Transferring a 401(k)

[mbcdefg]

I worked for CompanyA for several years until early this summer, when it suddenly went bankrupt and we all immediately lost our jobs. My 401(k) with CompanyA was with ADP.

I was hired to CompanyB about six weeks later. I won’t be able to start my 401(k) with CompanyB until March 1, 2020. CompanyB’a account is with Voya Financial.

I recently got a letter from CompanyA’s bankruptcy attorney saying that I have until Dec. 31, 2019 to do something with my 401(k) from CompanyA.

In the past I’ve just transferred my 401(k) after changing jobs once I was eligible to do so. But now what do I do with it since I can’t move it to the CompanyB account just yet? Do I have to have them send me a check and then take the tax hit, or can I roll it into some other sort of account until March so that I’m not penalized?

I need a “like I’m five years old” explanation, please. This sort of thing always goes right over my head, and on top of that ADP wasn’t at all helpful. Thanks.

[awkwardpenguin]

You can roll over your 401k into a traditional IRA to avoid tax penalties. Your new 401k may be able to accept incoming rollovers from the IRA, but I think it is plan specific.

[Susie]

I would do a rollover IRA.  I went with Vanguard a couple years ago when my firm switched from offering a SIMPLE IRA to offering a 401(k) and I had to decide what to do with my old SIMPLE IRA.  I could have rolled it over into the new 401(k), but doing a rollover IRA was pretty easy and I thought it was my best bet for low fees and investment options long term.

Definitely don't take the tax hit!  The rollover will prevent you from being hit with all those penalties.

[mbcdefg]

Ok thanks! So do I need to set up an IRA first before I call ADP, or do I call ADP first and they’ll do it for me?

[goldengirlz]

If you want to transfer the money outside ADP (like move it to Vanguard or Fidelity), then yes, you need to set up the IRA first. Otherwise, if you’ve been happy there and they offer IRAs, someone could probably help you in one transaction.

[mbcdefg]

Nov 14, 2019 10:02:36 GMT -5 goldengirlz said:

If you want to transfer the money outside ADP (like move it to Vanguard or Fidelity), then yes, you need to set up the IRA first. Otherwise, if you’ve been happy there and they offer IRAs, someone could probably help you in one transaction.

ADP’s been nothing but trouble for me the last few months so I’m all too happy to move, lol. Thanks!

[Susie]

Start the process with where ever you want to roll the funds over to (in my case it was Vanguard and they were very helpful on the phone).  Then once the IRA is opened, to fund it you will need to get in touch with ADP to fund it with the rollover.

When I did my rollover, because of the funds I was invested in with Schwab in my SIMPLE, I had the choice of whether to liquidate and transfer the amount to Vanguard, or just transfer the assets.  I don't know if you'll have that choice.  In any event you'll eventually have to pick what you want to invest in once the money is rolled over, but you can deal with that later as a separate step.

[puppylove64]

I started a vanguard Ira and it was very easy to rollover funds. Just make sure that if your 401k has any post tax funds in there (not very common), those get rolled over to a Roth IRA. Pretax funds go to a traditional Ira.

[farmvillelover]

Doesn’t sound like you have much of a good choice. The disadvantage of rolling a 401k into an IRA vs a new 401k is that if you desire to do a backdoor Roth IRA later, the pro rata rule will like subject you to income taxes in the gains built in to your Ira since funds in there are pretax

But you might later be able to roll your Ira into the company B 401k plan once you’re eligible. I’d try to do that.

[gt7301b]

Nov 14, 2019 11:12:20 GMT -5 farmvillelover said:

Doesn’t sound like you have much of a good choice. The disadvantage of rolling a 401k into an IRA vs a new 401k is that if you desire to do a backdoor Roth IRA later, the pro rata rule will like subject you to income taxes in the gains built in to your Ira since funds in there are pretax

But you might later be able to roll your Ira into the company B 401k plan once you’re eligible. I’d try to do that.

I've done this in the past with an IRA.  It was another step in the process, but actually really easy.

[ellipses84]

I had a similar issue years ago and I rolled over my 401k to a Fidelity IRA.

[RockNVoll]

It's very easy to roll into a traditional IRA, and you avoid tax issues as long as you do a direct rollover and not a distribution. Start the process with wherever you want to open the account (Vanguard or Fidelity are popular choices). They will walk you through the whole process.

[mbcdefg]

Thanks all - I talked to Vanguard yesterday and set up an account.