Dear Dr. Don,
I rolled over a 401(k) from a former employer back in 2002 when I left for graduate school. I cannot recall how much money was actually rolled over, but the current balance is $5,000. I am certain that balance is far less than the amount that initially went into the account. I have not added any additional funds to it in the past 10 years. In fact, they made it somewhat complicated to change the account name after I was married, so everything with this particular individual retirement account, or IRA, rollover has been at a standstill for many years.
I have wanted to move this money elsewhere, such as into a Roth IRA or even into my current employer’s 401(k). Is that allowed? I am uncertain what the best course of action is and would like to know what you recommend. Please advise.
— Janet Juncture
If you’ve never completed the name change on the account, then you should take on that task again. The reason why I say that is the new account has to have the same name as the old account. Accomplish that task, and the money can be moved to another retirement account quite easily.
Then you have to decide between rolling it into a traditional IRA or a Roth IRA, or investing it in your current company’s 401(k) plan. A Roth IRA allows people to withdraw money in retirement tax-free.
Choosing which course to take depends on the investment options available in your 401(k) plan and the fees and expenses you’ll pay in investing the money in the different types of accounts. If you can find an inexpensive Roth IRA or traditional IRA, I lean toward those options because you have more investment choices. Others lean toward the convenience of having the money incorporated into their company’s 401(k) plan.
Part of the decision about whether to convert the money into a Roth IRA is your current marginal federal income tax bracket and your expected tax bracket in retirement. Another factor is whether or not you can afford to pay the income tax due from money other than the $5,000 account balance. If you can, that helps point to the decision to use the Roth IRA. There’s a host of Roth conversion calculators on the Internet that can help you make your decision, including one on Bankrate.com.
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