Personal Finance

I'm in my 30s with $2.4 million in my brokerage account but only $120k in my employer 401(k)- what should I do with this account?

Dollar bills and 401k plan
Bartolomiej Pietrzyk / Shutterstock.com
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive
compensation for actions taken through them.

The r/ChubbyFIRE community is full of interesting financial discussions, especially when it comes to retirement accounts. One Reddit user, 35 years old with $2.4 million in taxable investments and $120,000 in a 401(k), posed an important question: What should I do with my 401(k) after retiring early?

This is one question that doesn’t get asked much, but it makes complete sense! Even if you don’t have much money in a 401(k), what do you do with it after you stop working?

I’ll review the options below. Remember, these are just my suggestions, not financial advice.

Key Points from This Article

  • Leveraging even a small 401(k) can make all the difference during retirement, whether you do that through conversions, rollovers, or simply letting it grow.
  • You’ll need to consider income needs, tax considerations, and your financial goals when determining what to do with your 401(k).
  • Also: Take this quiz to see if you’re on track to retire (Sponsored)

The Context

To understand this question, we need to understand the context in which it was asked. The Redditor has a substantial taxable portfolio, which provides flexibility. However, the smaller 401(k) balance—minimally funded to capture a $6,000 annual employer match—raises questions about how to optimize it for retirement.

Should they leave the 401(k) untouched and forget about it? Or convert it into a Roth?

Options for the 401(k)

Here are the potential paths the Redditor (or someone in a similar situation) can take:

1. Leave It as Is

Advantages:

  • Funds remain tax-deferred, allowing them to grow without immediate tax consequences
  • No need to pay conversion taxes
  • Employer-sponsored plans often have robust creditor protections

Potential Downsides:

  • Limited investment options in 401(k) plans
  • Required minimum distributions will kick in at age 73

2. Roll It Over to an IRA

Advantages: 

  • Greater investment flexibility compared to most 401(k) plans
  • Easier to consolidate accounts, simplifying retirement management
  • Can serve as a bridge for Roth conversion

Potential Downsides:

  • Rolling funds into an IRA means losing 401(k)-specific protections

3. Start Roth Conversions

Advantages:

  • Tax-free growth and withdrawals in retirement
  • Eliminates RMD obligations
  • Ideal for early retirees in low-income years before Social Security

Disadvantages

  • Upfront tax liability
  • Requires careful planning to avoid higher tax brackets

Additional Factors to Weigh

Beyond these options, the Redditor should consider a few key elements:

  • Current and Future Tax Brackets: Capital gains can easily push someone into a higher tax bracket, especially on a large, taxable portfolio. You can strategically time Roth conversions to minimize taxes over time.
  • Healthcare Costs: Managing taxable income is essential to qualify for Affordable Care Act subsidies. Converting too much to a Roth early could jeopardize these benefits.
  • Estate Planning Goals: A Roth account better aligns with legacy goals, as heirs can inherit Roth IRAs tax-free.
  • Sequence of Withdrawals: Having a mix of taxable, tax-deferred, and tax-free accounts provides flexibility to optimize withdrawals for tax efficiency.

It’s Your Money, Your Future—Own It (sponsor)

Retirement can be daunting, but it doesn’t need to be.

Imagine having an expert in your corner to help you with your financial goals. Someone to help you determine if you’re ahead, behind, or right on track. With SmartAsset, that’s not just a dream—it’s reality. This free tool connects you with pre-screened financial advisors who work in your best interests. It’s quick, it’s easy, so take the leap today and start planning smarter!

Don’t waste another minute; get started right here and help your retirement dreams become a retirement reality.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.

AI Portfolio

Discover Our Top AI Stocks

Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.

You can follow him investing $500,000 of his own money on our top AI stocks for free.