Just retired...any reason to move 401K to IRA?

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Dave C.
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Just retired...any reason to move 401K to IRA?

Post by Dave C. »

My Fidelity guy says most people make the move from 401K to an IRA at retirement, maInly for a wider selection of options for investment. This may be an unusual fact, but my company's 401(k) plan offers exactly the type of index funds I am interested in.
Am I missing a point? My former employer is a large international pharmaceutical firm.
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Re: Just retired...any reason to move 401K to IRA?

Post by midareff »

I moved my 457(b) from my employer to VG to get a larger selection of funds, remove a management for profit company from the loop and dispense with all the custodial relationships.
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Re: Just retired...any reason to move 401K to IRA?

Post by livesoft »

I see no reason to make a move any time soon. Some 401(k) plans have additional charges for retirees. If yours does not, then the only reason I can think of to move is to collect some bonus money from another financial institution or to consolidate at another vendor. My impression is that Fidelity will not give one bonuses for going from a Fidelity 401(k) to a Fidelity IRA. The Fidelity "retention" guy I spoke with was unhelpful.

Also going to an IRA may hurt a backdoor Roth or a conversion of a traditional IRA with after-tax contributions.
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ResearchMed
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Re: Just retired...any reason to move 401K to IRA?

Post by ResearchMed »

If you've got good choices in your 401k (many people do not), there might not be a reason to move the money to an IRA.

But for the exact same funds (or very similar in other fund families), check the ER (expense ratio) AND also any other expenses for the 401k itself.

If you can't do better elsewhere, you should be fine as is.

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Re: Just retired...any reason to move 401K to IRA?

Post by prudent »

If the 401k has the low-cost index funds you want (cheaper than you could get in an IRA) and factoring in any recordkeeping or administrative fees your 401k plan might charge to your account directly, I don't see any reason to move. Many 401ks have a Stable Value fund that pays pretty well that would not be available to you in an IRA.

Yes, you won't have the variety of investment options, but if you don't want anything else, it doesn't matter. You can always switch to an IRA in the future if that changes.

Also, many advisors get paid a small percentage of assets (not out of your money) when people switch their 401k to an IRA, so the person you talked to may benefit personally from convincing you to switch.
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

Dave C. wrote:My Fidelity guy says most people make the move from 401K to an IRA at retirement, maInly for a wider selection of options for investment. This may be an unusual fact, but my company's 401(k) plan offers exactly the type of index funds I am interested in.
Am I missing a point? My former employer is a large international pharmaceutical firm.
My view would be that some (many?) 401K plans are so bad with limited options and high costs that one would indeed move the investments as soon as possible. Many other 401K plans (yours) are good plans with good options that may even be better than what is available in a run of the mill IRA. In short, the decision is specific to you.

"My Fidelity guy" is not a disinterested adviser. At a minimum he is fishing for assets for Fidelity. How much follow-on there will be to put those assets in investments that benefit Fidelity and not you would remain to be seen. I think Fidelity is a little bit of a Dr. Jekyll/Mr. Hide about that. Some investment companies are nothing but pure evil in trying to get their hands on 401K money. If nothing else his advice should be specific to you and not generic if it leads to a mistake on your part. Of course, there is the question why anyone in their right mind would talk to an investment company for financial advice.
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Re: Just retired...any reason to move 401K to IRA?

Post by Dandy »

I believe the 401k has better protection from creditors. Aside from that it seems a move would be based on expense ratios, fund/product choices and service/services offered.

As noted the 401k may provide a nice Stable value fund. But not offer brokerage options from ETFs, CDs etc. If you have taxable savings/investments at some point you may wish to consolidate all financials in one provider. If you plan to do Roth conversions I believe you can't go directly from a 401k plan to a Roth.
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

Dandy wrote:I believe the 401k has better protection from creditors. Aside from that it seems a move would be based on expense ratios, fund/product choices and service/services offered.

