Changed jobs - Old 401(k) option review

[mrwizard]

What is the name of your state? California

Hello,

I switched jobs recently. My 401(k) from my last job is still in the old account. As far as I can tell, I have four options with it:

(1) Get the money, take the witholdings/tax hit
(2) Leave the money in the current account under policies set by my old company
(3) Transfer the money to my new 401(k) plan with my new company
(4) Transfer the money into my brokerage IRA account

Am I right that these are my options?

Option (1) is a terrible move, and I'm not considering it.
Option (2) is OK, but it just gives me another place to have to keep track of my assets.
Option (3) is also OK, but since my new 401(k) plan does not offer the same investment options as my old 401(k) plan, I believe that the current 401(k) plan would need to sell my positions and convert it to cash so that the new 401(k) plan could then purchase one or more of the available investment options.
Option (4) seems like the best move because I'm assuming that when I transfer the assets, my brokerage company (E*Trade) will be able to transfer the assets without converting to cash. Is this assumption correct?

Most importantly, if I go with option (4), can anyone advise if I am supposed to transfer the assets into a Traditional IRA or Roth IRA?

Am I missing anything? Any other advice?

Thanks in advance!

mw

 

[anteater]

What is the name of your state? California

Option (4) seems like the best move because I'm assuming that when I transfer the assets, my brokerage company (E*Trade) will be able to transfer the assets without converting to cash. Is this assumption correct?

Most importantly, if I go with option (4), can anyone advise if I am supposed to transfer the assets into a Traditional IRA or Roth IRA?

It isn't going to be E*Trades's call. Unless you have a very out-of-the-ordinary 401-K, I would expect to get cash. Except possibly for any of the balance that is in your old company's stock.

You can not roll over directly into a Roth IRA. It will have to go into a traditional IRA first. Then you can convert to a Roth (if you don't exceed the income limits for Roth conversion).

 

[efflandt]

Something to note is that you should set up an IRA account where you intend to move the money to, then do a direct trustee to trustee transfer to avoid any withholding. It doesn't really matter if it is a traditional or rollover IRA anymore, but it canNOT go directly to a Roth IRA.

If you have them send them a check, they are required to withhold 20% and if you do not make up that 20% when rolling it over, that would be liable for tax/penalty. If you did add that 20% back in, you would get it back at tax time. Although, you could probably get around the withholding if the check was properly made out to the IRA trustee instead of in your name.

If you do want to convert some or all of it to a Roth IRA, you could do that (to a 2nd Roth account) once it is in a regular IRA. But if you do that, you should adjust your W-4 to cover any conversion and specifically request NO withholding of the conversion. I am doing that gradually (to keep from bumping into higher tax bracket) between IRA and Roth IRA at Fidelity.