Tax Season Scams and Identity Theft Red Flags, Plus a 401(k) and IRA Rollover Lightning Round

Summary

NerdWallet’s Smart Money Podcast
Episode: "Tax Season Scams and Identity Theft Red Flags, Plus a 401(k) and IRA Rollover Lightning Round"
Release Date: January 26, 2026
Hosts: Sean Pyles, CFP® and Elizabeth Ayoola
Guest: Sam Taub, Investing Nerd

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Episode Overview

This episode is a two-part guide tackling timely concerns around tax season scams and identity theft, as well as answering real questions about 401(k) and IRA rollovers. Hosts Sean and Elizabeth start with candid personal stories of getting scammed, and transition into actionable advice for scam prevention and response. In the second half, they team up with Investing Nerd Sam Taub for a rapid-fire Q&A covering the mechanics, pros, and pitfalls of managing multiple retirement accounts, consolidation, the "mega backdoor Roth," and IRA protection rules.

The show’s tone is friendly, non-judgmental, and practical—reassuring listeners that even money experts fall victim to scams and demystifying intimidating retirement account moves.

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Part 1: Tax Season Scams & Identity Theft Red Flags

Personal Scam Stories & Why They're Important

• Elizabeth’s Gift Card Scam (03:32–05:40)

  • Elizabeth recounts being scammed over Christmas when she entered a Visa gift card number on a website that was barely misspelled (one letter off) from the real one.
  • “I felt embarrassed... I felt violated. It was so sad.” – Elizabeth (02:37)
  • Lesson: “This is such a classic move of scammers...if you’re not looking super closely or if your guard is down, you just put in your information and then they have access.” – Sean (04:33)
  • She reports the scam to the FTC and gets help from her boyfriend (the company works on reimbursement).
  • Pew Research: 73% of US adults have experienced some type of online scam. (05:53)

• Sean’s Credit Card Scare (06:30–08:35)

  • Sean describes receiving a legitimate push notification for a $2,400 fraudulent charge, reminding listeners to never follow links in texts or emails—always contact your bank directly.
  • “I went straight to the number on the back of the card. That’s your best source of information.” – Sean (07:19)
  • He resolved it in about 20 minutes and got a replacement card swiftly.
  • Elizabeth tip: Use credit card freeze features if you suspect fraud. (09:05)

Scam Prevention: Strategies & Mindsets

• Pausing & Adding Friction (09:55–10:53)

  • Elizabeth: “There’s so much power in a pause, because if you do it when you’re more attentive and your guard is up, you’re more likely to catch any things that are off.” (09:55)
  • Sean: “Online shopping is designed to be as seamless as possible...if you just insert more friction...that can stop you from spending money you don’t need to spend, and from going to a website that’s not what you think it is.” (10:23)

• Password Hygiene (10:53–12:45)

  • Discuss old-school password notebooks versus modern hassles.
  • “Honestly, using the same password for everything—even if it’s a complex one—is not the best idea.” – Elizabeth (11:08)

Tax Season Scams to Watch (12:45–16:54)

• IRS Imposter Calls & Government Scams

  • Fake “IRS agents” threaten penalties or tax arrest—don’t engage, just hang up.
  • “The IRS is not going to contact you that way. Pretty much no government agency is going to just call you up and ask for your most sensitive personal information.” – Sean (13:44)

• Smishing (SMS Phishing) & “Job” Text Scams

  • “Job” offers seem too good to be true (e.g., $100–200/hr for ‘simple work’).
  • Elizabeth: “Sometimes I reply and tell them they need to go get a job.” (13:59)
  • “The sad thing is, them texting you is their job.” – Sean (14:23)

• Urgency & Isolation Tactics, including “AI voice” Scams

  • Sean: “A theme I see across a lot of scams is urgency.”
  • Tactic: Scammer impersonates a loved one in distress (now sometimes using AI/voice cloning).
  • “Try to reduce the urgency and isolation you might feel.” – Sean (15:53)
  • Tip: Use a safe phrase with loved ones to verify emergencies.

What To Do if You’re Scammed

• Report the site/scam to the Federal Trade Commission (FTC).
• Contact any financial institutions directly via known phone numbers.
• “The most important thing is knowing what to do in case you are scammed.” – Elizabeth (16:37)

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Part 2: 401(k) & IRA Rollover Lightning Round

With Sean, Elizabeth, and Investing Nerd Sam Taub (20:49–41:43)

Question 1: Should I consolidate multiple legacy 401(k)s? (21:00–24:45)

• What is a 401(k) rollover?

  • “A 401k rollover is the process of taking money out of an old 401k and putting it into a 401k at your current job or into an IRA.” – Sam (22:06)
  • Must complete within 60 days to avoid taxes.

• When should you consolidate?

  • Sam: Makes it easier to track accounts, especially since you can’t contribute to a former employer’s plan.
  • “Just consolidating everything together where you can track it easily...that’s a big advantage.” – Sam (23:35)
  • Sean: Do it before you lose track decades later.

• Comparing Target Date Fund Performance

  • Look at fees, whether the fund continues adjusting post-retirement, and convenience (links to NerdWallet resources mentioned).
  • Use mutual fund screeners for performance comparisons.

Question 2: “Mega Backdoor Roth” & After-Tax Conversions (25:42–32:37)

• Listener context: After-tax 401(k) matching and frequent (biweekly) conversions.