As noted the 401k may provide a nice Stable value fund. But not offer brokerage options from ETFs, CDs etc. If you have taxable savings/investments at some point you may wish to consolidate all financials in one provider. If you plan to do Roth conversions I believe you can't go directly from a 401k plan to a Roth.
Good points. The legal issue is tricky and state specific. I have been unable to evaluate in practical effect for me, but it remains a concern.

The SV option is a point. Your decision could be also affected depending on whether you have a brokerage link in the 401K.

Personally I feel more comfortable not having all assets at one provider, but that may be irrational. I make a distinction between who operates the funds (mostly Vanguard) and who holds the accounts (for me the 401K provider and brokers not Vanguard). This recent news that Vanguard may be completely eliminating holding of Admiral shares at brokers might have an effect, but ETFs are still an option.
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Re: Just retired...any reason to move 401K to IRA?

Post by LeeMKE »

I always roll over my 401K after leaving an employer. IMHO The assets in the 401K are not particularly well protected. Your money is subject to at least three potential issues: failure of the previous employer to act in your best interests, failure of the trustee to act in your best interests, and your failure to manage wisely.

I like to cut down the risks to just my own failure to manage wisely.

Bankruptcy of a previous employer has been preceded by dipping into the 401K cash, and I, along with most Bogleheads don't feel the trustees are looking out for us before them. IRAs are protected from your own bankruptcy.

In one case I found that the employer was using outrageous fees not quoted for the funds I was invested in (the Administration was hidden and almost impossible to divine until liquidation). And when an employer goes bankrupt, missing funds from the 401K program are not fully insured.

That said, I don't advise that everyone rollover into self management, because some folks won't keep their fingers off a pile of cash under their own control.
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Re: Just retired...any reason to move 401K to IRA?

Post by Calm Man »

There is also something that I found appealing about severing the relationship after you've left the employer.
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Re: Just retired...any reason to move 401K to IRA?

Post by kinddog »

best reason to do it is CONTROL. if you move it to a Rollover IRA with Vanguard (or whomever), it will stay there. companies, however, often switch 401k providers at their whim. if they do, you'll get a letter in the mail saying that your 401k is leaving XXX and going to YYY and there's nothing you can do about it.

another reason is that a lot of 401k's don't do partial withdrawals or systematic withdrawals. it's either everything or nothing. Rollover IRA's, however, have very flexible distribution options.

don't discount customer service either. typically it's horrendous on the 401k side, and you'll have to contact your HR dept at your old employer for some things. and who wants to do that?

also consider succession planning. if you die, the beneficiaries of your IRA will have a much easier time transferring those assets to themselves if it's in a Rollover IRA at a financial institution than if it's still stuck in a 401k at a former employer.
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Re: Just retired...any reason to move 401K to IRA?

Post by JW-Retired »

Dave C. wrote:My Fidelity guy says most people make the move from 401K to an IRA at retirement, maInly for a wider selection of options for investment. This may be an unusual fact, but my company's 401(k) plan offers exactly the type of index funds I am interested in.
Am I missing a point? My former employer is a large international pharmaceutical firm.
This is self serving advice because for the same account size Fidelity makes twice as much money on IRAs than on 401ks. (Source: Rollovers article July 2014 Money page 46.)

The backdoor Roth problem if you have a rollover IRA has been mentioned already. This is a big reason not to rollover unless you are certain you will never make too much money to make direct Roth contributions.

Lastly, 401k accounts are said to have better Federal ERSIA asset protection in lawsuits. IRAs have some protection only if you declare bankruptcy and it varies by state. I believe this is true but not a lawyer so check for yourself. I've left my own 401k where it is mainly for this reason as it has very low cost options and no downside I can see. Dealing with the 401k administrator (ING) is just like dealing with Fidelity or Vanguard. I've never needed to talk to my old company HR as they have farmed everything to ING.
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

JW Nearly Retired wrote:
Dave C. wrote:My Fidelity guy says most people make the move from 401K to an IRA at retirement, maInly for a wider selection of options for investment. This may be an unusual fact, but my company's 401(k) plan offers exactly the type of index funds I am interested in.
Am I missing a point? My former employer is a large international pharmaceutical firm.
This is self serving advice because for the same account size Fidelity makes twice as much money on IRAs than on 401ks. (Source: Rollovers article July 2014 Money page 46.)

