Is there any reason to move money from 401k?

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FRx
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Is there any reason to move money from 401k?

Post by FRx »

I changed jobs beginning of the year and I checked with my previous employer and they allow me to leave my ~200k with them. I have about 100k in a 401k and another 100k in a different DCP. The funds I have invested are all low cost Vanguard index funds and match my AA well. I'm 36 and will work another 5 years with this employer and then probably go into some sort of semi-retirement thing where I just pick up work a few months a year. So am I missing anything as far as whether I should move my money from my previous employer to this new employer vs move it to a brokerage account? My gross income is in the 200k range if that matters.
IPer
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Re: Is there any reason to move money from 401k?

Post by IPer »

Just make sure the Expense Ratios of your Vanguard holdings don't have additional admin fees or ratios attached to them. Many charge an additional
.25-.75% which adds up over time. If you look at it and find there are those additions you should be able to roll it over directly to Vanguard and
mitigate those fees.
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BeneIRA
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Re: Is there any reason to move money from 401k?

Post by BeneIRA »

Being in the industry, the most common reason people move their old 401k to a new employer is so they can take a loan from it. It doesn't seem like you are planning on doing that, which is a good thing, so there goes that reason. The only other compelling reason would be the fees being different. If your new employer has lower fees than your old employer, then it makes sense to move it to the new employer, but again, in your case, that doesn't seem like an issue. The only other reason would be to condense your accounts and simplify everything, but if you don't care about that, then I would say keep the old 401k where it is, although rolling it out of there and into an IRA with Vanguard would probably be the best of all worlds since most 401k's have administration fees.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

The 2 accounts are being held at Charles Schwab and they have high fees, very poor customer service, their website conveniently hide account fees. Even my statements don't show account fees. So perhaps moving it to a Vanguard IRA isn't a bad idea. That's a simple roll-over correct? There should be no taxes doing that.
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Re: Is there any reason to move money from 401k?

Post by bhsince87 »

FRx wrote:The 2 accounts are being held at Charles Schwab and they have high fees, very poor customer service, their website conveniently hide account fees. Even my statements don't show account fees. So perhaps moving it to a Vanguard IRA isn't a bad idea. That's a simple roll-over correct? There should be no taxes doing that.
Yep, no taxes. Give them a call. It's easy.
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BeneIRA
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Re: Is there any reason to move money from 401k?

Post by BeneIRA »

Assuming you have a Traditional 401k and not a Roth 401k, it is extremely simple. You can either do an institution to institution transfer, or have Charles Schwab mail the check directly to you. Have them make it payable to VFTC (Vanguard Fiduciary Trust Company) FBO (For the benefit of) you, then send it to Vanguard. Or you can call Vanguard and they'll even call over to Schwab with you. If you want to keep it simple, do that and just have them send it directly to Vanguard. You'll be getting all of the admiral shares of everything anyway and so your fees will be drastically reduced.
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Re: Is there any reason to move money from 401k?

Post by Lynette »

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Last edited by Lynette on Wed Dec 06, 2017 9:07 am, edited 1 time in total.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

Roll your 401k over to a Vanguard IRA like described in an earier post. Even if you did like your old 401k institution, you never know when it will be changed. And when eventually you leave your current employer, you will roll that 401k over into the same IRA, keeping your finances simple and under your own control. A 401K often has fees hidden somewhere- the employer has costs to administer the plan, and has incentive to pass these costs on to the plan. And I have had reason to directly compare Vanguard funds to Schwab funds, and as a rule, Vanguard has better low fee choices. Hope this helps you.
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retiredjg
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Re: Is there any reason to move money from 401k?

Post by retiredjg »

FRx wrote:The 2 accounts are being held at Charles Schwab and they have high fees, very poor customer service, their website conveniently hide account fees. Even my statements don't show account fees. So perhaps moving it to a Vanguard IRA isn't a bad idea. That's a simple roll-over correct? There should be no taxes doing that.
This is likely a good idea with one exception. If you need to use the back door to contribute to Roth IRA, that IRA is going to get in the way.

You have not mentioned a new 401k. Is there one and are the choices good? If yes, you might want to roll the old plans there.

You mentioned "100k in a different DCP". Whether you can roll it or not depends on what type of plan this is. Do you know?
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Re: Is there any reason to move money from 401k?

Post by lthenderson »

The biggest disadvantage to leaving it assuming the fees aren't high, is that you can't do anything to it. Should you need to sell or move some to re-balance your portfolio, you are out of luck. Once I discovered Bogleheads and Vanguard, it became a no brainer to roll it over to my Vanguard account where the options of what I can do with it are plentiful!
tecmage
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Re: Is there any reason to move money from 401k?