• What’s a Mega Backdoor Roth IRA?

  • “A technique where you make after-tax contributions to your 401k and roll over the after-tax balance into a Roth IRA or after-tax 401k.” – Sam (27:09)
  • Useful for high earners maxing out regular 401(k) limits. Not all employers offer this.

• Is frequent conversion worth the hassle?

  • “It does sound like a lot of work to me. But, yeah, tax-free growth is nice.” – Sam (28:32)
  • Needs careful attention to "pro rata" rules: You can’t just move after-tax money, and incorrect handling leads to extra taxes. – Sam & Sean (30:54–32:37)
  • Consult a tax professional before trying this.

Question 3: Consolidating and Managing Multiple IRAs (32:53–36:54)

• Listener has 3 Traditional IRAs (with different providers and management styles) and 1 Roth.

• Is consolidation better?

  • “Consolidating could boost returns a little if it reduces fees...But mainly I’d say that consolidating here would just be a quality-of-life improvement rather than something that’s going to increase gains.” – Sam (34:33)
  • Importance for beneficiaries and organization as you approach retirement.

• Should I use robo, manual, or human portfolio management?

  • Managed accounts relieve investors of rebalancing, but come with extra fees.
  • “I’m 100% a lazy investor, so personally I’m happy to pay a little more in fees now to not have to think about whether my investments are balanced ... but it really comes down to knowing your numbers.” – Sean (36:19)

Question 4: Are rollover IRAs as protected as a 401(k)? (37:00–41:01)

• Listener is worried about bankruptcy protection differences after moving a large 401(k) into an IRA.

• Key Points

  • “401k plans generally have unlimited protection from creditors in the event of bankruptcy...IRAs have limited protection at the federal level, up to a certain amount.” – Sam (39:03)
  • Money rolled over from a 401(k) into an IRA retains the 401(k)’s better bankruptcy protection—so for this type of risk, a rollover does not harm you.
  • Not all IRAs are the same; check both federal and state protections.

• Lesson: Track where your rollover money comes from—different rules may apply to funds from after-tax vs. pre-tax sources, and to protections.

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Practical Tips & Notable Quotes

Scam Prevention and Response

• “Take a pause. There’s so much power in a pause.” – Elizabeth (09:55)
• “Always call the number on the back of your card, not a number from a text or email.” – Sean (07:19)
• “IRS is not going to contact you that way...” – Sean (13:44)
• “A theme I see across a lot of scams is urgency.” – Sean (15:53)
• “Use a safe phrase with loved ones” in emergencies. – Sean (16:05)
• Use password managers or an analog notebook, but keep it safe.
• If scammed, file a report with the FTC: https://reportfraud.ftc.gov/

Retirement Accounts: Rollover Wisdom

• “Consolidating everything together where you can track it easily... is a big advantage.” – Sam (23:35)
• “A major con of managed accounts is that they generally come with an extra fee.” – Sam (36:18)
• “Know your numbers...use a retirement calculator that lets you input the fees on your account.” – Sean (36:19)
• “Money that was rolled over from a 401k into an IRA is treated by bankruptcy courts like it’s still in the 401k.” – Sam (40:12)
• “A big part of effective money management is organization... having money all over the place creates a breeding ground for financial mistakes.” – Elizabeth (41:26)

Final Tips

• Not all employers offer “mega backdoor Roth” options—check your plan.
• Always consult a tax pro before making major moves that could ignite tax or legal issues.
• Consider the complexity, fees, and advantages of managed vs. self-directed accounts.

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Key Timestamps

| Segment | Timestamps | Notes | |----------------------------|------------------|-----------------------------------------| | Personal scam stories | 03:32–08:35 | Elizabeth and Sean’s experiences | | Scam prevention tips | 09:46–16:54 | Pauses, passwords, specific scams | | 401(k) rollovers Q&A | 20:49–24:45 | Consolidation and process | | Target date funds tips | 24:45–25:42 | Comparing, fees, hands-off investing | | Mega Backdoor Roth | 25:42–32:37 | Process, pitfalls, tax rules | | IRA consolidation Q&A | 32:53–36:54 | Pros/cons of different management styles| | IRA protections Q&A | 37:00–41:01 | Bankruptcy rules, rollovers |

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Resource Links

• Report scams: FTC Scam Report Portal
• NerdWallet’s Mutual Fund Calculator: nerdwallet.com
• NerdWallet’s roundup of best IRA accounts
• Episode show notes and additional guides via NerdWallet

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Closing Advice

Even pros get scammed. Take a pause, add “friction” to online financial actions, maintain password hygiene, and check every link or phone number for accuracy. When managing retirement accounts, consolidate for your own sanity and to help those who may need to manage your accounts later. Investigate all options and consult experts for advanced maneuvers like mega backdoor Roths—a little diligence can keep your finances safe and growing.

“A big part of effective money management is organization... having money all over the place creates a breeding ground for financial mistakes.”
— Elizabeth Ayoola (41:26)

Transcript

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[C]

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[B]

Okay, a Mega Backdoor Roth is a super clever way to save a ton of money for retirement, but not everyone has the option to do it.

[C]

Oh well, I definitely want to hear more about that. So luckily we're going to be discussing that later in this episode during our 401k and IRA rollover lightning round.

