Combine 401k Accounts?

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sport
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Combine 401k Accounts?

Post by sport » Fri May 22, 2020 10:26 am

A family member recently started a new job. She has a 401k account with a previous megacorp employer. She is now contributing to a 401k account with a new megacorp employer. What are the pros and cons of keeping the two accounts separate vs rolling the old account into the new one? If she decides to combine the accounts, does the present stock market volatility make this a bad time to do so, or is this not a concern?

retired@50
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Re: Combine 401k Accounts?

Post by retired@50 » Fri May 22, 2020 10:30 am

It depends on the choices in each plan, and the fees in each plan.

Some 401k plans have overhead fees in addition to the mutual fund expense ratios. These overhead fees can be outrageous or practically non-existent. You'll have to do some research to find out. Start with the 401k summary plan document. Should be available online, or by request.

Combining can make life simpler, but if it's going to lead to higher fees, I'd avoid it.

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Jack FFR1846
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Re: Combine 401k Accounts?

Post by Jack FFR1846 » Fri May 22, 2020 10:37 am

401k plans can change at the employer's whim. It can move from a great provider to a garbage one with garbage investments and high fees. If you move an old 401k over to say a Fidelity 401k with the new employer and the owner's brother in law takes a job with Mass Mutual and the 401k goes to them, be ready for no good, low cost funds and since you've rolled into that 401k, you're likely stuck till you quit.

Another option that has its own pros and cons is to roll into an IRA. That gives you the ability to use great, low cost funds and a sea of fund choices. It also screws up your ability to do backdoor Roth conversions and I understand that there may be some legal advantages to holding the money in a 401k.

Leaving the money in an old 401k might be a good choice. You do need to watch the account. DW kept an old 401k with Fidelity from an old employer for a decade. One January 2nd, upon checking the account, the maintenance fee went from the employer paying it to the employee paying it. She rolled over to an IRA at that point.
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rob
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Re: Combine 401k Accounts?

Post by rob » Fri May 22, 2020 10:47 am

Some plans have restrictions on inbound rollovers - check the new plan. eg. One prev employer would not allow rollover $ to be invested in the stable value fund.
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Stinky
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Re: Combine 401k Accounts?

Post by Stinky » Fri May 22, 2020 10:56 am

sport wrote:
Fri May 22, 2020 10:26 am
A family member recently started a new job. She has a 401k account with a previous megacorp employer. She is now contributing to a 401k account with a new megacorp employer. What are the pros and cons of keeping the two accounts separate vs rolling the old account into the new one? If she decides to combine the accounts, does the present stock market volatility make this a bad time to do so, or is this not a concern?
The pro of combining is simplicity in your financial life. Just one account to monitor, rather than two. Also, you’ll be saving the admin fee for the old plan.

Fund choices can be either a pro or a con. This depends on how well the old plan stacks up against the new plan. You’d want to have the old plan money in the plan that gives you the best choices at the best price.

Stock market volatility shouldn’t be an issue, if you keep the asset allocation the same as you move to the new plan. The only thing is that the transferred money will likely be out of the market for a few days while the transfer is in process.
Last edited by Stinky on Fri May 22, 2020 12:08 pm, edited 1 time in total.
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ruralavalon
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Re: Combine 401k Accounts?

Post by ruralavalon » Fri May 22, 2020 12:02 pm

sport wrote:
Fri May 22, 2020 10:26 am
A family member recently started a new job. She has a 401k account with a previous megacorp employer. She is now contributing to a 401k account with a new megacorp employer. What are the pros and cons of keeping the two accounts separate vs rolling the old account into the new one? If she decides to combine the accounts, does the present stock market volatility make this a bad time to do so, or is this not a concern?
If the new employer's 401k plan offers equal or better funds with equal or lower expense ratios, and no extra fees or expenses to the plan participant, then its likely better to rollover the old account into the current plan.
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carmonkie
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Re: Combine 401k Accounts?

Post by carmonkie » Fri May 22, 2020 12:08 pm

Depends on the fees and if new employer allows incoming transfers. One thought is that she could use the old 401(k) holding bonds only and have the new 401(k) with 100% equities. As she needs more bonds, she would sell equities on the old 401(k) to rebalance. Without not knowing what funds and fees she has, she could also move everything to a target fund or build a 3 fund portfolio and let it ride until retirement...

I would not convert it to a traditional IRA. If she ever has the possibility of doing backdoor conversions, the pro-rata rule would kick in...

lakpr
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Re: Combine 401k Accounts?

Post by lakpr » Fri May 22, 2020 12:15 pm

carmonkie wrote:
Fri May 22, 2020 12:08 pm
Depends on the fees and if new employer allows incoming transfers. One thought is that she could use the old 401(k) holding bonds only and have the new 401(k) with 100% equities. As she needs more bonds, she would sell equities on the old 401(k) to rebalance. Without not knowing what funds and fees she has, she could also move everything to a target fund or build a 3 fund portfolio and let it ride until retirement...

I would not convert it to a traditional IRA. If she ever has the possibility of doing backdoor conversions, the pro-rata rule would kick in...
+1000 to this post. This is exactly what I have been doing, as my current company 401k plan has super-excellent choices for equities (0.01% for S&P 500 index and 0.05% for international equities), but lousy -- relatively speaking -- bond funds. The cheapest bond fund is available at 0.38% in my plan, but my previous 401k has access to VBTIX at 0.04% ER ...

To be fair, I can use Target Retirement funds as bond-proxies in my current plan at only 0.10% ER, but even that's more than twice as expensive than VBTIX in my old plan.

MathIsMyWayr
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Re: Combine 401k Accounts?

Post by MathIsMyWayr » Fri May 22, 2020 12:50 pm

Fees at 401k plans at megacorps are usually low. Unless there is a compelling reason for consolidating, there is no point in hurrying. Depending on the specifics of the plan, I would keep at the old plan for flexibility. May not be applicable yet, the still working exemption of RMD applies to the current employer's plan only.

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