Interesting. Can you add detail without trespassing on copyright?

The backdoor Roth problem if you have a rollover IRA has been mentioned already. This is a big reason not to rollover unless you are certain you will never make too much money to make direct Roth contributions.

Lastly, 401k accounts are said to have better Federal ERSIA asset protection in lawsuits. IRAs have some protection only if you declare bankruptcy and it varies by state. I believe this is true but not a lawyer so check for yourself.

This is tricky, but from what I have been able to understand one must indeed be very careful to distinguish liability under non-bankruptcy lawsuits from bankruptcy protection. Most articles to be found on the subject are about bankruptcy and therefore incomplete. The two kind of law are completely different.

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Re: Just retired...any reason to move 401K to IRA?

Post by JW-Retired »

dbr wrote:
JW Nearly Retired wrote: This is self serving advice because for the same account size Fidelity makes twice as much money on IRAs than on 401ks. (Source: Rollovers article July 2014 Money page 46.)

Interesting. Can you add detail without trespassing on copyright?

It's in the sub-section "Why you're a Catch" in the 10 page Rollovers article. They say that in 401ks Wall Street firms make about 20 cents on every dollar of investment and admin fees, while IRA profits are roughly double that. Peter Demmer, Sterling Resources, is given as the source of this data. They quote him as saying IRAs are "twice the pay for half the work." JW

Lastly, 401k accounts are said to have better Federal ERSIA asset protection in lawsuits. IRAs have some protection only if you declare bankruptcy and it varies by state. I believe this is true but not a lawyer so check for yourself.

This is tricky, but from what I have been able to understand one must indeed be very careful to distinguish liability under non-bankruptcy lawsuits from bankruptcy protection. Most articles to be found on the subject are about bankruptcy and therefore incomplete. The two kinds of law are completely different.

Yes, agree it's tricky. Some say everybody losing a giant lawsuit is going to declare bankruptcy so it amounts to the same thing. I'm not willing to rely on that. JW
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Re: Just retired...any reason to move 401K to IRA?

Post by tainted-meat »

I believe some states have better protection for 401ks against lawsuits that are not afforded to IRAs.
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Re: Just retired...any reason to move 401K to IRA?

Post by 123 »

My main reason for moving my 401K(s) to an IRA was to achieve better financial privacy. Sure the employer knows how much was taken out but they don't know what really happened to it. I like to keep things as private as I can. For one employer I even moved it to an intermediary "decoy" custodian first and then transferred it onward to my real IRA. I know that's a little over the top for privacy.
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

JW Nearly Retired wrote:
Yes, I agree it's tricky. Some say everybody losing a giant lawsuit is going to declare bankruptcy so it amounts to the same thing. I'm not willing to rely on that.
The one lawyer I could get an opinion out of, a person whose judgement I trust, said exactly that.
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Re: Just retired...any reason to move 401K to IRA?

Post by dodecahedron »

My goal is to keep life simple for whoever takes them over upon my death or incapacity. After my husband died, he had over a half dozen different employer plans that I had to roll over into my name. Fewer would have been easier. And Some of the employers were in the process of switching providers and/or fund choices for their plans,and I was confronted with alarming pieces of mail saying that if I did not do anything to elect new funds, the funds would be default mapped into new funds that I did not have time or energy to research.