[B]

Let's get to it. Welcome to NerdWallet's Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

[C]

And I'm Elizabeth Ayola. Now, later in this episode, we're going to be discussing 401ks and IRA rollovers in our Lightning round.

[B]

But first, it's everyone's favorite made up holiday by the Federal Trade Commission Identity Theft Awareness Week. This is one of my favorite topics because we are all susceptible to scams. And also it's the beginning of the year, so we are all due for a refresher about how to stay safe in this precarious scammy world we all live in.

[C]

That's right, Sean. It's also tax time. And don't ask me how I know, but I think scammers love tax time. So as we speak, they are scheming on how to steal our IDs, take our sensitive information and do all the other terrible things. But Sean, I just want to be honest and say I definitely need a refresher on how to protect my information from scammers. Because even though we give all the tips on the Podcast. Unfortunately, I got scammed in Christmas. I got scammed. Yes.

[B]

Oh, Elizabeth, what happened?

[C]

Oh, my gosh. It was heartbreaking, to be honest with you, Shawn. I. Why am I getting all.

[B]

Like, I need to hear all the details. I'm here for you.

[C]

I. I felt so embarrassed. I'm going to tell you first the dominant emotions. I felt embarrassed.

[B]

Yeah.

[C]

I felt violated. I just. It was so sad. But. Okay, let me tell you the story. So here's my quick story time. So my boyfriend gave me a gift card during Christmas time to get a piece of furniture for my reading nook, which I think I've been telling y' all that I wanted to get. And I was excited. And we just finished, like, unwrapping gifts. I mean, me, my son, and him. And I just wasn't really, you know, I was in the Christmas spirit. So I was. My guard was down, essentially, Right. So I was like, okay, let me quickly check. Cause I didn't know initially how much was on the gift card. Let me see how much I have to put towards this new, you know, bean bag or sofa. So I look on the gift card, and actually, I don't think I've gotten a gift card before, because I was like, I think I need to activate it. So I looked for activation number, and then I saw a website. So I missed the website by one letter, but I didn't know at the time. And it takes me to this website. So I enter all my gift card information, trying to see the balance and activate the gift card. And then something told me, like, is this the right website? Because it just looked like one of these kind of. I don't know, just not a very familiar website.

[B]

So, like, did it look sketchy or old or. What was weird to you about it?

[C]

First of all, I had never heard about it because it was a Visa gift card. And I'm like, shouldn't I be able to do this on the Visa website? And then second, it just literally only asked for my information. There was nothing else on there. So I thought it gave me the balance or a balance, but I was like, let me try another one. So I go back and I look at the website again, and I enter it in, and it actually takes me to something that looks like a Visa website. But I thought nothing of it.

[B]

Yeah, a little more legit. Yeah.

[C]

So I just thought, okay, well, great. You know, I'll, you know, spend this money later when I'm ready to start looking for an item from my reading nook. Sean. So this is Christmas Day. However, Two days later, I'm sitting down and I'm like, okay, let me use this gift card. And I input it on a website and it's like, you don't have any money on there? And I'm like, what?

[B]

Oh, no, it's not possible.

[C]

It's not possible because I haven't used it. I Log in, Sean. $0.

[B]

That is such a classic move of scammers is they will take something like an email address from a company or in your case, a website and have one letter or a number off. So if you're not looking super closely or if you're in the holiday spirit and your guard is down, like you said, Elizabeth, you just put in your information and then they have access to, in your case, your gift card balance. It's so frustrating. I'm so sorry.

[C]

Thank you. I was so sad. I just took a moment. I remember just laying in bed and being like, you know, I'm going to go to sleep and try again tomorrow.

[B]

Yeah. I'm so sorry that you felt embarrassed about this, too. That's a really common feeling that people have when they are scammed like, it's your fault, when in fact it's the scammers fault for making a website that is designed to trick you. So please don't beat yourself up too much over that.

[C]

Thank you. And just shout out to my boyfriend who just went to the rescue and called the company. I didn't know I could get reimbursed either because I thought they were like, it's your fault. But they are working on reimbursing me and I did use my own advice and went to the Federal Trade Commission website to report that spammy website and report the scam, so hopefully other people don't fall prey to it.

[B]

Yeah, it is nice that the gift card company was able to reimburse you. I would say that they are partially responsible for seeing whether there are any websites that look a lot like theirs out in the space, because this must happen all the time. And I'm sure they're well aware of this website.

[C]

That's right. That's right. And, you know, I just want to put it out there as well that scams are just so common. I came across a 2025 Pew Research report and it found that 73% of US adults have experienced some type of online scam. And that's across all age groups. So it doesn't matter how young, middle age or old you are in stealing credit and debit card information and charging on those cards was the most common kind of scam that people sometimes experience. And I think it was so. It felt so defeating because I'm someone who usually triple checks a website before I input any information, you know, So I was like, how did I fall for this? Ashawn, did you encounter any scams during the holidays or just even as the year has started?