Post by tecmage »

lthenderson wrote:The biggest disadvantage to leaving it assuming the fees aren't high, is that you can't do anything to it. Should you need to sell or move some to re-balance your portfolio, you are out of luck. Once I discovered Bogleheads and Vanguard, it became a no brainer to roll it over to my Vanguard account where the options of what I can do with it are plentiful!
That might depend on the plan, my wife can't add any more money to her old 401k but we do re-balance and move assets around. My former coworker does the same with the 401k I have at my current job. My understanding was fees and state protections for retirement accounts for the reasons for and against moving 401k money to an IRA.
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Re: Is there any reason to move money from 401k?

Post by JW-Retired »

FRx wrote: So am I missing anything as far as whether I should move my money from my previous employer to this new employer vs move it to a brokerage account? My gross income is in the 200k range if that matters.
Your income matters. One good reason to leave it in a 401k is a gross income of $200k is way over the limit of what permits a single person to make direct Roth IRA contributions. If you don't have any money in traditional, Rollover, SEP, or SIMPLE IRAs, you can get around this limitation using a "backdoor " Roth. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Many folks roll their IRAs into their 401k in order to allow this sort of Roth contribution.
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beyou
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Re: Is there any reason to move money from 401k?

Post by beyou »

The other possible reason besides loans as stated above, is asset protection.
401k can be better protected than IRA in some states.

The pros and cons are spelled out here :

http://www.forbes.com/sites/financialfi ... to-an-ira/

Given your comment about keeping money in the 401k past 70, seems like another
reason to consider the 401k.

Personally I have never left a 401k behind with a prior employer, finding lower
costs and always more flexibility when under my own control as to choice of investments.
If I had a well above average 401k plan in terms of fees and choices, I might consider
keeping it for the asset protection, loan and ability to delay RMD. I have a good plan
now and even considered moving an old IRA Rollover (money from prior 401ks) into
my current 401k since it's the only low cost 401k I ever had. Did not do so mostly
due to the administrative hassle involved in moving TO a 401k. Glad I did
not since I am having website outage issues with my 401k provider now.
Never had such issues with any major online business before, so now I am leaning
towards doing my usual rollover OUT of the 401k when the time comes.
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Re: Is there any reason to move money from 401k?

Post by gary11 »

FRx wrote: Is there any reason to move money from 401k?
We recently moved money from a Canadian bank managed 401k plan to Vanguard roll over IRA. We opted for same Vanguard funds as 401k into roll over IRA. The administrative fees in 401k charged were about 0.3% of total asset which was becoming very annoying as asset grew over the years.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

I didn't consider the backdoor Roth. I am currently doing that and don't have any extra money in an IRA. So what I'm understanding is that if I roll the money over to an IRA then I no longer will be able to do my backdoor conversions?
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retiredjg
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Re: Is there any reason to move money from 401k?

Post by retiredjg »

FRx wrote:I didn't consider the backdoor Roth. I am currently doing that and don't have any extra money in an IRA. So what I'm understanding is that if I roll the money over to an IRA then I no longer will be able to do my backdoor conversions?
You would be "able" to do them, but you would not want to because the tIRA would be pro-rated with the contribution you convert.

If back door is important, you need to leave the money where it is or put it in your new 401k/403b.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

retiredjg wrote:You would be "able" to do them, but you would not want to because the tIRA would be pro-rated with the contribution you convert.
Unless you want to convert the entire "combined" IRA, which is what I did.
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Re: Is there any reason to move money from 401k?

Post by BogleMe »

I am actually moving ~$50K from a previous employer 401K plan and started that process today. The funds are currently invested at my former employer's plan in the 0.04% Vanguard S&P500 Index Fund share class and I will be transferring them to an already existing Vanguard Rollover IRA, in fund VFIAX (S&P 500 Index) that charges a 0.05% ER. So I am actually paying more and will miss about 5 or 6 market days to boot.

Reason 1: Simplicity; if I die I want my wife to be able to go to one site and see most everything.
Reason 2: I don't exactly trust my former employer and can envision a scenario where the fund is disallowed and/or fees start accruing.
Reason 3: If the account grows too large, missing out on a few market days could be a significant amount of money (up or down of course).