So i rolled everything (his and mine) into a single IRA at Vanguard or into the traditional 403b TIAA SRA at my current employer. It will be easier for my heirs and/or my POA to deal with. Eventual goal is to have it all in one place after I stope working.
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

dodecahedron wrote:My goal is to keep life simple for whoever takes them over upon my death or incapacity. After my husband died, he had over a half dozen different employer plans that I had to roll over into my name. Fewer would have been easier. And Some of the employers were in the process of switching providers and/or fund choices for their plans,and I was confronted with alarming pieces of mail saying that if I did not do anything to elect new funds, the funds would be default mapped into new funds that I did not have time or energy to research.

So i rolled everything (his and mine) into a single IRA at Vanguard or into the traditional 403b TIAA SRA at my current employer. It will be easier for my heirs and/or my POA to deal with. Eventual goal is to have it all in one place after I stope working.
I agree that the scene is quite different when there are multiple plans, especially from employments in the misty past.

The danger of plans changing investment selections is real. Megacorp just recently retired the stable value fund and rolled everyone into a generic IT bond fund. Now I have to decide what decision to make about that.
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Re: Just retired...any reason to move 401K to IRA?

Post by lawman3966 »

dbr wrote:
JW Nearly Retired wrote:
Yes, I agree it's tricky. Some say everybody losing a giant lawsuit is going to declare bankruptcy so it amounts to the same thing. I'm not willing to rely on that.
The one lawyer I could get an opinion out of, a person whose judgement I trust, said exactly that.
I question whether it's wise to apply one legal opinion on this topic too generally. The laws vary by state. Moreover, I recall from my online research on the topic that the amount of money in IRAs that is protected during a lawsuit varies enormously by state. Some states have waiting periods for any protection to come into effect. Some states treat Roth IRAs differently from TIRAs. You will also want to stay out Wyoming in retirement (see link).

If your 401K has index funds, and doesn't have unreasonable fees, there are very good reasons to not roll the money into an IRA including asset protection; and backdoor Roth considerations.


http://moranknobel.com/news/State_Laws_ ... g_IRAs.pdf
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

lawman3966 wrote:
dbr wrote:
JW Nearly Retired wrote:
Yes, I agree it's tricky. Some say everybody losing a giant lawsuit is going to declare bankruptcy so it amounts to the same thing. I'm not willing to rely on that.
The one lawyer I could get an opinion out of, a person whose judgement I trust, said exactly that.
I question whether it's wise to apply one legal opinion on this topic too generally. The laws vary by state. Moreover, I recall from my online research on the topic that the amount of money in IRAs that is protected during a lawsuit varies enormously by state. Some states have waiting periods for any protection to come into effect. Some states treat Roth IRAs differently from TIRAs. You will also want to stay out Wyoming in retirement (see link).

I am talking about my state where my lawyer practices, which in fact is one that has very limited protections just exactly in the case of non-bankruptcy lawsuits. And, no, I am not relying on any opinion as in my view legal considerations applying to me rolling over a 410K are still unresolved.

If your 401K has index funds, and doesn't have unreasonable fees, there are very good reasons to not roll the money into an IRA including asset protection; and backdoor Roth considerations.

Agreed


http://moranknobel.com/news/State_Laws_ ... g_IRAs.pdf
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Re: Just retired...any reason to move 401K to IRA?

Post by Watty »

I have had an employer with a decent set of choices change to a different 401K provider with not nearly so good choices. There was a 4 to 6 week period when the accounts were frozen while they made the transfer. They made a significant mistake and transferred some of my money a totally different type of fund than it should have according to they paperwork they sent out. By the time I saw it and pointed out the mistake this resulted in over a $1,000 loss because of a market drop and it took a month or two to get them to agree that they made a mistake and to fix it including making up for the loss.

Things like this might not be very easy to deal with when you are older our your spouse is managing the funds.

I don't know that this is a problem with 401K's but some states are very aggressive on trying to collect taxes on pension income from people who have moved to a different state. If you move to a different state this could be an issue, or there might eventually be some complications with state estate taxes too.