[B]

Yeah, I was lucky to not experience any scams during the holidays, although I go through these phases where I'll get like half a dozen scam phone calls a day. I'm in one of those right now, and I don't know what's happening, but I just never answer my phone unless I know the number. But I did recently have my credit card information stolen, which was a shock to me. Yeah, I got an email and a push notification from my credit card company. This was last week, actually. I've been saving the story to tell you right here on the podcast. And it said that there was like a $2,400 purchase for tickets on some European slash Russian ticket website. Kind of like Ticketmaster, but for Europe. And I went into sort of panic room mode. I was like, this is the moment I have been training for ever since I started covering this topic at NerdWallet. And I was like, how are they going to exploit me feeling anxious and urgent in this moment? How are they trying to get me to slip up and give them even more of my information? Yeah. So, you know, I had the push notification from my credit card company, and you think that that would be kind of legit you on that and see what is going on in my credit card statement or what's been charged. But I still didn't trust that. I also didn't trust the text message they sent me in addition to the email. So I went straight to the phone number on the back of the card. That's your best source of information. Just call that directly because you want to be the one who's initiating contact with them. And so I call them. I say, hey, I just got an alert about this fraud. I wasn't purchasing this amount of money in tickets for European concerts. And then they went through a few steps to verify my information, including at one point calling me. Oh, wow. Which I thought was a little suspect because again, I want to be the one initiating all communication in this situation. But that's how they were able to still verify that I am who I am. Which is good that they do have these measures, I guess. Although it did make me kind of nervous. And I think at this point, I'm just kind of Paranoid that I'm going to slip up somehow and, like, give them some more information. Right. But when all was said and done, I was able to resolve this within 20 minutes of the time I got that push notification.

[C]

Oh, that's wonderful.

[B]

That was nice just to have it done with, but I didn't do anything, quote unquote, wrong besides use my credit card in the way that all of us do online or maybe at a store. There's no way to really know how they got my number. Fortunately, my credit card company was able to mail me a new card within just a couple days, and I didn't have any other fraudulent purchases. And of course, I was refunded that amount for these tickets. But it just shows that this could happen to anyone at any time. And be as cautious as you can be.

[C]

It really can. And it reminds me of one of my favorite features on some of my credit cards, which is to freeze it. So even if you suspect someone has used a credit card for something fraudulent, you can freeze it so that they can't make any more transactions.

[B]

So, you know, I was thinking about this too, and I was like, what could I have done differently? What might I do differently going forward? And in this case, I might freeze my cards if I'm not actively using them. That's a good tip, Elizabeth. But I don't really see how I can change my behavior. I'm already being really careful with all of this, and if anything, maybe I'll just monitor my statements even more regularly. Although that might be difficult to do because I'm looking at my account balances, like, every day pretty much. So just staying on top of it is what we have to do. Basically.

[C]

That's it. And like you said, it can happen to the best of us, and it's just knowing what to do if it does happen.

[B]

Yeah, yeah. So do you plan to do anything differently after your experience, Elizabeth?

[C]

Oh, my goodness, yes. Now I'm going to be triple, quadruple, quadruple checking things before I click on anything. That's for sure. And I think the most important thing there was just pausing because I did have a little voice in my head that knew that I was kind of all over the place when I was checking. That was like, why don't you just do it later? Right. There's no rush to check it now. You can check it later. So I think there's so much power in a pause, because if you do it when you're more attentive and your guard is up, then you're more likely to catch any things that are off in whatever it is that you're doing.

[B]

Yeah, I really like that. Something that I'm trying to focus on in my spending habits is creating more friction. Because online shopping is designed to be as seamless as possible, so they can get our money as easily as possible. And if you just insert more friction, like delaying looking at a website or making sure that you do have it spelled correctly before you hit go on your address bar, that can create just a little more friction that can stop you from spending money that you don't need to spend, as we are all susceptible to doing. And also in this case, just going to a website that's not what you think it is.

[C]

That's it. I think the second thing that comes to mind for me is updating my password. So this is something that we know is common, but how many of us actually change our passwords as frequently as we should? And I'm not going to.

[B]

My hand is down there. I do not do that nearly as often as I should. And yeah, that's a good idea.

[C]

I always see these funny social media memes about passwords, especially as you get older, how it's so hard to remember them all and you end up locked, logging out, and resetting a million times. So, honestly, using the same password for everything, even if it's a complex one, is not the best idea. But it's just the easy way to remember everything, right?

[B]

Yeah. I think I want to go analog and have my passwords written in a notebook because I always fall into this Internet password doom loop, or if it's an account I haven't logged in in a couple months. I don't know what that password is.

[C]

Who knows?

[B]

Anytime. No. So I'm always resetting it, which I guess is good hygiene, but it drives me a little batty where I'm just trying to log into this thing and then suddenly I'm just like resetting it and getting emails and hoping I get the text message on time and all of this stuff that is just so hectic. And that's why some people, I think, just want to use the same password for everything to keep it simple. But it's also really risky to do that.

[C]

Yeah, but to your point about being analog, it just brought up such a sentimental memory for me. As I was growing up, my mom always had this notebook with all of her passwords in it, and she would always call me to go and get it anytime she needed a password for something. And yesterday I actually needed a password for one of my Accounts because. And because I've taken after her and started writing my passwords in my notebook. I had to go in the garage, look for my notebook. But then I thought, I'm going to stop my rabbit hole really soon. I thought, what if my house burns down and then I lose all my passwords and I still have to re log into everything anyway? I don't know.

[B]

Also, if you are going to keep your passwords written down somewhere physical in the analog world, keep it somewhere safe. Elizabeth, you've talked about how you use your car as your wallet. I'm going to say, don't keep all of your passwords in your car.

[C]

No, none of them are in my car. So I am being safe in that way, I promise.

