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December 11, 2013

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I chose to leave all of my 401ks in-place and consolidated my cash-balance pension plans into these. All of my 401k plans seemed to be well run with low cost index funds of the kind that I like. But my main reason is the better protection ERISA-qualified accounts have against creditors. Apparently non-ERISA accounts like IRAs are covered by state law, and where I live (California) the protection is relatively weak for those with substantial retirement assets.
http://www.latimes.com/la-ira-story3,0,6977190.story
So if you live in NY or Texas, doing the IRA conversion is probably best, but if you live in New Mexico or New Hampshire, you may be better off doing what I did.

Freebird --

A few thoughts for you to consider:

1. This is why you have umbrella insurance -- to protect you against lawsuits. Where I live it's $500 a year for $3 million of protection and that's with a teenage driver.

2. It's almost guaranteed that you'll be paying higher investment fees inside a 401k/retirement plan than you would if you had the money yourself in an IRA.

3. I want control over my money. If you're in someone's plan, you control it a bit, but they really "have" it, so you don't have total control. You have to play by their rules, procedures, etc. In an IRA, you can do with it what you like (for the most part.)

FMF - I would just point out that while the greatest threat for a large liability suit is from home and auto, the umbrella policy likely won't cover situations or actions you've taken not involving your home or your covered autos. The bulk of umbrella policies are simply extensions of what the home and auto already cover and don't typically extend beyond that envelope unless you pay extra.

getagrip --

Ok, so you're covered on the greatest/most likely threats. Does that change my conclusions above? It seems to reinforce them...

While I like and use mostly Vanguard, Schwab and Fidelity also have many and varied, good low cost index funds and ETFs that would do the job. There are other brokerage and investment companies with low cost funds, but, in my experience, not with the variety of funds many people need as these three have.

FMF, thanks, point taken, but my megacorp 401ks are pretty competitive in terms of expenses, they highlight this as part of their benefits packages. Clearly not all 401k plans are very good, so you have to look at your own plan's numbers and decide for yourself. I carry umbrella insurance as well.

I think what getagrip alludes to is malpractice insurance, which is probably a factor among those likely to have a high retirement account balance. Expensive but not a place to cut corners when you're thinking of consulting part-time during retirement if your assets are exposed.

Rolling into an IRA is generally a good idea unless you plan to do any Roth IRA conversions. If you plan to do an annual "back door" Roth IRA contribution, I would recommend leaving the 401K alone or rolling it into you new companies plan if possible and it makes sense. Otherwise, it could make it more costly do to further Roth IRA conversions as you would then have to pay tax on the earned income of the IRA you just rolled your 401K into.

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