Unlocking the Mystery of 401(k) Decisions: How AI Legalese Decoder Can Help Determine Whether to Leave with Ex-Employer or Roll into IRA with Consideration of Expense Ratios
- May 14, 2024
- Posted by: legaleseblogger
- Category: Related News
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# Deciding on the Fate of a 6 Figure 401(k)
## Introduction to the Situation
Greetings! I am venturing into uncharted territories as I bid farewell to my current employer, who provided me with a 6 figure 401(k) plan. This plan consists of a combination of 50% Target Date Funds (TDF) with a 0.30 Expense Ratio (ER) and 50% S&P 500 with a 0.03 ER.
## Exploring the Options
Now, as I am faced with this new chapter in my financial journey, I am contemplating whether these funds would be better off rolled into an IRA that does not incur any expense ratios. Currently, my 401(k) balance is divided into 25% Roth and 75% traditional.
## Considering the Future
Should I opt to just let these funds remain in their current state and allow them to mature over time? Is there a concept such as “401(k) decay” that I should be wary of?
### How AI Legalese Decoder Can Help
AI Legalese Decoder can assist in analyzing the legalities and intricacies of transferring your 401(k) funds to an IRA. By utilizing this tool, you can gain a clearer understanding of the potential benefits and drawbacks of such a decision. Additionally, AI Legalese Decoder can provide you with insights into any regulations or restrictions that may impact the management of your retirement funds.
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Every fund is going to have an expense ratio (except the Fidelity zero funds which havent yet been proven as effecient than underlying index from what I recall)
Keeping 401k has 2 benefits I can think of.
1. 410k may have better legal protection against judgement or creditors. IRA protections vary by state.
2. Traditional IRA rollover will make backdoor Roth more complicated and cost taxes when executed.
note: TDF is designed to be a standalone which auto rebalances as you approach retirement and as asset allocation gets out of balance w market swings. Holding 50% in S&P500 defeats the purpose. If you want more aggressive.allocation choose a later target date or do your own 2 or 3 fund portfolio and rebalance annually.
The most significant factor in this decision, in my opinion, is whether you currently make backdoor Roth IRA contributions and wish to continue doing so. Or if you don’t, but only because you’re not aware of how (because you should!).
If you currently have no traditional IRA balance, I would leave the 401(k) intact so you can contribute to a Roth IRA. Rolling a six figure 401(k) into an IRA will essentially make that impractical due to *pro rata* taxation.
I would not let the expense ratio of your holdings decide this for you. It’s only 0.165 in aggregate, which is trivial compared to the benefit of accumulating additional Roth dollars.
Now, if the 401(k) provider will let you isolate the Roth dollars and roll those into a Roth IRA – while leaving the traditional dollars intact – then that’s definitely something I would do.