I am 50 and was recently let go by my employer after 30 years. We were acquired a few years back and they decided to close our facility and move it.
I have a large sum of money in my 401k. Looking to roll it over into a Traditional IRA where my Roth is located.
I do not want to keep it in my current 401k and I do not want to roll it over into new 401k.
This is the right move correct?
What Instinctive said. What is the reason you don't want to keep it in the current 401K? Make sure to talk through all your options with the bank/firm that holds the 401K (no need to involve your former company) because they might have self directed brokerage where you can invest it however you want without giving up the advantage of having it in a 401K. And if you get new employment you might be able to roll it into the new 401K.
I can roll it into my new 401k. I'm just not sure I want to.
Currently my 401k is at Empower. Haven't been a fan of theirs. Looking to move to Fidelity where my Roth is. Feel there are more options and the customer support has been better.
What is the "advatage(s)" of keeping it in a 401k over an IRA?
The advantage is maintaining the ability to do backdoor Roth IRA contributions without pro rate taxation (penalties, more or less). It's a method to get extra money into a Roth IRA, which is among the best possible retirement savings vehicles.
If you're under the income limit anyway, it doesn't matter. Beyond that, i can't think of any advantages to keeping it int he old 401(k). But not being able to convert post-tax traditional IRA contribution to Roth without additional tax is a big loss if you'd like to take advantage of that.
I thought the strategy was to convert to a traditional IRA and then slowly move to a Roth while minimizing the tax on the transfer?
That's just a Roth ladder, which many do once they are in early retirement and taking distributions from 401(k) without other income, and you're just making normal contributions to an IRA that is Roth.
Different things:
1. Over the income limit to contribute to a Roth IRA, use an after-tax Traditional IRA contribution and then immediately convert 100% of it to Roth IRA - the "backdoor Roth". This CANNOT be done if you have any funds that are pre-tax in any traditional 401(k) bcause of pro rata conversion rules.
2. Roth laddering is an early retirement strategy to take distributions that keep you low tax and still below the Roth IRA contribution cap, so you can get more money into tax free growth and withdrawal from your traditional retirement accounts.
if you're 50, and you just got let go, and you don't plan to go get a job that's like $140k+ income per year, then you don't care about #1. But if you are going to have a job that pays that much, you may want that tool to remain available to you.