[B]

Well, let's get to some other tips about how people can keep themselves safe, especially, you know, as tax season is coming on. So, Elizabeth, what else do you think people should be doing besides, you know, not keeping passwords in their car?

[C]

Well, I do think that people should be aware of all of the different scams out there, and especially as tax season is coming. One that comes to mind is the IRS or government imposter scam. For those who don't know what that is, essentially an IRS agent will call you. An IRS agent. I'm putting that in quotes and say maybe that you're owing back taxes or penalties. Now, I have actually experienced this before when I lived in the uk, I got a phone call. It sounded urgent. They told me I owed money. And what did I do? I panicked. My God, how much do I owe? How did this happen? How do I pay it off? They gave me a website that I should go to to pay the balance. And then as I started inputting my information, I saw that they were asking for extremely sensitive information. And that's when the red flags went off. Something's not right here. And luckily, I did not send any money there. And I deleted kind of all that text thread and the website and everything.

[B]

Yeah, the IRS is not going to contact you that way. Pretty much no government agency is going to just call you up and ask for your most sensitive personal information. If that happens, because this is still a really common scam. Just hang up, ignore them, maybe block the number.

[C]

That's right. Another one that comes to mind, Sean, especially as you were talking about getting calls every week. I get calls, texts every week. Smishing is also a common scam people should be aware of. So it's essentially when scammers use text messages to try to get you to click on links or Provide sensitive information. I personally get the job scam text every week. Sometimes I reply them and tell them that they need to go get a job, and other times I report to scam. So.

[B]

Well, the sad thing is that them texting you is their job. Oh, no, People work full time doing this. But yeah, I get those pretty much every week, too. I got one last week and it said I could get 100 to $200 an hour for just doing really simple work, which is a classic hallmark of these job scams, where it's like, you can get a lot, a lot of money, but you actually don't have to put in any effort or have any specific skills for this job. And if you get that, just ignore it. I think we all know about this now.

[C]

Well, what about you, Sean? What scams come to mind? Aside from the ones I've mentioned?

[B]

I think a theme that I see across a lot of scams is urgency. So sometimes you might be getting an email or a call that says, oh, your loved one was in a car accident. And with the advent of AI scams now, it might actually sound like your loved one saying, oh, I was in a car accident or I was arrested, and I need you to send a bunch of money to this place immediately. And if you don't do it, then some horrible thing is going to happen. So just be on the lookout for any sort of urgent call or urgent email that tries to isolate you from, like, your loved ones. Like, if you get a call from a police officer and they say your information has been compromised and you can only talk with me about this because I'm the one on your case, that's a huge red flag. Just try to contact an actual police department directly. Again, be the one initiating contact and just take a deep breath, talk to a loved one, and just try to reduce the urgency and the isolation that you might feel.

[C]

Love those tips. And that actually happened to someone I know. They said a friend called and said that they had a flat tire and they were like, huh, you know? So they immediately went to try to send them money, but then they thought again, actually, let me call back and make sure this is true. And they call back and the friend is like, what money? What flat tire? It was all a scam.

[B]

And they believed that it was their friend. They believed it. You know what your friend's voice sounds like, which is what's so scary, is that these are really believable. One piece of advice that I've heard, to keep yourself safe from these scams where you can't really verify who you're talking with, even if it's your best friend. Allegedly is having a safe phrase that you can just say, okay, if you really have this flat tire, tell me what our safe phrase is so I can verify that this is legit. Which might sound silly if your friend is actually on the side of the road and just needs your help in that moment. But better to do that than give scammers some information and some money.

[C]

We don't want to overwhelm you all. We have shared several tips and hopefully some of them are useful. And I think you know the most important thing is knowing what to do in case you are scammed. The Federal Trade Commission is a good place to start reporting the scam on there like I did. And also they share lots of information on different scams that are out there.

[B]

Okay, well, up next we'll be getting into our 401k and IRA rollover lightning round.

[C]

But before we get into that, of course we want you to send us all of your money questions, listener. Maybe you need more tips on how to protect your identity or you need some tips because tax time is here. Whatever your question, please send it to us on the Nerd hotline. And that's at 901-730-6373. It hasn't changed. That's 901-73063.

[B]

You can also email [e-mail] or leave us a comment on Spotify or on YouTube because we are posting episodes on YouTube now with video so you can see how gorgeous Elizabeth and I are. We're doing a special episode all around Taxes in a few weeks, so please send us your questions about taxes. We also love talking about things like how you can buy a home this year and what credit card might be best for your upcoming summer travel plans. Whatever money question you have, we are here to help you with it.

[C]

Alrighty, let's get to this episode's Money Questions segment. That's up next. Stay with us. This episode is sponsored by Roola.

[B]

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[C]

Us answer this series of listener questions. We are joined once again by investing nerd Sam Taub. Hey Sam.

[A]

Hey Elizabeth. Hey Sean. Always happy to be here.

[C]

All right people, let's rock and roll with question number one, which comes from a listener named Doug by email. Hi Sean, Elizabeth and team. I really enjoy your show and wanted to see if you could relay some advice about two ongoing money questions I have. Like many others, I've had multiple jobs with several different employers. As a result, I have more than three legacy 401k accounts, two of which essentially just sit there that I don't add anything to. Each account has a targeted retirement date and will adjust year over year. 1. Should I roll over everything into one provider, current or past? 2. How can I evaluate the performance of these previous employer accounts against, say, my current 401k employer backed provider to see who is giving me the most for my money, for example T. Rowe Price, Vanguard Fidelity? The listener has another question, but I say we tackle these two first. Now Sam, the crux of the question is about a 401k rollover. Now it's so easy to end up with multiple when you're changing jobs, but let's start with the basics. What's a 401k rollover?

