Is there a vehicle I can put my lump sum into that won't get hit with taxes?
I invested in a Roth 401(k) at my previous job and left for another employer who does not offer a Roth 401(k) option. I already contributed the max yearly amount of $5,500 into my Roth IRA for the year.
Thank you for your question. You have the option to rollover your old Roth 401(k) into a Roth IRA with no tax implications. Check out this article and chart that shows you what the IRS allows. Rollovers do not count as annual contributions. Consider meeting with a CFP professional before making any changes to make sure you are doing what is right for your situation.
Please consider me a resource should you have any additional questions.
You should be able to rollover your Roth 401(k) to your Roth IRA with no issues. The fact that you contributed to your Roth IRA for 2016 should have no impact on your ability to rollover the funds. You can contact either your former HR department or the custodian of your Roth IRA for help with the process.
Rolling over from a 401(k) to an IRA is almost always the best solution. Most 401(k)s are jam-packed with expensive and restrictive investment options and very few offer the ability to invest in exchange-traded funds (ETFs). Consult a CFP® and ask him/her to help you transact the rollover and reallocate the proceeds using exclusively ETFs within the IRA according to your goals and time horizon.
As other advisors have pointed out, a rollover does not count against your entitlement to contribute for that year.
Withdrawals from IRAs are less complex than from 401(k)s if there are multiple accounts involved, you can get access to direct financial advice within an IRA, you have the whole investing world to pick from in an IRA and the availability of many low-fee investment options (not the case with a 401(k)), 401(k) plan charges will drop away .. there are many advantages.
The main reason you may not want to move from 401(k) to IRA is that 401(k) funds may (depending where you live) offer better creditor protection than an IRA, so if that is a potential issue for you, talk to a professional about the best way to proceed.
Indeed - the above is great advice. I would suggest you also take a look at your investment options and fees before moving your Roth 401(k) into your Roth IRA. You may find that if your old 401(k) plan offers good options and low fees it may make sense to just leave the money there and save yourself the commission or trading costs you may incur in your Roth IRA. If you are one to switch jobs quite a bit, it may become tedious to keep track of all the plans in which case consolidation can be a good thing but for now you are generally not forced to withdraw that money from your 401(k) or move it.
Tom Cymer CFP