The only negative for me, aside from the 0.01% higher ER, is missing out on the market days...I have mitigated this to the best of my ability by first transferring only the pre-tax portion, which is roughly half of the total. Once these funds are invested at Vanguard, I will then transfer the Roth portion. I have done this with several old 401K plans and am so far in the black by a few hundred dollars on missing the market days. I just really hate to miss a 3 or 4% move on a substantial amount.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

bkinder wrote:
Unless you want to convert the entire "combined" IRA, which is what I did.
The only problem with that is that I would get taxed quite a bit on that full conversion of almost 200k so that's not good for me. I'll inquire more about the fee differences between the two companies. The former employer 401k is held at Charles Schwab as I mentioned and the new company I'm with is holding the money at Fidelity.
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retiredjg
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Re: Is there any reason to move money from 401k?

Post by retiredjg »

bkinder wrote:
retiredjg wrote:You would be "able" to do them, but you would not want to because the tIRA would be pro-rated with the contribution you convert.
Unless you want to convert the entire "combined" IRA, which is what I did.
This is correct. But in many cases, it does not make sense to defer taxes and then turn around and pay the taxes shortly thereafter. I would certainly not do that with $200k. But there certain are cases where that does make sense.
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Re: Is there any reason to move money from 401k?

Post by celia »

retiredjg wrote:
FRx wrote:I didn't consider the backdoor Roth. I am currently doing that and don't have any extra money in an IRA. So what I'm understanding is that if I roll the money over to an IRA then I no longer will be able to do my backdoor conversions?
You would be "able" to do them, but you would not want to because the tIRA would be pro-rated with the contribution you convert.
Maybe OP WANTS to convert part of the 401k to a Roth account each year. For example, he/she could transfer $10K to the tIRA each year, make non-deductible contributions to the tIRA, then convert all of it to a Roth.

In this case, taxes would be due on the entire converted amount. The 401k rollover amount is taxed as part of the conversion and the non-deductible contribution is taxed as regular wages.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

retiredjg wrote: it does not make sense to defer taxes and then turn around and pay the taxes shortly thereafter. I would certainly not do that with $200k.
Mostly I agree with you. I did an amount about that size back in 2010, when it was first allowed. If you recall, it was sort of looked at as a loophole, a perk for the wealthy that probably would not last. The ability to get money into a Roth IRA for a higher income person is still something that may not last forever, because it allows the earnings to remain untaxed forever. The IRS does not like to do that for "the wealthy." At least now I know that all of the money in that account is mine- I don't have to share it with the government at a future rate that the government gets to choose. Can you tell I like my Roth IRA? :happy
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

celia wrote:Maybe OP WANTS to convert part of the 401k to a Roth account each year.
This is a possibility I have never considered- anything other than leave it or move it completely. Do plans generally allow partial withdraws like this? Thanks for educating me on this.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

I recall getting some paperwork on my exit interview mentioning that I could move part of the money. However, again the tax implications wouldn't change much so I don't see it being that beneficial right now. I figure when I'm done working in 5 years I can convert the money over either slowly or all at once depending on tax implications. I don't know if I'm thinking it through correctly but that's my conclusion at least.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

FRx wrote:I recall getting some paperwork on my exit interview mentioning that I could move part of the money.
Thanks.
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celia
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Re: Is there any reason to move money from 401k?

Post by celia »

retiredjg wrote: it does not make sense to defer taxes and then turn around and pay the taxes shortly thereafter. I would certainly not do that with $200k.
I basically did that the last 2 years of working, although the conversion was spread over more years. After I was 59 1/2 but still working, I would roll the 403b(bad choices available) to a rollover IRA every 6 months so I could invest in something decent. I also converted large amounts to Roth. How else do you get that money into Roths before the pensions and SS start up?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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retiredjg
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Re: Is there any reason to move money from 401k?

Post by retiredjg »

celia wrote:
retiredjg wrote: it does not make sense to defer taxes and then turn around and pay the taxes shortly thereafter. I would certainly not do that with $200k.
I basically did that the last 2 years of working, although the conversion was spread over more years. After I was 59 1/2 but still working, I would roll the 403b(bad choices available) to a rollover IRA every 6 months so I could invest in something decent. I also converted large amounts to Roth. How else do you get that money into Roths before the pensions and SS start up?
Please note that I said "But in many cases, it does not make sense to defer taxes and then turn around and pay the taxes shortly thereafter. I would certainly not do that with $200k. But there certain are cases where that does make sense."

Ordinarily, converting to Roth doesn't seem like the best choice while still working because your tax bracket is still higher than it might be later. A pension might make that untrue in your case.

