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Rollover 401k (Fidelity) to IRA (Merril Edge)

xenon3030
Established Contributor

Rollover 401k (Fidelity) to IRA (Merril Edge)

I have one 401k account from my previous employer at Fidelity. I want to rollover it to either 401k or IRA to Merril Edge. Are there any fees or penalties involved? What is the best way to do it?

 

I think, IRA is a better option, since I can also slightly contribute to it since my contribution to 401k (current employer) is already capped.

 

 


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Message 1 of 12
11 REPLIES 11
NRB525
Super Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

Rolling out your 401k funds from a former employer to an IRA should have zero fees.

 

Some 401k allow you to roll a previous employer 401k into them, also should have no fees if the destination ( your current employer ) 401k can handle it. 

 

Penalties would only result if you take possession of the funds without getting them into a new 401k or IRA destination.  

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Message 2 of 12
Anonymalous
Frequent Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

Many investment banks have a fee for transfering out assets, but it's usually trival compared to the size of a retirement account, for instance $75. Though while I don't know about their 401k's in specific, Fidelity doesn't normally have an outgoing fee.

 

Since it's a former employer, you may at some point be forced to roll over your 401k to an IRA, and in general that's a good idea. You gain control of your assets, and aren't limited to the specifics of the plan. Though depending on your income and other factors, you may want to consider a Roth for future contributions.

Message 3 of 12
longtimelurker
Epic Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

Generally rolling over to an IRA will give you more investment options, but there are a few situations where a rollover to a 401(k) is better.

 

1) If the new 401(k) has lots of options and very low fees (including expense ratios) it may be better than what you could do in an IRA.

2) If you terminate your current (new) employment in the year you turn 55, you can withdraw funds from a 401(k) without a 10% penalty (still pay taxes if it is traditional).   With an IRA, you have to wait until you are 59.5 in most cases.  If you have rolled the old 401(k) into the new one, you have access to all funds.  

3) 401(k) offers better protection from creditors, they are protected.  IRAs are not except in the case of bankrupcy.

Message 4 of 12
MarkintheHV
Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

I recently rolled over two 401k's from previous employers into a Merrill Edge IRA.  The process was painless as they assigned me a representative that handled all the paperwork and explained everything in the level of detail that I wanted.  They only thing I had to do was give them the account numbers and sign the documents.  No fees whatsoever, and all my trades are free as well.

 

One thing to note that I found out the hard way this year.  I am a contractor (so I dont get 401k from my current employer) and my wife has 401k through her employer.  This year on my taxes I was not allowed to utilized the 7k deduction for IRA contributions because my adusted gross  income was over 208k and my wife had a retirement account through her employer.  Needless to say, I was shocked and angry as well.

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Message 5 of 12
xenon3030
Established Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

Same boat here. I checked ME and due to my slightly higher AGI (adjusted gross income) than threshold, not eligible for the 6k annual deductible. My current employer has 401k with Fidelity. My motivation is to possibly move some assets to ME/BOA to keep my premium rewards tier. None of my accounts are ROTH.

 

Therefore, there are three options:

1. Rollover the prior employer's 401k to ME IRA. I can take over my asset and investments. But no tax-deductible contribution.

2. Move the prior employer's 401k to my current employer's 401k (remain with Fidelity). In this case, I can take loan from this 401k without penalty in future.

3. Rollover the prior employer's 401k to ME 401k. Not sure whether this one gives any advantages vs 1 and 2, except moving assets from Fidelity to ME.

 

Is it feasible to rollover IRA to 401k later without penalty? If this is feasible, it might be good to go for 1 and if in future, I need to take loan, I rollover it to 401k (current employer).


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Message 6 of 12
longtimelurker
Epic Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)


@MarkintheHV wrote:

I recently rolled over two 401k's from previous employers into a Merrill Edge IRA.  The process was painless as they assigned me a representative that handled all the paperwork and explained everything in the level of detail that I wanted.  They only thing I had to do was give them the account numbers and sign the documents.  No fees whatsoever, and all my trades are free as well.

 

One thing to note that I found out the hard way this year.  I am a contractor (so I dont get 401k from my current employer) and my wife has 401k through her employer.  This year on my taxes I was not allowed to utilized the 7k deduction for IRA contributions because my adusted gross  income was over 208k and my wife had a retirement account through her employer.  Needless to say, I was shocked and angry as well.


That's been part of the code for a while (when you can deduct IRA contributions).

 

But that brings up one other disadvantage of rolling to a IRA.  If you have no  traditional IRAs, doing a backdoor Roth contribution is pretty easy.   Contribute the max (or whatever) to a non-deductible IRA, and do a Roth conversion from that (very easy process).   However, if you have another IRA, all sorts of pro-rata rules apply, depending on how much of the total IRA amount hasn't been taxed, and this can generate a tax bill on the conversion (which is unexpected for some, as you are converting a non-deductible IRA)

Message 7 of 12
Citylights18
Valued Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

Without really diving into it and having some past experience doing rollovers here is my recommendations.

 

1) Look for new account rollover bonuses. I would sometimes get as much as $500 to $600 for a rollover. The bonuses are generally capped/maxxed out at 100k. They help defer cover any transfer cost you may incur from your rollover.

 

2) Consider also the reputation of the broker. I would be cautious of going in with a small name just beause you can buy crypto because they could be hacked. Eventually all of these brokerages will allow you to invest in crypto anyways.

 

3) If you can leverage an exsiting banking relationship that is great too. Depending on your financial relationships this may be of less value to you than just taking a sign up bonus with a new brokerage.

 

4) Keep in mind that when ever you open any account with a brokerage be it Traditional, Roth or Trading its there for life because of financial reporting requirements. Over time I've had multiple buyouts of brokerages ending up strangely all in one brokage. I have then like 5 accounts with one brokerage when I'm using only one actively.

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Message 8 of 12
Citylights18
Valued Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)


@longtimelurker wrote:

Generally rolling over to an IRA will give you more investment options, but there are a few situations where a rollover to a 401(k) is better.

 

1) If the new 401(k) has lots of options and very low fees (including expense ratios) it may be better than what you could do in an IRA.

2) If you terminate your current (new) employment in the year you turn 55, you can withdraw funds from a 401(k) without a 10% penalty (still pay taxes if it is traditional).   With an IRA, you have to wait until you are 59.5 in most cases.  If you have rolled the old 401(k) into the new one, you have access to all funds.  

3) 401(k) offers better protection from creditors, they are protected.  IRAs are not except in the case of bankrupcy.


The age limit is a physchological barrier for younger investors when they won't have access to that money for 30 years it seems sensless to contribute money they need right away.

 

But once you hit that age you can do anything you want with the money. Pick up an early retirement house if you want. There is no reason really not to max it out once you are over 40 unless you can't afford to.

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Message 9 of 12
xenon3030
Established Contributor

Re: Rollover 401k (Fidelity) to IRA (Merril Edge)

ME has an ongoing 1k SUB offer and I see whether I can get some parts of it. My prior employer's 401k is ~10k (traditional) and I possibly will roll-over it from Fidelity to IRA ME (possibly traditional). To get 100$ SUB, I may need to contribute to IRA (not deductible) or buy stocks.

 

My current employer's 401k is ~200k with Fidelity (traditional). I guess, it is not allowed to roll-over the current employer's 401k to another place. It might be good to change employer, afer a few years, to optimize income and also take over the control of prior investments on 401k. 

 

Also, if the state tax is going to be included in the ROTH calculations, I might need to relocate at some points to TX Smiley Happy


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