Unless you can find a good reason to leave it in the 401K, which is possible, then I it would be best to move it.
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Re: Just retired...any reason to move 401K to IRA?

Post by nisiprius »

What about costs? Do you know absolutely for sure what your expenses for hold those funds in your 401(k) are, compared to in a rollover IRA?

My employer had a Fidelity-managed 401(k) plan, and like an idiot I just assumed that the expense ratio for, say, FUSEX (Fidelity's S&P 500 index fund) was the same whether I held it in the 401(k) or in a Fidelity rollover IRA. It was not. I'm afraid I didn't save the materials so I don't remember how it was presented, but Fidelity was adding about 0.30% in costs to funds held in the 401(k) plan. It was done in some very sneaky way and even though I like to think of myself as good at reading fine print, I completely missed that point. It's not like 0.30% is all that awful, but in my personal opinion it's enough of an expense to motivate a rollover.

401(k) plans are supposed to be more transparent about plan costs, now, but have you gone through everything with a fine-toothed comb?
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Re: Just retired...any reason to move 401K to IRA?

Post by gerrym51 »

I had 2 different 401-ks at one time. my former employer 401k seemed pretty good but i found out the employers plan was charged us employess an extrafee i did not know about. i moved it to ira with same company(trowprice) with same fund(trrbx) and saved 1/4 percent i did not know i was paying my former employer
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Re: Just retired...any reason to move 401K to IRA?

Post by GerryL »

As referenced above, the July issue of Money Magazine (just arrived in my mailbox) has a cover story on this issue titled: "The one retirement move you must get right." Might be worth a read if you are contemplating moving your funds from a 401k to an IRA. No one right answer for everyone. The article delves into the different issues you need to consider before making a decision.
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Re: Just retired...any reason to move 401K to IRA?

Post by Kevin M »

The biggest reason not to roll 401k to IRA, if you have any existing traditional IRAs, is to be able to do Roth conversions at lower tax cost. This is the reason I regret having rolled to IRA when I retired seven years ago. There are a few other reasons not to roll that have been mentioned; for me one of the biggies would be access to a good stable value fund. Other than those reasons, I would roll if 401k costs were high and I didn't have access to the low-cost index funds I wanted. And in my case, I prefer direct CDs to bond funds, so also would roll to IRA for access to direct CDs if no good stable value fund in 401k (again, if Roth conversions were not an issue).

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Re: Just retired...any reason to move 401K to IRA?

Post by heyyou »

State Street (later Citi Street) administered my employer's (Fortune 500 company) 401k. State Street touted their institutional fund fees of .05 to .07% on the index funds, regularly in the newsletters, but not the 10x larger .7% admin fee. The admin fee was buried in the 401k legal documents. Late in my time there, the admin fee was over $2000 a year.

My suggestion to move your money to VG where the fees are transparent.
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Re: Just retired...any reason to move 401K to IRA?

Post by JW-Retired »

nisiprius wrote:What about costs? Do you know absolutely for sure what your expenses for hold those funds in your 401(k) are, compared to in a rollover IRA?
This is a very good point that everyone should take seriously. Perhaps it's easier to check now, but some years ago I went to the point of zeroing out my contributions to one 401k test case fund (SP500) for a whole year so I could compare the SP500 account balance year-over-year growth to a Vanguard SP500 fund. My 401k SP500 fund actually had slightly more unpolluted by contributions growth, confirming the ER's listed.

I felt a lot better about the validity of my stated 401k costs after that. I've been hooked and can be reeled in now. :)
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Re: Just retired...any reason to move 401K to IRA?

Post by brewsky »

Dont forget that if you retire between age 55 and 59 1/2 you can remove any amounts of money out of the 401k penalty free. (Without the problem of worrying about equal distributions). I dont think you can do that if you convert it to an IRA.
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Re: Just retired...any reason to move 401K to IRA?

