I have two 401k's that used to be in different holding companies. Companies have sold, and now have two old accounts and a new one in the same company, fidelity. I'd like to move one or possible two of these to different holders, but am concerned with the market in general, possible fees etc... Edward Jones is pushing Roth IRA, but that requires cashing out and paying taxes, if not penalties, not to mention, I'd likely end up in a higher tax bracket. What to do?

Some options:

1. Leave the 401(k) accounts where they are.
2. Roll them to a roll-over IRA account. Advantages: more options for what you can invest in, and if it's with a company where you already have an account it reduces the amount of paperwork you have to kep up with. Such a rollover is free, and if handled properly (i.e. via a direct rollover) results in no taxes or penalties to you.
3. Roll to a Roth IRA. This is the option that requires you to pay income taxes on the amount. The advantage is that after you pay taxes your future earnings and withdrawals are tax free. If you do this in 2010, you have two years to pay the taxes. But remember that you must pay your income taxes with money that comes from a source other than the 401(k) or Roth IRA itself - otherwise if you take some cash out to pay taxes it's considered a withdrawal and you get socked with penalties.

My advice is go with (2), and maybe (3) IF you have adequate cash available to pay the taxes. But even then - it's not clear that you'll come out ahead in making the conversion to the Roth IRA. Do it only if you are fairly confident that your tax bracket will be higher when you reach retirement than it is now.

As for going with Edward Jones - I don't really know what they offer so can't commnet on that, but I can tell you that Fidelity has excellent choices of low cost no-load funds, and it would be a piece of cake to simply roll your existing 401(k)'s to an IRA at Fidelity. That's actually what I did when I left my previous job - my 401(k) was adminsitererd by Fidelity and I rolled to an IRA still at Fidelity.

Thanks ebaines!
One more question. If I roll to an IRA, can I add money to the new IRA. That is one definite disadvantage to having stale 401k is I cannot contribute to help it grow, or offset the losses.

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Originally Posted by wewmt

Thanks ebaines!
One more question. If I roll to an IRA, can I add money to the new IRA. That is one definite disadvantage to having stale 401k is I cannot contribute to help it grow, or offset the losses.

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Yes you can add to it. However, you may want to consider setting up a second IRA account for your future IRA contributions - you could set that second IRA up as a Roth account (if you qualify), so that you'd be building a retirement account that wll be tax free. There's no problem with having multiple account - even at the same institution.

I agree with option 2 above. Roll over the funds to an IRA account to which you can add future funds. I don't know about Edward Jones either, but I do know that Fidelity has been good for our company for a number of years and our 401K is doing really well.

I also agree with the poster above that a 2nd Roth account is a good option it does not hurt to have two... one taxable income.. one non taxable income.

Shirley

Thanks for the help guys!
I like the ideas and will probably roll one to an IRA, leave the other stale, let my new 401 start from scratch, and start a Roth with some of my savings.

Originally I was thinking about cashing them and paying off my house, but when I put pen to paper, figured out that I can pay off the house in 5 years, not lose all that money to penalties and taxes, and if I'm lucky, the 401k's won't crash as they have twice in the past 10 years.

I will however, share some insight as to why I don't like everything in one institution. Back in the late 90's I had a 401k with an institution (I think it was Mutual Benefit Life in the East) that went from AAA+++ to AAA++ and froze all assets for over 6 years. During that time, I accrued no interest and at one point was offered only .25 cents on the dollar. I finally got my original balance back, but it was questionable for a long time, that would happen.

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Originally Posted by wewmt

I will however, share some insight as to why I don't like everything in one institution. Back in the late 90's I had a 401k with an institution (I think it was Mutual Benefit Life in the East) that went from AAA+++ to AAA++ and froze all assets for over 6 years. During that time, I accrued no interest and at one point was offered only .25 cents on the dollar. I finally got my original balance back, but it was questionable for a long time, that would happen.

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I'm curious as to what your investement was actually in at the time you had this problem. I bet you were invested in Mutual Benefit Life itself (heaven forbid if it was an annuity) - that's a problem with using in-house investment vehicles through insurance companies. But if you set up accounts at Vanguard, Fidelity, Schwab, T Rowe Price, etc and invest in mutual funds, your risk is limited to the performance of that fund, NOT the investment house that holds your account. Which is why it's always a good idea to diversify across investements - and an advantage of any of the houses I named is that you can invest across many different mutual fund companies, for free.

This reply demonstrates my lack of financial knowledge.

I was young and don't remember the details, but it was a 401k and I had mixed my funds with high and low risk options.