[A]

A 401k rollover is the process of taking money out of an old 401k and putting it into a 401k at your current job or into an IRA into a new retirement account. As long as the money ends up in a tax advantaged retirement account within 60 days, it's not treated as a taxable withdrawal.

[B]

Okay, well let's talk about when it makes sense to consolidate many 401k accounts. What are your thoughts here?

[A]

Sam Personally, I tend to treat 401k rollovers as part of my sort of new job checklist. Whenever I change jobs, I do it as soon as I'm settled into the new place. Cause a new job already means filling out a lot of tax and HR paperwork. So I think you might as well fill out a form to roll over your old 401k while you're at it. A lot of the big custodians like Vanguard or Fidelity let you do this online, but there are still a few that might require you to print out a form and fill it out in pen and like fax it or mail it somewhere. Regardless, it often takes a few days to process a rollover.

[B]

Doing it by mail sounds a little harrowing because you then have a big check with your entire 401k balance that you hope doesn't get lost in the mail. So I'm all about doing this online. Sam, question about why you do it this way as part of your new job checklist, is it just so you have everything consolidated? Like what if you experience what our listener is debating and thinking, oh, maybe my old job actually had a better investment option? How do you think about that?

[A]

Well, the thing that kind of trumps any sort of advantage of the old 401k to me is that you generally can't contribute to a 401k from an old job that you no longer work at. And also it can get kind of annoying to just keep track of a bunch of different logins and a bunch of different accounts. And so just consolidating everything together where you can track it easily and also where you can contribute to it easily. That's a big advantage of doing the rollover right?

[B]

And this is one of those things where you know you're going to want to do it eventually, so you might as well. While your old employer's 401k is still kind of top of mind and you don't Suddenly remember it 30 years down the road and you're like, oh crap, what happened to all that money I was investing when I was in my 20s? Well, Doug also wants to know how to assess the performance of each of these accounts to see which is doing best. It sounds like money in each account is invested in target date funds. So Sam, can you outline the factors that folks should consider as they compare target date funds and decide which is the best for their retirement savings? Then? Also, I want to hear about comparing performance of different target date funds over time, since that's a primary concern for Doug.

[A]

Target date funds can be really convenient because they let you be completely hands off. You don't have to adjust their allocation over time because they do that automatically themselves. But there are a couple things to look out for when you're choosing a target date fund. Ideally, you want one that will keep automatically adjusting itself past your retirement year, but some of them just kind of freeze the allocation when you retire. Also, fees are something to watch out for. Some target date funds are cheaper than others. NerdWallet's article on low cost target date funds, which we can link to in the show notes, is a good resource to check for fees. Now, as far as comparing performance, our article on low cost target date funds at the moment is really just focused on fees and it doesn't show performance over time. But you can use any kind of mutual fund screener like Fidelity or Morningstar to look at performance.

[C]

Let's shimmy on over to part two of Doug's question. And it has to do with the perk their employer offers. Here it goes. After an individual reaches the IRS 401k pre tax maximum for the year, my employer will continue to match the same contributions I make just to an after tax investment same fund, just after taxes. As I understand it, this is perhaps somewhat rare. My question is around what I discovered some colleagues have been doing. They max out their 401k pre tax contributions, then start the after tax matching account. But then twice a month they somehow convert those funds or realize the gains in such a way that they are only paying taxes for the two weeks the contributions are in the after tax account. My understanding is that this is called something like an after tax backdoor ira where the after tax funds, once converted into some sort of IRA and the two weeks worth of taxes are paid, grows tax free. After I heard about this, my head started spinning not only with the implications, but also with how time intensive that must be to individually manage. Have you heard of this? And is it a good idea, too complicated, or worth the trouble?

[B]

All right, it sounds like our listener Doug here is describing the administrative annoyance and overhead involved in a mega backdoor Roth ira. So Sam, can you explain what a mega backdoor Roth IRA is?

[A]

Yeah, as Doug is describing, it's a technique where you make after tax contributions to your 401k and then you roll the after tax balance over into a Roth IRA or an after tax 401k. It's best known as a workaround for people whose incomes are too high to contribute to a Roth IRA directly. Or it can also be useful if you've already maxed out your 401k deferral, but you still want to contribute more to your 401k. Now I usually think of the mega backdoor Roth rollover as a one time maneuver and doing it every two weeks sounds kind of labor intensive to me. But I guess I can see the logic. If you're just rolling over after tax funds that you contributed recently, then the taxes you have to pay are pretty probably minimal. The contributions are already after tax, so they don't generate a tax bill. You would just be paying taxes on the investment gains that those contributions have made in two weeks. And two weeks isn't a very long time in investing terms, so that's probably not going to generate much of a tax bill.

[C]

Well, Sam, now I want to ask you personally, do you think they are worth the headache? In my opinion, yes they are, because I don't want to give Uncle Sam any more of my money.

