We have an old 401k that's performing pretty well. You don't really want to touch it, right? Well, is that the best strategy?
Should you consider the rollover? We'll talk to John about how to manage that old 401k, even in good times. Well, hello and welcome in to Mr. Stillman's Opus. Thanks for joining us here on the YouTube channel. If you haven't already, please hit subscribe. And if you're listening to us on podcasts, thanks for being there.
But come over to YouTube as well. Check out John and I on camera. John, always good to see you. How are you? Doing great.
Always a pleasure. Yeah. Today, I want to bring up a question that I know that came to you recently. I actually asked you something similarly because this is actually a really good topic and very timely for both of us. But the thoughts of what to do with an old 401k and especially when the market's doing well, like this year has been a pretty strong market. So I think a lot of people look to their 401k and say, look, the investments are doing well.
Should I touch them? So the question today is along the same lines. You got an old 401k that you're not contributing to anymore. This person was going to roll it over, but it's done really well. So they're trying to decide whether or not they should continue with the rollover process or just hold off until maybe things settle down a little bit.
Yeah. So the reason we've said this plenty of times on this particular YouTube channel, Ben, the reason that you roll money over from your 401k to an IRA when you leave your job is because then you have more flexibility and control over that money. So the performance of that 401k up until that point doesn't matter if we're talking about having flexibility and control moving forward.
A lot of people say, well, it's done really well. Why would I want to change the investments? Well, if your 401k has done well, let's think about what the market has done since 2009.
Okay. 2009 up until the beginning of the pandemic, the market was essentially straight up. Everything made money in that roughly 11 year period. We had a short blip at the beginning of the pandemic. It was a big dip, but it was short. It all came back pretty quickly. By later in 2020, we were back to above where we were at the start of the pandemic, a good 2021, a bad 22, 23 was better, 24 has been good.
Okay. So that's like out of 15 years, we've had one bad year, one partial bad year, a couple of years that were kind of flat and the rest have all been really good years in the market. So it hasn't really mattered what you were invested in, in your 401k. It made money. It would have been really hard for you to have not made money in your 401k over a period like that. And so it's not that the investments in your 401k are some kind of magic. It's not some great investment choice you made.
It's just that everything made money over that period. And so rolling it to an IRA does not matter. It doesn't mean that you have to lose the potential for future gains of that same manner. In fact, when you roll it to an IRA, you could invest if you wanted to in exactly the same funds that you were in, in your 401k. You could probably get a cheaper version of them, but anything that you had in the 401k, you can absolutely access a equal or better version in the IRA. So even if you wanted to keep the same investments, you could, but now you're doing it in an IRA where you have that control. You can change at any minute. You have flexibility, control the fees, all that stuff that you don't have control of in your 401k. So other than a few nuanced situations, and there are some exceptions, some nuances, but 98% of the time, when you leave a job, you want to roll the 401k. You want to take it with you because of those two things, flexibility and control.
Performance does not matter. What we care about is the investments moving forward. And just because it's done well, doesn't mean that your 401k was magic. It just means it was participating in the market and the market did well. Yeah, it's interesting having been in this situation literally within the last couple of weeks when we talked about it, because I think to your point, you look at it, especially if you're not that in tune to investing and you don't know all the options are out there and you don't completely understand the different accounts, but you look at it and you go, well, I've got this Vanguard, I'll just use Vanguard for example, a mutual fund that has been, I look at it, it's a huge, significant chunk of my value there, and it's done so well.
I don't want to shift that over and try to find something else similar to that. But having done it, it is, I mean, once you break it down and look inside those different mutual funds or ETFs, you start seeing a lot of the same top 10 holdings, I think, from one to another, then you can easily kind of replicate. Yeah. Most of your growth funds, whether it's mutual fund or ETF, a lot of them, you're right, are going to have very similar holdings at the top. A lot of Apple, a lot of Amazon, a lot of Google, a lot of Facebook. Yeah. All that stuff. Now, there are certainly funds that go about it a different way and they weight things a little bit differently.
Sure. But at the end of the day, it's still following the overall market. And so again, you could get exactly what you had in the 401k. You can invest in that in the IRA, or you could find a better, more efficient version of it. So not really any downside to doing the same thing in the IRA that you were doing in the 401k. And no tax considerations either, right? When you're just moving over the IRA to a rollover, everything just kind of transfers over. You don't owe anything that year. Cause I think that's another big concern is you see all these gains and you go, oh wait, I don't want to pay any taxes on any of this money right now.
Yeah. So that's a concern for a lot of people is wait a minute, I don't have to pay taxes on this money. You don't pay taxes when you roll it to an IRA. It's just going to stay under the tax deferred umbrella. And you're going to take that money out as a retiree. You're going to take it out as income. You will pay taxes at that point.
You don't pay any taxes when you do the rollover. Now, some people in their 401k, they might have some Roth money. They might have some after-tax dollars. I've seen people with three different types of money in their 401k.
When I say types of money, I mean three different, from a tax treatment standpoint, three types of money. So you have your pre-tax money. That's going to roll to your traditional IRA. No taxes involved. You have your Roth money. That's going to roll to a Roth IRA.
No taxes involved. Any after-tax money that you might have in the 401k, they can just send you a check for that money when you do the rollover. So there'll be some weird things where maybe somebody over contributed to their 401k one year.
And so they couldn't make all of it pre-tax because they were over the max. And so maybe you end up with like $4,000 out of your $250,000. You have $4,000 that's after-tax money. When you do the rollover, that $4,000 is not going to roll to the IRA. They'll send you a check for that $4,000, but even that's not taxable.
Why? Because it was after-tax money. You had already paid taxes on it when you put the money in. So no taxes when you do the rollover, unless you mess something up, which is another reason why maybe you want some guidance and you want to make sure you do your paperwork right. But short of you making a mistake, there's no taxes when you do a rollover.
All right. Is this something somebody can just do on their own? I mean, it's a pretty straightforward process, right?
Or would you recommend sitting with someone like yourself to get help with managing this wealth? It probably depends on how savvy you are on stuff like that. And it probably depends on how difficult your 401k makes it to do the rollover. Like some 401ks, you just log on and you click rollover and it'll let you do it all online right there. And you send it over to the IRA. You tell them the account number and where it needs to go and boom, it's done. Other 401ks will only do it over the phone.
So same thing. You just have to call them and tell them where to send it. And then you have other plans that make it incredibly difficult for you to get your money out. And they give you all this paperwork to do. And if you get anything even slightly wrong on the paperwork, they're going to reject it. And you're going to have to start all over and go get it notarized a second time, all this stuff.
So it really depends on your plan and how savvy you are with that kind of stuff. Yeah. We had that recently with my wife as well from a retirement system that we had to go get notarized. She had to change her name because it had her maiden name in there. So we had to go find the marriage certificate. Had to send them that in. Big process.
So hopefully they get rejected. Now you have me thinking that we might have to go through that process again, Jon, but hopefully not. All right. So important thing to think about, and I know this question comes up quite a bit, what to do with that 401k if you've been successful with it. But as you can see, clearly there are a lot of benefits to going ahead and moving over with that rollover. But if you have questions for Jon, again, you can reach out to 800-545-2991 or go to meetwithjon.com. You can schedule a time, pick out a time on Jon's calendar that works for you. You can have this conversation or anything else that's on your mind about your financial plan or your retirement. Jon, as always, we appreciate your time and thank you for watching. Please hit subscribe on the channel if you haven't already. And we'll talk to you again soon.
