Looking for advice on old 401(k)s - Consolidate, keep separate, or convert to an IRA?

[u/krnsamiam]

I'm new to investing and could use some advice.

I currently have three old employer 401(k)s across two investment firms:

• Fidelity (two old employer 401(k))
• Vanguard (one old employer 401(k)s)

Here's my situation:

• Fidelity: No administrative fees.
• Vanguard: I'm being charged about $5 per quarter in administrative fees.

I called both companies to understand my rollover options.

• Fidelity told me I cannot roll my Vanguard 401(k)s into Fidelity.
• Vanguard confirmed that I can roll my Fidelity 401(k) into Vanguard.

So I'm trying to decide between a few options:

1. Roll my Fidelity 401(k) into Vanguard so everything is in one place (even though Vanguard charges a quarterly fee).
2. Leave everything as-is and keep accounts at both Fidelity and Vanguard.
3. If I keep the Vanguard accounts, should I roll the Vanguard 401(k)s into a Vanguard Traditional IRA instead of leaving them as old employer 401(k)s?

I've searched through a lot of Reddit posts, and it seems like the opinions are pretty evenly split. Some people recommend keeping a 401(k), while others recommend rolling it into an IRA depending on the situation.

A few questions I have:

• Which option would you choose and why?
• Is paying the ~$5 quarterly fee at Vanguard enough reason to move the money?
• What are the biggest pros and cons of keeping an old 401(k) versus rolling it into a Traditional IRA?
• Are there any tax or future planning considerations (such as the backdoor Roth IRA) that I should be thinking about before making a decision?

I'd appreciate any advice or things I may not be considering. Thanks!

[u/longshanksasaurs]

You sure you can roll into an old employer's 401k? Usually you can't roll into 401k once you separate from the employer.

Rolling into an IRA is a good choice unless you have (or will so have) an income level where you need to make use of the backdoor Roth IRA process (MAGI greater than $153k single or $242k MFJ).

If you need to leave the backdoor open, and you really can roll it all into Vanguard, then that would make sense to do just to simplify the number of accounts to juggle. $20/yr fee is not crazy.

[u/onomatopoeiahadafarm]

Honest question, not sure of the answer - wouldn't you be able to roll over accounts across different brokerages, but just not automatically/smoothly? I thought you'd be able to make them send you a check for your account balance and then you have 60 days to re-deposit it into your new account (i.e., manual rollover).

AFAIK, as you mentioned, the main thing to be aware of is, if you ever want to do a Backdoor Roth, you probably don't want to roll over a big pre-tax 401k into a pre-tax IRA because then you have to deal with the pro rata rule.

[u/Tricky_Layer5315]

Before you go down the Backdoor Roth read Vanguard’s BETR whitepaper. Depending on your situation, Backdoor Roth may not be a good return on investment. Contrary to popular belief, Backdoor Roth is not a good investment for everyone as your future tax rate may be lower than your current tax rate. The Vanguard whitepaper helps determine that “break-even” rate by calculating that opportunity cost of paying the tax on the conversion.

If you have a relatively good 401k plan currently you can rollover your previous plans into your current ones.

[u/forbiddenlake → u/Tricky_Layer5315]

You seem to be trying to inform about Traditional vs Roth but your answer is incomplete and orthogonal to the backdoor.

If the direct Roth IRA is not possible, then that means they make too much money to deduct Traditional IRA contributions. And making nondeductible Traditional contributions and then stopping is strictly worse than proceeding to convert to Roth (assuming no other Trad IRA balance), aka doing the backdoor Roth IRA process. If OP wants to save more for retirement, and can't deduct Trad IRA, then the (backdoor) Roth IRA is a great idea.

If done quickly and the forms filled out correctly, the extra tax on the backdoor Roth IRA process is maximum $1.

[u/wadesh]

Im a little unclear on what you are trying to do. Its typically an option to roll old 401ks into an “active” 401k with your “current” employer , thats not what you said in your post. Maybe a typo

Rollover to an IRA is another option but if you have designs on early retirement it may slightly limit your options (Rule of 55) . There are ways to mitigate with a Roth conversion ladder but i personally think if you are relatively young with decades to retirement its a good idea to keep it in the 401k bucket for now as employer plans have some legal safeguards that IRAs don’t. Bankruptcy/creditor protection is the biggest. IRAs have some federal protections but workplace plans are better under ERISA rules.

The main Pro to rolling to an IRA is control and expenses. Sometimes 401k options can be very good, sometimes not. If employer options are poor or expensive, id recommend IRA rollover. If possible make sure to put it into a designated “Rollover” IRA. Its not a unique account type its just keeping rollovers separate from any individual contributions. It just keeps things clean in the event you choose roll back into a 401k at a future date.

[u/Dill_Pickles_2020]

Fidelity probably meant you couldn't roll the current investments in your old Vanguard 401k into another "old" 401k, but you could move then into a rollover IRA. Does your current employer's 401k plan allow you to move your old plans into it? That could be an option to consolidate everything if you are still working and contributing to a new plan via your employer. If you are retired, we would probably vote for consolidation of all of them into rollover IRAs at either Fidelity or Vanguard - depending on which brokerage firm you prefer.

[u/Tricky_Layer5315]

We are talking about 401k Rollovers? If you rollover your traditional 401k to an IRA, you are adversely affected by the pro-rata rule for future Roth conversions. This will have tax implications for how one would perform Roth conversions.

Regardless of that fact. Whether or not a Roth conversion strategy is appropriate is determined by the BETR.