your traditional IRAs. The beneficiary status could also impact the amount if it is a spouse vs non-spouse. There are many RMD calculators available on the internet.

Re: 401(k) vs IRA rollover decision time

SouthJamaica — Fri, 11 Jul 2025 05:24:56 GMT

@Horseshoez wrote:
@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.
Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".

Yes I wouldn't call that small either. I believe it's a factor of the amount in your IRA x your life expectancy factor. If you started at 73, it would be the amount in your IRA divided by 16.4, so if your IRA contained $1.64 million yes the distribution would be $100k.

I'm no tax expert but I thought 401k's have required minimum distributions too. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

Re: 401(k) vs IRA rollover decision time

Horseshoez — Fri, 11 Jul 2025 08:51:39 GMT

@SouthJamaica wrote:
@Horseshoez wrote:
@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.
Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".
Yes I wouldn't call that small either. I believe it's a factor of the amount in your IRA x your life expectancy factor. If you started at 73, it would be the amount in your IRA divided by 16.4, so if your IRA contained $1.64 million yes the distribution would be $100k.

I'm no tax expert but I thought 401k's have required minimum distributions too. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

What is different between an IRA vs. a 401(k) is, if one is still working and contributing past 73, some 401(k) plans do not require RMDs until you stop working, as far as I know, IRAs do not have that same benefit.

Re: 401(k) vs IRA rollover decision time

SouthJamaica — Sat, 12 Jul 2025 04:45:55 GMT

@Horseshoez wrote:
@SouthJamaica wrote:
@Horseshoez wrote:
@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.
Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".
Yes I wouldn't call that small either. I believe it's a factor of the amount in your IRA x your life expectancy factor. If you started at 73, it would be the amount in your IRA divided by 16.4, so if your IRA contained $1.64 million yes the distribution would be $100k.

I'm no tax expert but I thought 401k's have required minimum distributions too. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

What is different between an IRA vs. a 401(k) is, if one is still working and contributing past 73, some 401(k) plans do not require RMDs until you stop working, as far as I know, IRAs do not have that same benefit.

You're right. Further down on the page there's this:

401(k), profit-sharing, 403(b), or other defined contribution plan
Generally, April 1 following the later of the calendar year in which you:
- reach age 73, or
- retire (if your plan allows you to delay taking your RMD until retirement).

Re: 401(k) vs IRA rollover decision time

Horseshoez — Sat, 12 Jul 2025 11:29:13 GMT

@SouthJamaica wrote:
@Horseshoez wrote:
@SouthJamaica wrote:
@Horseshoez wrote:
@SouthJamaica wrote:
I wouldn't even consider putting it into the 401k. I would definitely want the flexibility of an IRA.

I wouldn't worry about required minimum distributions because they are small.
Maybe I'm misunderstanding how RMDs work, but when I look into it, it appears my first year's distribution could be well over $100,000, not exactly what I'd call "small".
Yes I wouldn't call that small either. I believe it's a factor of the amount in your IRA x your life expectancy factor. If you started at 73, it would be the amount in your IRA divided by 16.4, so if your IRA contained $1.64 million yes the distribution would be $100k.

I'm no tax expert but I thought 401k's have required minimum distributions too. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

What is different between an IRA vs. a 401(k) is, if one is still working and contributing past 73, some 401(k) plans do not require RMDs until you stop working, as far as I know, IRAs do not have that same benefit.
You're right. Further down on the page there's this:

401(k), profit-sharing, 403(b), or other defined contribution plan
Generally, April 1 following the later of the calendar year in which you:
reach age 73, or
retire (if your plan allows you to delay taking your RMD until retirement).

Thanks! During my onboarding next week I'll be given chapter and verse on Google's 401(k) plan; if it allows delaying RMDs, then I'll move my money over into the plan, if not, I'll move it into an IRA. Easy peasy, nice and easy.

I finished what I hope is the penultimate job of my life yesterday, but it took a 14 hour day to wrap everything up; even still, my access to certain resources got cut off a few hours before I finished doin' what needed doin'. I sent my now former boss, a guy I really liked working with, the details of the things I couldn't finish because of the loss of those resources and he offered to finish them for me on Monday. Then I will make a final appearance next month, free of charge, when my final project gets deployed to my client; I'll attend the meeting in "look over the shoulder mode" to guide my replacement on how to do the deployment correctly some evening after the client's contact center closes for the night. Some of you will ask why I would offer to do that for a company I am less than fond of; simple answer, I've worked with that client for over four years now, they are a famous not for profit cancer research hospital; I donate to them every year and I will consider this just another donation.

Last night my wife said it best, "You got out of jail!"

Re: 401(k) vs IRA rollover decision time

Realist — Sat, 19 Jul 2025 13:43:35 GMT

RMDs kick in at 72/73, and the structure is that you take what you currently own, and divide by 25 (or less). The next year, you take what you own, and divide by 24. The following, what you own, and divide by 23. Etc. If you do not take the deduction as defined by age, they will take it in a form of a penalty, upwards of 50%. It's highly motivating to get it right, unless you want to see your money simply disappear in the form of on paper taxes. You hold zero control at that point. I know a person or two that got very motivated, after their first year of losing a lot because they didn't deduct properly.

Traditional 401k or IRAs are going to offer the same problem. 401ks offer a structured investment plan, and IRA's offer a capsule, that you place whatever investment vehicle you want into. Whether it's stocks, CD's, etc, it matters not, it's still bound by the same problem as a 401k offers. RMDs.

The solution to the issue is:

1. RMD over a 25 year period, and pay taxes on this amount deducted yearly.

2. Slowly plan to convert your traditional 401k to a Roth 401k leading into retirement. Pay your taxes yearly on the conversion, hopefully in smaller and controlled doses. This removes the RMD limitation once fully transitioned to a Roth 401k. You won't have to take out any amount out if you choose not to, and you can continue to work for as long as you would like.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Mon, 21 Jul 2025 15:47:24 GMT

So dig this, I just read a summary of the 401(k) program offered by Google, and it looks like the plan has many options ranging from a traditional fund based approach all of the way through a self-directed brokerage account to buy and sell individual securities. Initially I'm going to be super busy, a stated of being which may persist for quite some time, so I'll probably opt for one of the more hands-off strategies for the time being.

Re: 401(k) vs IRA rollover decision time

Horseshoez — Fri, 01 Aug 2025 11:32:50 GMT

Quick update...

I've opted to roll the money into Google's 401(k) plan; the money was divested yesterday and was mailed to me today. As soon as I get it I'll add the new Rollover paperwork and forward it all to Vanguard.