Comments on: Remember Dividends Before Rolling Over 401Ks

By: CHUBROCK

CHUBROCK — Thu, 15 Feb 2007 18:52:28 +0000

Thanks for the tip. I am about to rollover an old 403(b) into an IRA and that fact never crossed my mind. Just goes to show you that you can’t depend on anyone else to look out for you and your money.

By: Tinyhands

Tinyhands — Wed, 14 Feb 2007 21:18:18 +0000

@Foobarista-
Line 1: “401k into IRA, as I have just recently done”

@Jim-
I’m a little surprised that your plan administrator didn’t go ahead and transfer the dividend as well. I’ve had the same thing happen in taxable accounts and the brokerages just sent me the chump change 2 weeks later (or whenever). Maybe a phone call would have prevented that, as well as saving you the extra few minutes you’ll have to spend on your 1040.

By: Foobarista

Foobarista — Tue, 13 Feb 2007 21:55:53 +0000

OK – I missed the “little over a dollar” part – sorry But you could still do a rollover to an existing T-IRA, even with such a small amount.

Anyway, I still wonder why you didn’t roll it into an IRA versus a 401K? I went ahead and discussed this on my blog…

By: kurt

kurt — Tue, 13 Feb 2007 21:20:13 +0000

I have this issue in my 401k when I sell a fund. If it paid a dividend, I invariably get left with $0.15 of the fund popping into my account when I’m not looking. Kind of weird, but the numbers are so small, I don’t really care.

By: jim

jim — Tue, 13 Feb 2007 19:58:24 +0000

Foobarista: If you were asking me why i couldn’t, it’s because $1.24 is under the threshold of $1,000.

By: Foobarista

Foobarista — Tue, 13 Feb 2007 19:43:24 +0000

Why can’t you roll this new money into a rollover IRA? Sure, it may be tiny for now, but you can Roth-ize it later, or roll it into a traditional IRA into which your 401K will eventually go when you change jobs.

By: Tinyhands

Tinyhands — Tue, 13 Feb 2007 17:17:13 +0000

@Martin-
You cannot roll your former 401k into a Roth IRA without paying penalties and taxes. This is because Roth IRAs are only for post-tax money. You did not pay taxes on the money in your 401k, so you would have to do that now. I believe that will cost you 10% PLUS your current tax rate. You can roll it into a Traditional IRA (also called a Rollover IRA), which is for pre-tax monies, without penalty or taxes. Putting the money into an IRA does not affect your 2006/2007 IRA contribution limits though.

Your specific tax circumstances may mean that it makes sense to recharacterize that Traditional/Rollover IRA into a Roth (if you have a lot of unused deductions or a prior-year net operating loss which you previously elected to carry forward, as two examples) but that is something you should probably plan ahead of time.

Otherwise Jim’s assessment of reasoning is correct. If your current 401k plan has decent choices, it’s probably better to put that little bit into the current plan. If you’re not wild about the choices, or if you think you can balance out the 401k with a more diversified election, then go with the IRA.

By: jim

jim — Tue, 13 Feb 2007 16:49:43 +0000

Are you happy with your former employer’s 401K options? if so, you don’t have to roll it over.

What about your new job’s options? If you like those better, roll it into your new company’s 401K.

If you like neither, consider rolling it over into a Traditional IRA somewhere but you should know that $4k is a small balance, by brokerage standards, and so you’ll probably have to pay an annual fee for having a low balance – which can eat into your earnings.

Good luck!

By: Martin

Martin — Tue, 13 Feb 2007 16:26:24 +0000

Any other good tips on rolling over a 401K? I just started a new job and have about $4000 in my last company’s 401K. I’m not quite sure if I want to roll into my new company’s 401K or just into a Traditional IRA. I guess I could roll into a Roth, but I don’t quite have the money to pay the taxes. The Traditional or Roth sounds good to me as I like to watch it, and I like the options I will get vs. my company’s limited 401K.

Let me know what you think. Thanks.