Move 401k to brokerage account?

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batman_ds
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Joined: Sat Nov 09, 2019 1:47 pm

Move 401k to brokerage account?

Post by batman_ds » Sat Nov 09, 2019 1:59 pm

Hello all --

In my 401k, I have everything allocated to a blend of TDF's. I think I would prefer instead having a 3 or 4 fund allocation (basically something similar to the bogglehead distribution examples listed on the wiki), to make it easier to see my allocations and rebalance the way I want. I could move to the closest options within my 401k (doesn't offer total index funds, etc), but I might prefer getting the exact funds I want, if there is no issue. I see I have an option to link my 401k to a brokerage account. So I'm wondering if I should just do that, and then get the exact funds I want.

Side question: when choosing one of the total market index funds, I see the expense ratio is cheaper for admiral funds. Do I just need to buy enough of these funds in order to qualify for this?

Any gotchas, or things I should consider before doing this? As I understand it, in a 401k I can rebalance (effectively buy/sell) everything at once with no tax or penalty, correct? Any other consideration I should make in making a huge one-time move (e.g., should I instead move gradually, or is there no real benefit to do this)?

Thank you for your help!

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ruralavalon
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Re: Move 401k to brokerage account?

Post by ruralavalon » Sat Nov 09, 2019 4:07 pm

Welcome to the forum :) .

batman_ds wrote:
Sat Nov 09, 2019 1:59 pm
Hello all --

In my 401k, I have everything allocated to a blend of TDF's. I think I would prefer instead having a 3 or 4 fund allocation (basically something similar to the bogglehead distribution examples listed on the wiki), to make it easier to see my allocations and rebalance the way I want. I could move to the closest options within my 401k (doesn't offer total index funds, etc), but I might prefer getting the exact funds I want, if there is no issue. I see I have an option to link my 401k to a brokerage account. So I'm wondering if I should just do that, and then get the exact funds I want.
This largely depends on the fees charged.

Which brokerage is this? Is this Fidelity's BrokerageLink? Is this Schwab's Personal Choice Retirement Account (PCRA)?

What fees in addition the fund expense ratios are charged for use of the brokerage feature? There may be an annual fee, a per transaction fee, or both. Sometimes there is a fee for purchase of another company's mutual funds.

About how much will you contribute each pay period? How many pay periods per year?


batman_ds wrote:
Sat Nov 09, 2019 1:59 pm
Side question: when choosing one of the total market index funds, I see the expense ratio is cheaper for admiral funds. Do I just need to buy enough of these funds in order to qualify for this?
The initial minimum investment for Admiral shares of Vanguard index funds is usually $3k.

batman_ds wrote:
Sat Nov 09, 2019 1:59 pm
Any gotchas, or things I should consider before doing this? As I understand it, in a 401k I can rebalance (effectively buy/sell) everything at once with no tax or penalty, correct? Any other consideration I should make in making a huge one-time move (e.g., should I instead move gradually, or is there no real benefit to do this)?
Exchanges between funds inside a 401k have no tax consequences.

Once you decide on funds to use and the allocation, just go ahead and make the switch all at once. I see no benefit in stringing out the process.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

lakpr
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Re: Move 401k to brokerage account?

Post by lakpr » Sun Nov 10, 2019 8:45 am

Be aware (and perhaps you are already) that the brokerage links usually will not allow you to invest in the same funds that are available in your 401k plan.

I think I have seen this with a friend's plan some years ago where the Vanguard Small Cap fund is listed at 0.41% ER, much more than retail. He explored using the Brokerage link at $25 per quarter fees, and buy directly at Vanguard for lower fees. No go.

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Wiggums
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Re: Move 401k to brokerage account?

Post by Wiggums » Sun Nov 10, 2019 8:55 am

Good advice given. I’ll just add...

If you are thinking about a rollover IRA, that might prevent future backdoor Roth due to pro rata rule.

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beyou
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Re: Move 401k to brokerage account?

Post by beyou » Sun Nov 10, 2019 9:00 am

You might get better help if you explain in more detail what you seek to accomplish. You mentioned multiple TDFs, and that you want better visibility of you AA. The TDF is intended to be a way to simplify and use a single fund, with auto allocation. Why multiple TDF ?

Many here keep AA simple and many do not believe that tweaking it for small adjustments matters (equity differences of 10% up or down is not a huge difference in outcome). Seems like you are overcomplicating things.

