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  • Late Start Earner

Timing the High: My first Roth 401k to Roth IRA Direct Rollover

I noticed that the market was at an all-time high today, and decided this could be a good time as any to sell and lock in profits. At the same time, I know from reading the sound investing advice of Bogleheads that one should not try and time the market, because ”time in the market beats timing the market,” and that we have experienced some substantial volatility in the stock markets recently even while it continues to climb up and to the right.

I still plan to continue investing in the market aggressively, and take advantage of the current stock market high by feeling comfortable taking out part of my money temporarily.

I have several former employer retirement accounts. Luckily, most are with Fidelity, which makes it easy to reference all at once with one website/app login. However, another former employer retirement account is on a separate service that has an archaic interface and has a hard time reconnecting to my Mint account, sometimes for over a month at a time. It just so happens that nearly all of my money in this account is in a Roth 401k account, which means after-tax money was used to fund the account, and that I can kick off a direct rollover of these funds into my Roth IRA with Vanguard without paying any taxes so long as the transfer is complete within 60 days and since it is a Roth (after-tax) to Roth (after-tax) direct rollover.

After verifying rollover information on the Vanguard website of my personal Roth IRA account and cross-checking it with the steps and information found on this former employer’s website, I called my former employer’s retirement company. After passing the verification steps on the phone, the actual direct rollover process was pretty simple. The customer care representative verified the funds I had available in my pre-tax (about $60) and Roth 401k (<$100K), and I asked to do a direct rollover of the Roth 401k part only into my Vanguard Roth IRA account. I was asked to provide the account number of my Vanguard Roth IRA account, and then the first step of the process was complete. I will receive a check in snail mail within a couple of weeks which I will then endorse and deposit directly into my Vanguard Roth IRA account. As long as the process is complete within 60 days, I will not owe any taxes since it is a direct rollover of after-tax dollars from my Roth 401k account to another after-tax account, my Roth IRA.

It is not typical to have the majority of any employer-sponsored retirement account be in a Roth 401k account, since all employer matches are pre-tax by default. However, when I was in the middle of a job change a few years back, I had googled what to do when you experience a drop in income for a year, and realized I could pay my taxes at a lower annual income that year and convert all of the pre-tax money within this account into the Roth 401k by paying income taxes on the pre-tax gains at the time of the conversion.

I’m really excited to have these funds inside my Roth IRA account.

  • it simplifies the number of retirement accounts to keep track of. Once this former employer’s account is fully closed out, I’ll only need to keep track of Vanguard and Fidelity.

  • My funds will be more easily refreshed and tracked by Mint.

  • The full amount of the Roth 401k direct rollover will be considered a contribution to the Roth IRA, and 5 years later I will be able to access the full contribution amount tax and penalty-free should I need to as a last resort in the case of an emergency.

  • More funds invested at Vanguard help me work towards their higher investor tiers

I’ll write another update once the direct rollover is complete!!


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