I think what you are saying is that your pension was either going to push you into a higher bracket or you'd stay in the same bracket - in which case conversion does makes sense if you are close enough to retirement to see what is going to happen. If converting "large amounts" pushed you into a higher bracket, you might or might not have paid extra tax.

How else would you do it? Ideally, there is no pension, SS is delayed, and there are several low income years in which to convert. The presence of the pension puts a different spin on it for sure. It may very well have been the best choice in your situation.
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Re: Is there any reason to move money from 401k?

Post by Miguelito »

JW Nearly Retired wrote:
FRx wrote: So am I missing anything as far as whether I should move my money from my previous employer to this new employer vs move it to a brokerage account? My gross income is in the 200k range if that matters.
Your income matters. One good reason to leave it in a 401k is a gross income of $200k is way over the limit of what permits a single person to make direct Roth IRA contributions. If you don't have any money in traditional, Rollover, SEP, or SIMPLE IRAs, you can get around this limitation using a "backdoor " Roth. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Many folks roll their IRAs into their 401k in order to allow this sort of Roth contribution.
JW
That's what I did in 2010 so that all the money I had been stashing in my non-deductible IRA since 2006 could be backdoored into a Roth.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

So for those still tuned in, here are the fees that my account has. I have attached it because it was too much to type out. So I have no clue, does that mean I'm getting 0.25% or 0.5%. I've been with them longer than 12 months so...

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Re: Is there any reason to move money from 401k?

Post by abuss368 »

You could consolidate accounts with Vanguard for simplicity.
John C. Bogle: “Simplicity is the master key to financial success."
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

abuss368 wrote:You could consolidate accounts with Vanguard for simplicity.
true but again my concern is losing out on the $5,500 backdooring.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

I was comparing Schwab to Vanguard recently, and found that the expense ratios of the funds at Vanguard were significantly lower than the analogous funds at Schwab. So don't only look at the fees at Schwab when comparing.
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

Looks like my vanguard target date fund 2060 (the only one I could get that would have helped me with my AA) is at 0.083% vs. 0.18% if I bought it through Vanguard. Then again I wouldn't do that, I would buy them individually so would probably save a little. My vanguard total market is at 0.05% and it would be 0.08% if I held it at vanguard (admiral share). Lastly I own vanguard total stock at 0.04% at Charles Schwab which would be 0.05% at vanguard.
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

FRx wrote:Looks like my vanguard target date fund 2060 (the only one I could get that would have helped me with my AA) is at 0.083% vs. 0.18% if I bought it through Vanguard. Then again I wouldn't do that, I would buy them individually so would probably save a little. My vanguard total market is at 0.05% and it would be 0.08% if I held it at vanguard (admiral share). Lastly I own vanguard total stock at 0.04% at Charles Schwab which would be 0.05% at vanguard.
Perhaps you had access to institutional shares? Not sure. And no other fees?
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FRx
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Re: Is there any reason to move money from 401k?

Post by FRx »

yes that must be it, the funds all have an (i) in them, and some say "institutional". Apparently no other fees but I have to look through my statements and see. I guess if it's "self directed" then there are no fees.
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

FRx wrote:yes that must be it, the funds all have an (i) in them, and some say "institutional". Apparently no other fees but I have to look through my statements and see. I guess if it's "self directed" then there are no fees.
I have access to institutional shares at Vanguard in my S-Corp retirement plan- but only if I put a minimum of $100 million in each fund. I'm not quite there yet. :shock:
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Re: Is there any reason to move money from 401k?

Post by FRx »

daaaang, oh ok yea me too ... just a HAIR under that number... $100mill. I think I'd soil myself if I saw that much money in my account.
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Re: Is there any reason to move money from 401k?

Post by retiredjg »

FRx wrote:So for those still tuned in, here are the fees that my account has. I have attached it because it was too much to type out. So I have no clue, does that mean I'm getting 0.25% or 0.5%. I've been with them longer than 12 months so...
I don't know what it means.

I think you need to call whoever you need that handles your 401k and ask them what fees you are paying in addition to the expense ratios. It might be different now that you are no longer an active participant.

Since you want to keep using the back door to contribute to Roth IRA, you need to decide if the old 401k or the new 401k has the best options/fees. I don't think you have commented on your new 401k yet.
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gasdoc
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Re: Is there any reason to move money from 401k?

Post by gasdoc »

Do you really want the hassle of having money tied up with a previous employer? That alone would be a deal breaker for me. In an IRA, I own it, it is mine, I do what I want with it. Plain and simple.
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