If you have plenty of taxable, and want to manage AA across taxable and tax deferred accts, then TDF may not be best, but brokerage link may not be necessary. Info on problem you are solving and fund choices in 401k vs brokerage link would help get better answers.

Personally my firm offered a brokerage “window” as they called it, and I declined to open the brokerage account. The funds in my 401k have low ER and enough choices, no need for more complexity.

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whodidntante
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Re: Move 401k to brokerage account?

Post by whodidntante » Sun Nov 10, 2019 9:07 am

You can sell funds in a 401k without incurring a tax liability. If building a market cap portfolio, there will be several options for funds to use and ETFs should now be commission-free due to the great interactive brokening of 2019. The brokerage window may have a cost but you should have to pay a commission to buy the funds.

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JoMoney
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Re: Move 401k to brokerage account?

Post by JoMoney » Sun Nov 10, 2019 9:30 am

401k's can have a lot of unique variables. You'll have to review the documents of your plan to see what sort of fees and limitations there are.

Personally, I'm not a fan of tinkering and "rebalancing" a portfolio. While some amount of risk control is called for in keeping your stock/bond allocation within a reasonable threshold of your risk tolerances, I don't believe precision is of any importance.... and if it leads to you making trades more than once a year I think more likely to do harm than good. Essentially I believe the act of trading itself adds some risk (and expense) to a portfolio and should be minimized.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Topic Author
batman_ds
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Re: Move 401k to brokerage account?

Post by batman_ds » Mon Nov 11, 2019 4:41 pm

ruralavalon wrote:
Sat Nov 09, 2019 4:07 pm
Welcome to the forum :) .
Thanks!
ruralavalon wrote:
Sat Nov 09, 2019 4:07 pm
This largely depends on the fees charged.

Which brokerage is this? Is this Fidelity's BrokerageLink? Is this Schwab's Personal Choice Retirement Account (PCRA)?

What fees in addition the fund expense ratios are charged for use of the brokerage feature? There may be an annual fee, a per transaction fee, or both. Sometimes there is a fee for purchase of another company's mutual funds.

About how much will you contribute each pay period? How many pay periods per year?
This is Fidelity's BrokerageLink. Good point, I need to look up the fees involved for the brokerage. I contribute roughly enough biweekly so that I max it out each year (also some after-tax roth contributions that are allowed).

Topic Author
batman_ds
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Re: Move 401k to brokerage account?

Post by batman_ds » Mon Nov 11, 2019 4:41 pm

lakpr wrote:
Sun Nov 10, 2019 8:45 am
Be aware (and perhaps you are already) that the brokerage links usually will not allow you to invest in the same funds that are available in your 401k plan.
Ah, good to know, thanks!

Topic Author
batman_ds
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Joined: Sat Nov 09, 2019 1:47 pm

Re: Move 401k to brokerage account?

Post by batman_ds » Mon Nov 11, 2019 4:45 pm

beyou wrote:
Sun Nov 10, 2019 9:00 am
You might get better help if you explain in more detail what you seek to accomplish. You mentioned multiple TDFs, and that you want better visibility of you AA. The TDF is intended to be a way to simplify and use a single fund, with auto allocation. Why multiple TDF ?

Many here keep AA simple and many do not believe that tweaking it for small adjustments matters (equity differences of 10% up or down is not a huge difference in outcome). Seems like you are overcomplicating things.

If you have plenty of taxable, and want to manage AA across taxable and tax deferred accts, then TDF may not be best, but brokerage link may not be necessary. Info on problem you are solving and fund choices in 401k vs brokerage link would help get better answers.

Personally my firm offered a brokerage “window” as they called it, and I declined to open the brokerage account. The funds in my 401k have low ER and enough choices, no need for more complexity.
I guess basically the issue I'm having is that I don't know exactly when I would want to start drawing from my 401k. And so I picked a TDF, but then I thought the date was too soon. So I didn't want it to start rebalancing with too much bonds/etc too early. So I started mixing in a later date TDF. But that starts getting complicated/messy. I was thinking if I just got the more basic/underlying index funds I wanted, I could start rebalancing towards more conservative types as I felt I was actually getting closer. Is there a better way?

Topic Author
batman_ds
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Joined: Sat Nov 09, 2019 1:47 pm

Re: Move 401k to brokerage account?

