Where should I put my 401k rollover from my previous employer?

Question

I'm 45 yrs. old and behind on my retirement contributions:

Should I put it in my new employer's 401k?

or

Should I put it in a Roth IRA?

or

Should I put it in Traditional IRA?

Answer 1

It depends on your financial situation. You need to weigh the differences between the Roth and Traditional Ira and then decide which is best for you.

If you can afford to pay the taxes now, then you would choose the Roth because you wouldn't pay taxes on it or the earnings at tax time. Otherwise, contributing to a Traditional IRA will lower your taxable income at the end of the year but you will pay taxes on it and the earnings upon distribution.

You should contribute to the 401k to get the company match. Then put the rest in the IRA of your choice.

Answer 2

You can't roll a standard 401(k) account directly into a Roth without tax consequences.  Roll it into a conventional IRA so that you can control the investments.  Putting it into your new 401(k), even if the plan allows that, then limits you to the new plan's investment options.

Answer 3

Roth IRA, hands down.

You should be maximizing your deferrals in your new employers 401k plan to get the most out of your money now. If you are slightly behind on your contributions, then try investing in something more aggressive for the next couple of years to catch up.

Answer 4

I would do a rollover traditional IRA at Scottrade.

Keep is seperate from your other IRAs in case you want to roll it over into another 401K.

Answer 5

Roll it over to Vanguard. You'll have a lot more fund choices. Vanguard is client-owned and that means very low fees and eliminates conflicts of interest. Vanguard stayed out of the mutual fund scandals. Their customer service is excellent. They have safeguards in place to protect clients from market timers.

You can't rollover your 401k directly into a Roth. You have to rollover the 401k into a Rollover/Traditional IRA then convert that IRA to a Roth. If you leave the rollover amount as a rollover/traditional IRA you don't have to pay the tax on it now. If you do the conversion, then you have to pay income tax on the distribution, i.e. the amount of the conversion. The distribution (20k) is taxed as regular income, therefore it is added to your AGI. If you have the money to pay the income tax, converting at the 15% tax bracket can make a lot of sense. Also, you don't have to convert all of the money at once. Make sure that the amount of money being converted and added to your AGI does not cause you to exceed the Roth income contribution limits (check to see what they are currently).  And I think that in order to do a Roth conversion, your MAGI must be less than $100,000 or something like that.

But you need to discuss this further with Vanguard or wherever you go and your tax guy.