Rolling Over into a Self-Directed 401K advice.

[sill beer]

Hi,

I am starting a new job next week and am trying to figure out where to put my current 401K. I am 25 years old and have about $16,000 in my current 401K. I have about $26,000 left in student loan/credit card debt. Currently i am almost living paycheck to paycheck, with only $1,500 in savings. My debt is managable, but with the bump in pay from switching jobs i should be in a much better position.

I was a finance major in college, work for an investment managemant firm, and just took the level 3 CFA. I have been following the market since i graduated college in 2007, and always wanted to start my own portfolio, but never had the extra cash. It seems like a self-directed 401K plan would be perfect for me.

I would like a plan with the most freedom, meaning fewest limits on the amount of trades that can be made per month, and lowest fees. I plan to passively manage my account, maybe 5 trades per month, but would like the freedom to trade more if i see fit.

Does anyone have any suggestions/experience with self-directed 401K plans and the brokerage firms that offer them? Will the fees be too great that it would be more beneficial to just go with a Roth IRA?

Any advice would be much appreciated.

[jIM_Ohio]

I looked into my self directed brokerage option.

The fees were not worth it for me. Fees weren't high, but were high enough to go with the free mutual funds in 401k and then once I retire or leave company, I will roll that into my normal allocation in an IRA.

IMO it is better to be saving 6% in a moderate mutual fund than "waiting" for cash to build up in a 401k brokerage account in your situation. In general if you have less than 10k per trade to invest or spend, a mutual fund will be MUCH cheaper.

[jefffou]

Hi,

I am starting a new job next week and am trying to figure out where to put my current 401K. I am 25 years old and have about $16,000 in my current 401K. I have about $26,000 left in student loan/credit card debt. Currently i am almost living paycheck to paycheck, with only $1,500 in savings. My debt is managable, but with the bump in pay from switching jobs i should be in a much better position.

I was a finance major in college, work for an investment managemant firm, and just took the level 3 CFA. I have been following the market since i graduated college in 2007, and always wanted to start my own portfolio, but never had the extra cash. It seems like a self-directed 401K plan would be perfect for me.

I would like a plan with the most freedom, meaning fewest limits on the amount of trades that can be made per month, and lowest fees. I plan to passively manage my account, maybe 5 trades per month, but would like the freedom to trade more if i see fit.

Does anyone have any suggestions/experience with self-directed 401K plans and the brokerage firms that offer them? Will the fees be too great that it would be more beneficial to just go with a Roth IRA?

Any advice would be much appreciated.

It sounds like you are getting a little bit confused on what is allowed here.

First, you may (if the plan permits) leave the funds in the old 401k plan. This is generally not the first choice. MOST plans won't allow for much in the way of trading and freedom, although a few do.

Second, you may move your old 401k plan funds to your new employer's plan (also, if permitted by the new employer's plan rules.) Again, don't expect a lot in the way of freedom. This "freedom" you may or may not have is totally dependent on the plan language.

Finally, and what Jim recommends here is to move the funds from your current employer to a "self-directed" IRA. Here you will find freedom to do pretty much whatever you want to do. Some limitations do exist, but it doesn't sound from your post that you will ever be restricted by them.

A Roth IRA might be a fine choice for you, but that option exists only after you have paid tax on the un-taxed funds that exist now in your current employer's plan. One would move the funds from the 401k to an IRA. Then one would convert the funds from the newly funded IRA to a Roth IRA. You would pay Federal and State income tax on the amount of funds converted.

The term "self-directed" is a loose, non-legal term. It essentially refers to the account-owner's ability to make investment choices on their account. I suppose a 401k could be "self-directed" in this sense, but only at the allowance of the plan limits. In other words, the 401k plan terms calls the shots on what you can do or can't do. Of course these restrictions are in addition to IRS restrictions.

[TheStreetCeo]

The easy answer is turn it over to a roth IRA. The short answer is talk to your advisor to get a better understanding of the tax implications and costs of having your own 401k.

[maat55]

Make sure every I is dotted and T crossed when making the rollover. I recently rolled an old traditional into an roth and had to spend two sessions on the phone getting it properly placed.

They had to review my phone call from a month back to find their misstake.Another problem we had was getting an guaranteed signiture. We had to open a bank account with a bank that did them.