2

Are there reasons for and against doing this?

For

I can only think of having more options for what securities to buy in IRAs since 401k options are limited.

Against

The only reason to do the IRA rollover into 401k is to avoid tax issues with backdoor Roth conversion.

1
  • “More options in an IRA” is a pretty good reason. They’re also usually cheaper.
    – RonJohn
    Commented Feb 11, 2023 at 20:51

3 Answers 3

2

Being able to do a backdoor Roth IRA is a pretty good incentive, even if the only one.

You'll need to check what options your 401k provide and whether these are acceptable. It is true that most 401k plans provided significantly more limited options than IRAs, but not all. Some allow full brokerage access from 401k, and many allow access to low cost funds that you wouldn't have access to on your own due to the high volume of investments available from the plan participants (Vanguard Admiral shares for example).

You may also have additional benefits attached to 401k such as ability to take loans from your plan (depending on your plan, you may be blocked from making contributions until it is repaid). In addition some 401k plans may allow to defer RMDs to until you retire (if you continue working past the age of 73).

Note that Roth IRAs do not have the RMD requirement, while Roth 401k plans do.

1

401(k)s offer stronger protections from bankruptcy. They are shielded by federal law, while IRAs are protected only by some states. 401(k) money rolled into an IRA might be treated somewhere in between the two, but it's unclear. More details here.

0

One possible argument against: I've been told that before I reach the age where 401k minumum-withdrawal rules kick in, I should consider rolling some of the 401k into an IRA to dodge that requirement. I think this applies only to the portion of my 401k which is Roth rather than traditional.

Someone else can probably explain this in more detail than I can recall at this moment.

4
  • I referred to it in my answer, but you got it the other way around. RMD rules are more favorable for 401ks than they are for IRAs.
    – littleadv
    Commented Feb 12, 2023 at 2:18
  • I have been told otherwise. I have only a 401k at this time; the suggestion from financial advisor was to create an IRA account and roll a subset of the 401k over for RMD avoidance purposes. I freely admit I don't recall the details, so I could be wrong. Or they could be, but since this advice comes from the folks handling the 401k and there's no guarantee I'd set up the IRA through them I'd think they would be careful about such suggestions. Lemme see if I can find my notes; that might not happen this week.
    – keshlam
    Commented Feb 12, 2023 at 2:30
  • This may be specific for Roth IRAs, which do not have RMD requirement.
    – littleadv
    Commented Feb 12, 2023 at 2:33
  • I believe it was for Roth IRAs, yes. I've got both Roth and non-Roth in the 401k. It may also only have been suggested for a specific category of investments. Lemme find those notes.
    – keshlam
    Commented Feb 12, 2023 at 2:48

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