Post by nisiprius »

JW Nearly Retired wrote:
nisiprius wrote:What about costs? Do you know absolutely for sure what your expenses for hold those funds in your 401(k) are, compared to in a rollover IRA?
This is a very good point that everyone should take seriously. Perhaps it's easier to check now, but some years ago I went to the point of zeroing out my contributions to one 401k test case fund (SP500) for a whole year so I could compare the SP500 account balance year-over-year growth to a Vanguard SP500 fund. My 401k SP500 fund actually had slightly more unpolluted by contributions growth, confirming the ER's listed.

I felt a lot better about the validity of my stated 401k costs after that. I've been hooked and can be reeled in now. :)
JW
My dim, dim, dim recollection may be totally wrong--I wish I'd saved paper and printouts.

What I remember is that the stated mutual fund costs in my 401(k) plan were in fact accurate. If the plan literature said that the expense ratio for FUSEX was 0.XX%, it really was 0.XX%--for participants in the plan. The problem is that I was a dummy and just assumed that "'the' expense ratio of FUSEX" was a characteristic of FUSEX and was always the same. If I'd been sharper, and gone to Fidelity's regular website instead of their 401(k) plan website--as I eventually did--I would have seen that "the" expense ratio for FUSEX, held in an ordinary brokerage account, was a different and lower number.

In other words, instead of explaining clearly that the expense ratio shown for my FUSEX holding in the plan was the sum of two layers of expenses--the FUSEX fund's own expenses plus a second layer of 401(k) administrative expenses--they bundled them together, allowing me to assume (idiotically) that it was the same as the cost of holding FUSEX outside the plan.

If my memories are inaccurate, I apologize. Anyway, it wouldn't take ten minutes to compare the expense ratios listed in your 401(k) plan with the expense ratios for the same ticker symbol outside the plan, and I'd appreciate it if someone would do this and report what they see.
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Re: Just retired...any reason to move 401K to IRA?

Post by midareff »

nisiprius wrote:
JW Nearly Retired wrote:
nisiprius wrote:What about costs? Do you know absolutely for sure what your expenses for hold those funds in your 401(k) are, compared to in a rollover IRA?
This is a very good point that everyone should take seriously. Perhaps it's easier to check now, but some years ago I went to the point of zeroing out my contributions to one 401k test case fund (SP500) for a whole year so I could compare the SP500 account balance year-over-year growth to a Vanguard SP500 fund. My 401k SP500 fund actually had slightly more unpolluted by contributions growth, confirming the ER's listed.

I felt a lot better about the validity of my stated 401k costs after that. I've been hooked and can be reeled in now. :)
JW
My dim, dim, dim recollection may be totally wrong--I wish I'd saved paper and printouts.

What I remember is that the stated mutual fund costs in my 401(k) plan were in fact accurate. If the plan literature said that the expense ratio for FUSEX was 0.XX%, it really was 0.XX%--for participants in the plan. The problem is that I was a dummy and just assumed that "'the' expense ratio of FUSEX" was a characteristic of FUSEX and was always the same. If I'd been sharper, and gone to Fidelity's regular website instead of their 401(k) plan website--as I eventually did--I would have seen that "the" expense ratio for FUSEX, held in an ordinary brokerage account, was a different and lower number.


In other words, instead of explaining clearly that the expense ratio shown for my FUSEX holding in the plan was the sum of two layers of expenses--the FUSEX fund's own expenses plus a second layer of 401(k) administrative expenses--they bundled them together, allowing me to assume (idiotically) that it was the same as the cost of holding FUSEX outside the plan.

If my memories are inaccurate, I apologize. Anyway, it wouldn't take ten minutes to compare the expense ratios listed in your 401(k) plan with the expense ratios for the same ticker symbol outside the plan, and I'd appreciate it if someone would do this and report what they see.

Good points Nisi... generally there is an annual charge for the administrator which you would not pay at Fido or Vanguard and the costs of buyng/selling may be much higher. They were when I had to use Nationwide/Schwab in my 457B.
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Re: Just retired...any reason to move 401K to IRA?