Post by batman_ds » Mon Nov 11, 2019 4:49 pm

JoMoney wrote:
Sun Nov 10, 2019 9:30 am
401k's can have a lot of unique variables. You'll have to review the documents of your plan to see what sort of fees and limitations there are.

Personally, I'm not a fan of tinkering and "rebalancing" a portfolio. While some amount of risk control is called for in keeping your stock/bond allocation within a reasonable threshold of your risk tolerances, I don't believe precision is of any importance.... and if it leads to you making trades more than once a year I think more likely to do harm than good. Essentially I believe the act of trading itself adds some risk (and expense) to a portfolio and should be minimized.
I was thinking once I had the brokerage account open, I would just be buying the same proportion of them every period. Wasn't planning on doing much rebalancing/trades. I just wanted access to the simple index funds, which my 401k doesn't offer (as an alternative to the TDF's). Maybe just picking some of the other funds that would be close to index funds would be preferable, rather than opening the brokerage account..

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beyou
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Re: Move 401k to brokerage account?

Post by beyou » Mon Nov 11, 2019 6:15 pm

If they have low fee index funds in brokerage and not the 401k core funds, yes that may be a reason to open.

Are the TD funds low fee index funds ? If so I would pick the closest one for your desired AA and leave at that. You can move to another TDF later if you want to be more or less aggressive.

If you have significant taxable, and want to maintain AA combined with 401k, then also I say go with low fee index funds in your brokerage.

Topic Author
batman_ds
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Re: Move 401k to brokerage account?

Post by batman_ds » Mon Nov 11, 2019 7:58 pm

beyou wrote:
Mon Nov 11, 2019 6:15 pm
If they have low fee index funds in brokerage and not the 401k core funds, yes that may be a reason to open.

Are the TD funds low fee index funds ? If so I would pick the closest one for your desired AA and leave at that. You can move to another TDF later if you want to be more or less aggressive.

If you have significant taxable, and want to maintain AA combined with 401k, then also I say go with low fee index funds in your brokerage.
Yes the TDF's are low fee index funds. E.g., "BlackRock LifePath® Index 2030 Fund N" with an expense ratio of 0.06%.

I think what you say makes sense, just keep the closest one. And I can bulk convert it over to a different TD when/if I want. Thanks for pushing back a bit on that.

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ruralavalon
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Re: Move 401k to brokerage account?

Post by ruralavalon » Mon Nov 11, 2019 8:19 pm

batman_ds wrote:
Mon Nov 11, 2019 4:41 pm
ruralavalon wrote:
Sat Nov 09, 2019 4:07 pm
Welcome to the forum :) .
Thanks!
ruralavalon wrote:
Sat Nov 09, 2019 4:07 pm
This largely depends on the fees charged.

Which brokerage is this? Is this Fidelity's BrokerageLink? Is this Schwab's Personal Choice Retirement Account (PCRA)?

What fees in addition the fund expense ratios are charged for use of the brokerage feature? There may be an annual fee, a per transaction fee, or both. Sometimes there is a fee for purchase of another company's mutual funds.

About how much will you contribute each pay period? How many pay periods per year?
This is Fidelity's BrokerageLink. Good point, I need to look up the fees involved for the brokerage. I contribute roughly enough biweekly so that I max it out each year (also some after-tax roth contributions that are allowed).
batman_ds wrote:
Mon Nov 11, 2019 7:58 pm
beyou wrote:
Mon Nov 11, 2019 6:15 pm
If they have low fee index funds in brokerage and not the 401k core funds, yes that may be a reason to open.

Are the TD funds low fee index funds ? If so I would pick the closest one for your desired AA and leave at that. You can move to another TDF later if you want to be more or less aggressive.

If you have significant taxable, and want to maintain AA combined with 401k, then also I say go with low fee index funds in your brokerage.
Yes the TDF's are low fee index funds. E.g., "BlackRock LifePath® Index 2030 Fund N" with an expense ratio of 0.06%.

I think what you say makes sense, just keep the closest one. And I can bulk convert it over to a different TD when/if I want. Thanks for pushing back a bit on that.
If the expense ratios on the other funds offered in the basic 401k plan are also very low, then look very closely at the amount of any fees charged to use the BrokerageLink.

Use of the BrokerageLink makes no sense unless there are enough savings in expense ratios to outweigh the fees, or the availability of a fund or fund type not offered in the 401k itself.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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