What can I do with my Roth 401K?

Question

I am currently investing the yearly max ($15.5K) per year into my Roth 401K and am planning to quit my job in a couple of years, in order to open a business.

Can I keep the money in the company's Roth 401 K if I'm no longer working in that company?

What are my options?

Will I get hit with the 10% early withdrawal penalty if I can't keep it in a Roth 401 K?

Please help.

Answer 1

Usually most plans will allow you to remain " on the books" when you leave your current employer... but no more contributions.

A much better plan ( already mentioned) is to roll it over into a  self- directed ROTH IRA ( Fidelity, T.Rowe, etc.)  You will then be able to select from a full array of investments...or even get into selecting/trading in individual stocks or ETFs. The only drawback would be in the amount you could contribute yearly... $ 5000., but  if you establish your new business, you can also open a SEP IRA.( self-employed)..at any rate you will never be hit with a penalty or taxed unless you just close the 401 and keep the cash.

Answer 2

These are questions for your HR dept.  But generally if you have more than 5k in a 401k (and that probably holds true for a roth), you can keep it at your company.  

Also if you can rollover a 401k to an IRA without penalty's, why could the same not be done with a Roth 401k??  Call Fidelity, Vanguard, or TRowe Price to ask about doing a Roth 401k rollover.  I'm sure they would be happy to answer your questions.

Answer 3

Think bigger picture.

There is nothing stopping you leaving your 401k in the plan created by your company. You can have as many 401k plans as you like, you are only limited to the yearly contributions. That said, it is best to roll over the funds as soon as practical. If you are forming a company for a new business then that business can sponsor a 401k plan. You can then transfer the funds from your previous company's 401k plan to the new plan. This is a simple transfer so no penalty.

If you use a third party custodian you can take the 401k funds, not Roth 401k funds, and use them to purchase stock in your new company. In effect you get to use the funds but no penalty as they are not withdrawn, just used to purchase stock.

Probably your best plan is to have your new company create a 401k plan, with Roth option, and roll over the funds from your previous company into this plan.