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How best to rollover 401k to IRA?

Today, 03:06 PM

? #1

Dryer sheet wannabe

Join Date: Sep 2012

Posts: 11

How best to rollover 401k to IRA?

As I plan for retirement I am interested in input on how best to reinvest the money (approx $450k) that I will rollover from my company 401k to my Schwab account.

What are your thoughts on the period of time one should take to dollar cost average the money back into the market. I plan to use an all ETF portfolio 70/30 - stocks/bonds.

Thanks.

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Today, 04:29 PM

? #8

Recycles dryer sheets

Join Date: Sep 2006

Location: clearwater

Posts: 97

For simplicity sake when I did mine, I think I had to consolidate the shares so that it could be done in one transfer. ( moved everything to money market) and then rolled it into a money market at Vanguard ( direct transfer) from there I bought what I wanted when I wanted. When you are doing a rollover the earned income rule does not come into play, that would involve new money.

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Today, 04:29 PM

? #9

Thinks s/he gets paid by the post

Join Date: Oct 2002

Location: Chattanooga

Posts: 1,091

Mine too but I would strongly advise trustee to trustee. When not a trustee to trustee transfer, I have seen withholding taken out for tax purposes and then the same amount not being put into the IRA. This creates a painful tax event. As fas as DCAing into an IRA, you must have earned income, just in case you might not be aware.

Maybe I wasn't clear and a better way to put it, once a traditional IRA is setup, any monies going into it, must be from qualified compensation. The rules for rollovers and other scenarios should be researched in depth before pulling the trigger. Personally I am not upon all of the rules as there are many and many money managers and tax pros aren't too conversant either,

From IRS Pub 590

Table 1-1. Compensation for Purposes of an IRA

Includes ... Does not include ... earnings and profits from
property. wages, salaries, etc.interest and
dividend income. commissions.pension or annuity
income. self-employment income.deferred compensation.alimony and separate maintenance.income from certain
partnerships. nontaxable combat pay.any amounts you exclude
from income.

What Is Not Compensation?

Compensation does not include any of the following items.

Earnings and profits from property, such as rental income, interest income, and dividend income.
Pension or annuity income.
Deferred compensation received (compensation payments postponed from a past year).
Income from a partnership for which you do not provide services that are a material income-producing factor.
Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.
Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

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Today, 04:36 PM

? #10

Full time employment: Posting here.

Join Date: Feb 2011

Posts: 712

Originally Posted by frayne

Maybe I wasn't clear, once traditional IRA is setup, any monies going into it, must be from earned income.

But not in the case of a 401(k) to rollover IRA, I think. It was earned income that went into the 401 to begin with. I favor rothlev's approach: do the transfer and then worry about how and when to deploy.

Apart from that, it wasn't said how the 401(k) funds are currently invested; in my case, a 403(b)-to-IRA rollover was simple as I just left the same allocation. It was kind of like moving socks from one drawer to another.

Regarding the original question: it seems to me to be a little trickier to dollar cost average into ETFs than into mutual funds but I think a 12-24 month period would be reasonable. But that is not necessarily what I would do, since I did the dollar cost averaging with the original contributions (however, I am not an expert).

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Retired October 2012.

Today, 06:26 PM

? #12

Dryer sheet wannabe

Join Date: Sep 2012

Posts: 11

When you say 401k to Schwab account, I assume that you mean 401k to Schwab IRA account so you will not pay taxes on the $450k. I did a similar 401k rollover in early 2012. My 401k issued a check to Vanguard (Schwab in your case) FBO (for the benefit of) [my name] and mailed it to me. I photocopied it and sent it to Vanguard with the requisite paperwork for them to deposit it into my IRA. A direct transfer from your 401k provider to Schwab is preferable IMO but a check can work. the thing you want to make sure of is that the check is not made out to you.

I terms of investing it - if it was 70/30 in the 401k and you move it 70/30 into similar funds it shouldn't make much difference. If it was in cash you may want to value average in over a set period of time. Value averaging is a bit different than dollar cost averaging and results in investing more when prices are relatively low and less when prices are relatively high.

Yes it is a Schwab IRA, guess that would have helped a few other respondents...

My 401k doesn't have the breadth of choice as the IRA, and certainly not Schwab ETF's so my new investments will not be the same as the ones in the 401k.

Still interested in any other thoughts on timing on putting the money back to work.

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Today, 07:33 PM

? #15

Full time employment: Posting here.

Join Date: Feb 2011

Posts: 712

Originally Posted by Newventurer

I had half of it in a 2025 target fund and the rest in a money market so my AA will be completely different and better diversified. Thanks for your feedback.

Don't make it more complex than it needs to be. You've got a pile of money you want to move from point A to point B.

Figure out where you want things to be at point B. More than just "better diversified". You can probably just send the money en masse to point B, ask the 401k administrator. Move the money and put it to work as you choose, but you still want to figure out what your allocation will be.

Ideally, it will be sitting there for a long time so trying to be clever about buying may not matter.

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Retired October 2012.

Today, 07:41 PM

? #16

Dryer sheet wannabe

Join Date: Sep 2012

Posts: 11

Don't make it more complex than it needs to be. You've got a pile of money you want to move from point A to point B.

Ideally, it will be sitting there for a long time so trying to be clever about buying may not matter.

Here's what I am looking at:

schb - 35% US Broad Market
schf - 20% International
sche - 5% Emerging Markets
schz - 15% US Aggregate Bond
schp -15% US TIPS
schh - 5% US REIT
dbc - 5% Commodities

"so trying to be clever about buying may not matter"

Point taken