Post by hoppy08520 »

GerryL wrote:As referenced above, the July issue of Money Magazine (just arrived in my mailbox) has a cover story on this issue titled: "The one retirement move you must get right." Might be worth a read if you are contemplating moving your funds from a 401k to an IRA. No one right answer for everyone. The article delves into the different issues you need to consider before making a decision.
I second the recommendation to read this 7-page article. As GerryL wrote, the article covers a lot of ground and effectively makes the point that there is no right advice for everyone. What I found intriguing about the article is that is was partly about the the industry in general and how it is dealing with rollovers, and partly advice for people who are facing this scenario. The article is part 1 of a 2-part series. It doesn't appear to be online.

Ian Salisbury, the journalist who wrote the article, posted here in Bogleheads to seek out people who did a 401(k) rollover: Reporter looking for 401k rollover investors. I actually contacted him and had a fairly lengthy phone interview, but my scenario wasn't quite what he was after so I probably won't be in the article.

Unfortunately, the people who need the advice the most probably won't read or see the article.

Some key points in the article and some of my thoughts:
  • Fueled by retiring baby boomers, new IRA rollovers total $300B annually, expected to rise to $400B by 2018.
  • Not surprisingly, the financial services industry are swarming over this bonanza like bees on Coke. If you consider that the average "financial advisor" can charge 1% of balance for management fees, and the average actively managed fund can get 1% of more, then that's a potential $6 BILLION money pot they are fighting over. And you wonder why every other TV commercial in the Masters is for a financial services/wealth management company?
  • Many custodians are treating their 401(k) business as a feeder program to IRAs at the same custodian. Evidently the profit margin is twice as big for IRAs as they are for 401(k). 401(k)'s, with all the record-keeping and administration, cost more to run and make less money for the custodian compared to IRAs. Hence, the custodians are trying to transfer retirees from their 401(k) plan directly into a Rollover IRA at the same custodian. Anecdotally, there seem to be a lot of threads here about Fidelity reps doing this.
  • People who work at MegaCorps that have high-quality low-fee 401(k)'s are on aggregate probably better off leaving their assets in the 401(k) as they are less likely to screw it up. Too many gullible people will take it to Edward Jones and similar and lose a significant chunk to sales loads, expensive "advisor fees", high-cost actively managed funds, or make stupid investments after going to a dinner seminar.
  • By contrast, people who work at smaller companies with expensive 401(k)s probably should roll over, but do so wisely.
  • Consider fixed annuity for a portion of your rollover but be wary of more expensive variable annuities.
  • I don't recall reading anything about asset protection issues. Evidently this is a bigger concern to Bogleheads compared to the general public. FYI, the wiki has a good page on Asset Protection.
  • Reading this article makes me sad. So many people, out of ignorance, fear or greed, make so many bad decisions with their lifetime of savings. The sad thing is it's so easy to not screw up. A boomer could simply roll their 401(k) over to Vanguard and put it in a 60/40 or 40/60 LifeStrategy or Target Retirement fund. Their may be some exceptions to consider, but you could do so much worse than this.
I think most Bogleheads know how to handle this but if you have a friend or relative who is looking at retiring then do they a favor and give them this article.
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tuningfork
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Re: Just retired...any reason to move 401K to IRA?

Post by tuningfork »

livesoft wrote:Some 401(k) plans have additional charges for retirees. If yours does not, then the only reason I can think of to move is to collect some bonus money from another financial institution or to consolidate at another vendor. My impression is that Fidelity will not give one bonuses for going from a Fidelity 401(k) to a Fidelity IRA. The Fidelity "retention" guy I spoke with was unhelpful.
One data point: I recently rolled over a Fidelity 401(k) to a Fidelity IRA and received a bonus. The Fidelity rep acted like it was not the norm and he had to get approval to give me the bonus. The bonus money showed up a few days after the rollover completed.
placeholder
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Re: Just retired...any reason to move 401K to IRA?

