Roth 401k rollover question

General Questions
#1

This is a general question; I am not seeking financial advice.

I worked for a company for about a year that offered a Roth 401k plan. During that time I saved about $6000; according to my online statement that includes about $1500 “Roth amount available” and $4500 “non-Roth amount available.” My preference would not be to leave that $6000 with my previous employer, since it’s such a small amount.

My new employer has a very generous but traditional 401k, into which I’ve rolled in my previous 401k balances except for this $6000.

I know my options include:
- leave it where it is. Kind of annoying to have this small account sitting out there.
- set up a Roth IRA and roll it over. I guess this would at least allow me to make additional contributions, right?
- take a lump sum distribution, with applicable penalties. Not really under consideration.

Am I missing anything? Other than lobbying my current employer to add a Roth account to their plan?

#2

What’s wrong with option 2? I have a 401k at work and an IRA and at the end of every year I roll my 401k into my IRA since I have a lot more investment options with my IRA than my 401k.

#3

I’m not sure why you’d lobby your employer to create a Roth plan. As Dolphinboy says, rolling your account with your previous employer over into a personal Roth IRA would give you much broader investment options, and if you wanted to make post-tax contributions to the rollover account, you could.

Is there some reason you prefer paying taxes now (Roth) rather than upon withdrawal (traditional 401(k))? If so, why do you care whether the Roth account is through your employer?

#4

My main reason would just be laziness - it’s easier to keep track of one account than two. Setting up a Roth IRA sounds like a hassle. I’m sure it’s less of a hassle then I am imagining it to be.

Since I already have both a 401k and Health Savings Account managed by the same financial services provider, I’m sure they will be more than happy to let me set up a Roth IRA, so I guess that’s the most sensible approach.

#5

You should roll it into your own personal rollover IRAs at a self-directed custodian like Merrill Edge, TD Ameritrade, Charles Schwabb, etc. Be careful what you roll it into, your OP makes it sound like you have both a regular 401-K and a roth 401-K. It might be that your personal contributions went into a Roth 401-K and your company match went into a regular 401-K, that is common. If so, you need to roll the Roth portion into a roth IRA, and the regular portion into a traditional IRA, ie set up two separate accounts. That can be done at any of the custodians above.

The reason to roll into an IRA is fees. Most 401-Ks have garbage funds with high fees, if you put it in your own IRA you can buy Vanguard ETFs or similar with fees of 0.10% or less, vs often 1-2% fees for the funds in many 401-Ks.

#6

I would roll it into an IRA (actually, more like 2, per jacobsta’s observation), AND I’d lobby my company for a Roth option in the 401k for contributions going forward.