ira rollover

Submitted by Ben Lipschitz on Tue, 2013-04-30 20:34

my client is 74, Recently retired, and living in New York City.
he has 1.5 million in his 401(k).
I seem to remember reading that it is better for him to roll over his 401(k) into an IRA.
Is this correct and why?



Submitted by Alan - IRA critic on Tue, 2013-04-30 23:15

  • It is not always better, since in particular circumstances one may be better than the other. NYS fully protects IRAs from creditors, so there is no asset protection advantage of maintaining the 401k.
  • An IRA custodian and certain investments like low cost index funds may have lower expense costs than the plan, but 401k plans vary widely so client would need to determine the plan expenses he has now.
  • An IRA can offer a wider variety of investment options and be easier to manage.
  • An IRA might provide broader beneficiary options and eliminate the beneficiary from having to do a direct rollover from the plan. However, a non spouse beneficiary could do a Roth conversion from the 401k, but not from an inherited IRA.
  • The 20k NYS/NYC annual income exclusion applies to distributions from either type plan.
  • If the 401k holds highly appreciated employer shares, NUA benefits should be explored before rolling the shares over to an IRA or selling them in the plan. Client should get a cost basis quote from the plan and also determine the amount of any after tax contributions made to the plan.
  • If client retired this year, his 2014 RMD can be taken this year or deferred to 4/1 of next year. Any RMD due for the year of an IRA rollover must be distributed before the rollover and not included in the rollover. RMD %s are the same for the 401k or IRA.

Submitted by Ben Lipschitz on Fri, 2013-05-03 19:35

thank youben

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