r/investing
Company shut down 401K rollover - How will mix of ROTH/traditional be handled
User asks about mechanics of rolling over a mixed Roth/Traditional 401k to IRAs after company shutdown.
My company shut down and I will need to move my 401K to an IRA.
Company 401K was managed through Schwab and all my personal investment accounts are with Schwab as well (brokerage, Roth IRA, traditional IRA).
The 401K was setup as self directed (PCRA) and is comprised of 60% Roth and 40% traditional with a mix of ETF's, equities, BDC's, REITS and cash.
My question is how will my investments within the 401k be handled in a rollover that is part ROTH/part traditional?
Will I have to liquidate everything to cash in the rollover and then 60% goes to Roth IRA and 40% to traditional IRA and need to reinvest back in?
Depends what they are invested in, but the Traditional 401K will go to your Traditional IRA, and Roth 401k to Roth IRA. 401Ks are set up by the employer regardless of where it is held so the funds may be able to transfer in kind, or they will be sold and transferred as cash. Just call Schwab and start the process and they will let you know.
I rolled a 401k from a previous job into a Schwab account that I already had a Roth with. I called Schwab first and asked for the exact steps/procedure because I was paranoid I’d screw it up. Schwab has excellent customer service, so definitely call them. Can’t remember the exact process, but the old company sent me 2 checks- one for the Roth 401k amount and one for the traditional 401k amount and then I just deposited the Roth check into my Roth and the traditional into a new traditional IRA account so I now have 2 separate IRAs in my Schwab. I know it’s total boomer behavior, but just call Schwab - they’re great lol
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I actually finally did this with my old 401k earlier this year, i'm also all on Schwab. If i remember correctly, you just open a rollover IRA and a Roth IRA. It has to be a "rollover IRA", NOT a traditional IRA. When you go through the online steps, the process will differentiate the balance types (pre-tax or Roth) and ask you specifically for these types of accounts.
You can do in-kind or liquidate and transfer cash. Since it's all under one brokerage and if you aren't holding anything special inside your 401k plan, then you should do in-kind.
Make sure when they do the rollover that the new account is specifically classified as a Rollover IRA and not a general IRA. That way, you will be more likely able to roll it into a future employer's 401k which maybe useful for doing a backdoor Roth.
Call your IRA provider and find out. They'll be better able to tell you than us.
Very likely the traditional 401k will go to traditional IRA and the roth 401k will go to roth IRA. It will probably have to go this way because traditional -> roth means you owe taxes, roth -> traditional isn't something you would ever do since you already paid taxes on it.
It’s been a while since I did it, but I think the last time I switched jobs my contributions were in a Roth but my employers were traditional. I believe when I submitted a form there was just an option for both. So Roth contributions rollover to a Roth IRA and traditional IRA. No need to liquidate, I’m sure this is a common scenario
Dont panic, you should be able to keep your current accounts as is while you figure things out (you will just have to pay the maintenance fee on them, something your employer did before).
So when this happened to me I kept the account for about 6 months while I got a new job. After that I transfered my old accounts into the new employer's 401k plan. The process was pretty smooth. They sent me a check that I then cashed and immediatelly transfered that money into the new 401k. (this was the process some time ago, different brokerages may have different rules so Id call them and find out).
This is a process that happens all the time as people leave/move jobs all the time, so dont panic, just find out the process and it should be pretty smooth. From brokerage's perspective they deal with this every day.
Careful using terms like "cash in". Because it's all on Schwab this might be a little easier, but normally you would open a rollover IRA on Schwab and then initiate a rollover which involves divesting from all investments and doing a transfer of funds from the 401k into the roll over IRA. You need to contact your plan administrators and have them prepare for a rollover.
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