[A]

It does sound like a lot of work to me. But yeah, tax free growth is nice. And also, Roth IRAs do offer a little more flexibility in terms of withdrawals than traditional accounts do. You can withdraw contributions tax free at any time. You can withdraw up to $10,000 in earnings for a first time home purchase after the account has been funded for at least five years. And the rules around required minimum distributions are much looser once you hit retirement age. But is that worth just the amount of paperwork and time and aggravation that's involved in doing something like this? I don't know. I think that that's going to be a question for every individual listener to answer for themselves.

[C]

Yeah, I think there's something to be said about the frequency of their conversions every two weeks. Sounds very tedious. What are the tax implications of converting these funds every two weeks? What could go wrong?

[A]

Well, there is one rule that we have to talk about here that I kind of only half understand if I'm being honest. So I'm going to tag in Sean Pyles, our cfp. It seems like what Doug is describing could trigger the pro rata rule. From what I gather, if you have a traditional retirement account like 401k or an Iraq that contains a mixture of pre tax and after tax contributions and then you want to roll some of it over into a Roth ira, they don't let you just roll over the after tax portion. So say the account is 50% pre tax contributions and 50% after tax contributions. The IRS says that each rollover amount has to consist of 50, 50 pre and post tax contributions. They make you maintain that ratio with any money that comes out of the account. And if you're rolling over pre tax contributions, then you have to pay income tax on the contributions themselves, not just on the investment earnings. So to really minimize your tax liability doing something like this, you need to make exclusively after tax contributions from the get go, I think. Do I have that right, Sean?

[B]

Yeah, you did a great job explaining what is a really complicated and frustrating part of rollovers. People deal with the pro rata rule all the time with things like IRA rollovers. But we'll keep it focused on the 401ks for now. I'll also add that the pro rata rule applies to earnings on contributions after you've put money into an after tax 401k. So with Doug's coworkers, they're Putting money into this after tax retirement account. Right. If the money they put into that account grows due to investment performance before they convert it, they'll owe taxes on that growth amount due to the pro rata rule, which you touched on briefly earlier. So essentially, you're contributing after tax funds to your 401k with the goal of doing a mega backdoor Roth. The best way to avoid paying taxes on this as a result of the pro rata rule is to convert these funds before they have the opportunity to grow, which I assume is why Doug's co workers are doing this every two weeks. So this can be achieved by converting your contributions to a Roth account as soon as possible. Two weeks is their schedule. They might be able to do it more frequently. But also some employers limit the amount of conversions you can do in a single year. You're really going to want to look at what your own workplace plan offers and even has available. So yeah, this whole thing sounds like kind of a pain, and it really can be. But here's the thing. It can save you a ton in taxes compared with putting money in something like a taxable brokerage account for additional retirement savings after you've maxed out your 401k deferral. So as ever with really complicated financial moves that have tax implications, you're going to want to consult with a tax professional to understand what kind of tax bill you could be on the hook for. And also again, people should know that mega backdoor Roths aren't an option offered by all employers. So if you don't have that at your workplace, then don't even worry about any of this.

[C]

As Doug rightly said, my head is spinning. But thank you both for the explanation. All right, moving along, we have another IRA related question from a second listener via text. Here it goes. Am I the reader today? I'm the reader today.

[B]

You are. You're doing a great job.

[C]

Thank you, thank you. All that reading in elementary school paid off reading from the class. All right. Hello nerds. I have three traditional IRAs and one Roth. My traditional IRAs are with Vanguard, Fidelity and Benjamin Edwards. I have $9,900 in a traditional IRA Vanguard account, $5,000 in a traditional IRA Fidelity account. And finally, my last traditional IRA has $32,000 in it at Benjamin Edwards. And Benjamin Edwards also holds a $12,000 Roth IRA. My question is, should I consolidate all of this money into a single Roth and do I really care which of the three companies holds it using a Robo advisor With Vanguard, I am self managed with Fidelity on purpose and my Benjamin Edwards account is managed by a person. It seems to me that I would probably have better gains by putting all of my money into one spot and I would rather pay tax on my money at today's rate than tomorrow's. I enjoy managing the money in my Fidelity account. Thanks for being nerds. I love your podcasts and I love hearing all of your drama.

[B]

You hear that, Elizabeth? People want to hear all your messiness. And mine and mine.

[A]

There's plenty of it.

[C]

Listen, listen. I hope all my school teachers are listening, telling my business. I made a career out of it and it's good for business. I love it. All right, so we have another consolidation question here, and I like this one because all three accounts are managed in different ways. We'll start by answering the question around whether the listener should consolidate and whether they'll have better gains by consolidating all three.

[A]

Sam well, I guess that consolidating accounts could boost returns a little bit if it reduces fees. The managed account with Benjamin Edwards in particular probably has higher fees than the funds in the self directed Fidelity account. But mainly I'd say that consolidating here would just be a quality of life improvement rather than something that's going to increase gains. It's just kind of annoying, as we talked about before, to have to keep track of a bunch of different logins and add your balances together manually to see how you're doing overall.

[B]

Yeah, simplifying the amount of accounts that you have is really important as you get closer to retirement, because you want to make sure that you know how much money you have. And importantly, you want to make sure that your beneficiaries, your friends and family knows what you have in case they need to manage your money or they are maybe inheriting your money one day.

