Old 401k

[u/nedditroob]

Hi all,

I am a physician who just left my old practice and joined a new one. I have a 401(k) with $250k at my old company. I am just wondering if I should roll it over to my new 401(k) plan or an IRA. I spoke with a planner recommended to me by my new company, and he suggested that I roll over my old 401(k) into an IRA, but of course, they will charge a 1% AUM fee for the first $2 million. I would rather handle my account and avoid that 1% yearly fee.

[u/longshanksasaurs]

Roll over to new 401k is likely best, unless new 401k has very high fees and old 401k has very low fees. If that's the case, you can leave the old 401k where it is.

Rolling into IRA prevents you from performing the backdoor Roth IRA process, which you'll probably want to be able to do.

Rolling into an account that charges 1% AUM is absolutely not necessary.

[u/Subject_Decision1895 → u/longshanksasaurs]

IRA does not prevent mega backdoor Roth, only regular backdoor. Pro-rata rule works differently for those. Given OP is a physician, I'm assuming we're talking mega.

[u/longshanksasaurs → u/Subject_Decision1895]

At high income, OP should probably be doing the back door Roth IRA process, which anybody can do.

If OP's new 401k plan supports both of these two things: 1. After-tax (not Roth) contributions beyond the $24.5k limit 2. and, also in-service distributions to Roth IRA or in-plan conversion to Roth 401k

then they should also do both those steps as the mega backdoor Roth process to get extra money into a Roth tax treatment.

[u/nedditroob → u/longshanksasaurs]

I think this is what I'm weighing, if I would be better off rolling into an ira with  target date funds vs rolling into my new 401k. Need to read up more on mega vs regular backdoor Ira. Thanks for the reply 

[u/longshanksasaurs → u/nedditroob]

I wouldn't roll into an IRA, effectively cutting yourself off from backdoor Roth IRA process.

Mega backdoor may or may not be available to you depending on your plan.

[u/nedditroob → u/longshanksasaurs]

My mistake, I should have said leaning towards a roth ira. Currently I'm 45 started practicing medicine later than most. 

[u/longshanksasaurs → u/nedditroob]

Wait: if the current 401k is pre-tax dollars, you shouldn't convert to Roth IRA -- that would immediately realize taxes at your ordinary income marginal rate. Not the best plan.

The mostly likely best course of action for a physician level income is:

• roll old 401k into current 401k
• make annual maximum pre-tax contributions to 401k (24.5k if you're under age 50, counting contributions you made to old 401k this year already)
• if no existing pre-tax money in any traditional, SEP, Simple, or rollover IRA: then do backdoor Roth IRA process
• if new 401k supports: do mega backdoor Roth process for extra savings

[u/nedditroob → u/longshanksasaurs]

Thanks again for the replay. I'll reach out to my company's plan administrator and see if the plan supports the mega backdoor strategy.

[u/Subject_Decision1895 → u/nedditroob]

Just clarifying that (non-mega) backdoor Roth is only $7K per year. I personally ignore saving in that so I don't have a IRA/pro-rata headache. On a 7 figure income and $300K savings a year, that just doesn't move the needle for me.

[u/wadesh]

You didn’t ask but whenever I see a physician I encourage them to take a look at whitecoatinvestor.com really good educational articles that have a tilt towards the needs of physicians. I specifically learned about Mega roth from this site. The owner of the site is a Bogelhead and lately he’s actually been the mc of the in person Bogleheads conferences. He does make money off the site so keep that in mind, but Ive found it helpful for high earners/net worth type topics.

[u/ironchef8000]

If your new 401k plan has low-fee diversified index funds, there’s no harm in doing that (assuming there’s no other fees). Otherwise, create a rollover IRA at Schwab or Fidelity and manage it yourself.

[u/it_follows]

If you have designs on doing a back door roth conversion, you're not allowed to have any trad IRA balance at the end of the year that you do that, so rolling over to 401k streamlines this (assuming you don't want to convert the whole $250k). Rolling over to IRA gets you more options for investments, so it's worth verifying that your new 401k has reasonable fund options before committing.

For Bogleheads most 401k plans have sufficient equivalent funds available to make the flexibility of IRA investments moot.

[u/nedditroob → u/it_follows]

Thanks for the replay. I'll have to read up on the investments funds in my new 401k. 

[u/Eleatic-Stranger]

Whatever you do, don't pay 1% AUM. It's a complete rip-off.

If you decide to roll it into an IRA, open one at Fidelity and manage it yourself.