[C]

It also feels like a diversification of investment strategies is going on here with the listener too. Now, I personally have my money invested in one way. It's self directed. But the listener is using three different strategies, a robo advisor, a portfolio manager, and is also engaging in self directed investing too. This would be overwhelming for me because I like my money invested in a uniform way. What are the pros and cons of the listener's approach?

[A]

Sam the nice thing about a managed account, whether it's human managed or robo advisor managed, is that you don't have to touch it, you don't have to rebalance it. It does all that for you automatically. But as we discussed earlier, target date funds also have that same hands off appeal. And also as we discussed earlier, a major con of managed accounts is that they generally come with an extra fee.

[C]

What are your thoughts?

[B]

Sean okay, I'm 100% a lazy investor, so personally I'm happy to pay a little more in fees now to not have to think about whether my investments are balanced in an appropriate way for my age and my retirement timeline. And maybe one day I'll change my mind or maybe future me will wish that I had a little bit more in my retirement account since I have been paying more in fees. But it really comes down to knowing your numbers. So play with your retirement calculator that lets you input the fees on your account to see how much these fees could detract from your overall retirement savings. Sam, we have a pretty [e-mail] that does this for people, right?

[A]

Yes we do. Let's include a link to the mutual fund calculator in our show notes.

[B]

Done.

[C]

Last question for this lightning round Sam, I have a feeling that you were also good at reading in front of the class in elementary school, so I want you to read the last listener email for us.

[A]

Guilty as charged. Sure. Hi smart money Podcasters. I worked for the Same company for 25 years and during that time I built up a significant balance in my 401k. After moving to a different company a few years ago, I began participating in the new company's 401k plan, but I left my sizable 401k balance with my previous employer. Currently, I'm thinking about transferring my old 401k into a rollover IRA in order to access a broader range of investment options. However, I'm concerned about how the protections offered by an IRA compare to those provided by A 401. I'm aware that assets held in A 401k are protected from bankruptcy claims and liability claims. Despite my research, however, I haven't been able to find clear information on whether rollover IRA assets offer the same level of protection. Although I hope to never face bankruptcy or liability issues, the substantial amount involved makes it an important consideration for me. My primary question is whether assets in a rollover IRA receive similar protections from bankruptcy and liability claims as assets in a 401. Understanding these protections is crucial as I evaluate the best way to manage my retirement savings. Thank you.

[B]

Well read, Sam. Thank you for that. Okay, first, I'd like to Clarify that rollover IRAs aren't a specific type of account. They just refer to the process of moving money from an old employer sponsored plan into an IRA or how the account is funded. So I think the real question is in a bankruptcy or liability situation, does an IRA have the same protections as a 401k?

[A]

So you are correct that rollover IRAs are not a specific type of IRA. But for the purposes of this question, it actually does matter whether an IRA was funded by contributions or whether it was funded by a rollover from a 401k. And here's why. 401k plans generally have unlimited protection from creditors in the event of bankruptcy or some other legal proceeding. IRAs have limited protection at the federal level up to a certain amount of money, which was $1.7 million last year. It's adjusted yearly for inflation. I don't think we have the 2026 number yet. And some states may offer additional protection for IRAs. Now here's where it gets a little complicated, but in a good way. Money that was rolled over from a 401k into an IRA is treated by bankruptcy courts like it's still in the 401k. In other words, it has unlimited protection from creditors. So actually the rollover part of this does matter.

[B]

That is really interesting and it connects to a theme that we've been seeing throughout these listener questions here, which is that the type of retirement account that your rollover money is coming from, whether it's an after tax 401k or a traditional IRA or 401k, can have really significant implications on how that money is treated, including whether you're on the hook for a tax bill or have bankruptcy protections.

[C]

Yeah, and this reminds me about the importance of consulting with actual finance professionals who are up to date with IRS rules and the likes and maybe not professional tiktokers talking about finances. Otherwise people may run and do things that other people are doing like a rollover or a mega backdoor Roth without seeking the right advice and find themselves in an expensive tax related bind with the irs. All right, Sam, Anything else listeners should keep in mind about IRA rollovers?

[A]

Yeah, there's a lot of options for IRAs nowadays and they're not all the same. Nowadays some IRA providers are actually offering a match on rollovers and contributions. It's kind of like the employer match that you get through a 401k. NerdWallet's roundup of the best IRA accounts is a great place to compare your options. And we'll also link to that in the episode description.

[C]

Yeah, I will throw in that a big part of effective money management is organization and sometimes having money all over the place creates a breeding ground for financial mistakes. Ask me how I know it can also lead to missed opportunities to grow your money.

[B]

Very true. All right. Well, Sam, thanks for coming on. Of course.

[A]

Happy to be on.

[B]

That's all we have for this episode. Remember, listener, that we're here to answer your money questions. So turn to the Nerds and call or text us your questions. You can do that by reaching us at 901-730-6373. That's 901730, nerd. You can also email [e-mail] and it.

[C]

Would bring me so much joy if you would set an alarm, put it on your calendar to join us next time to hear about whether the rule of thumb that you can live off of 80% of your annual income in retirement still holds up. Follow Smart Money on your favorite podcast app that includes Spotify, Apple Podcasts and iHeartRadio to automatically download new episodes.

[B]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

[C]

This episode was produced by Tess Viglund. Hilary Georgie helped with editing. Nick Kirsami mixed our audio. And a big thank you to NerdWallet's editors for for all of their help.

[B]

And with that said, until next time, turn to the Nerds.

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