Post by placeholder »

Well if you're really interested in bonuses the best source I've found is:
http://www.hustlermoneyblog.com/best-brokerage-bonuses/
No affiliation other than an enthusiastic user.
dbr
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

placeholder wrote:Well if you're really interested in bonuses the best source I've found is:
http://www.hustlermoneyblog.com/best-brokerage-bonuses/
No affiliation other than an enthusiastic user.
Those Fidelity, and other, bonuses are all over the internet. I don't know if CSR's are badly trained, stupid, or it's disingenuousness on the part of investment companies to not give you a bonus you are qualified for if you don't ask.
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Toons
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Re: Just retired...any reason to move 401K to IRA?

Post by Toons »

prudent wrote:If the 401k has the low-cost index funds you want (cheaper than you could get in an IRA) and factoring in any recordkeeping or administrative fees your 401k plan might charge to your account directly, I don't see any reason to move. Many 401ks have a Stable Value fund that pays pretty well that would not be available to you in an IRA.

Yes, you won't have the variety of investment options, but if you don't want anything else, it doesn't matter. You can always switch to an IRA in the future if that changes.

Also, many advisors get paid a small percentage of assets (not out of your money) when people switch their 401k to an IRA, so the person you talked to may benefit personally from convincing you to switch.
+I Agree.We currently have an 401k with a former employer and have been retired over 3 years.
Fidelity is the plan administrator and for the first couple of years they would call us on a regular basis suggesting we roll the assets into a Fidelity IRA(substantial assets).
Inside of the 401k are Fidelity Institutional funds,and K share classes with low expense ratios.They also have a couple Vanguard Funds,Lifestrategy Moderate Growth and Total Bond Institutional to choose from.Given that the fund choices are excellent and we do not need "more " choices as suggested by Fidelity Rep,and after careful analysis of plan administrative costs(82.60 through the month of June) we have no plans to Roll the money anytime soon. :happy(The search for a Perfect Plan has Ruined Many a Good Plan)
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Tucumcari
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Re: Just retired...any reason to move 401K to IRA?

Post by Tucumcari »

brewsky wrote:Dont forget that if you retire between age 55 and 59 1/2 you can remove any amounts of money out of the 401k penalty free. (Without the problem of worrying about equal distributions). I dont think you can do that if you convert it to an IRA.
This is a good point but there are some nuances. It is actually the calendar year you turn 55 that you can start withdrawing penalty free any amount from your 401K (and only the 401K at the company where you retired). Also, as someone else pointed out, not every plan allows partial withdrawals from the 401K so you may end up rolling it over to an IRA anyway.

Anyone thinking about retiring/quitting /getting laid off might consider rolling over old 401k's into the current company plan if allowed (for the above reason).
fidelio
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Re: Just retired...any reason to move 401K to IRA?

Post by fidelio »

i retired about two yrs ago from a mega-corp. fido manages the employer's 401k, and i had planned to roll everything over to a vanguard ira. however, on careful examination of the fees for their index funds (comparable to vanguard's), etc., but mostly bcs. of the existence of a svf, i stayed in the fido 401k. it seems a prudent decision, as no fixed income investment otherwise available has been as attractive to date, to me, as the svf.
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SunsetKid
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Re: Just retired...any reason to move 401K to IRA?

Post by SunsetKid »

OP - Since you retired from a large company, you should probably check to see if some of the 401K is in company stock.
If it is, then you can separately transfer that out to a taxable account. I read about this a year ago, so I'm very vague on the steps.
I remember that the tax advantages were huge as this part is treated as capital gain vs if it goes into IRA, its taxed as regular income even if some of it came from capital gain.

Further info can be found at:
http://www.investopedia.com/articles/re ... 062305.asp
http://www.marketwatch.com/story/employ ... 2013-04-26
Sagenick48
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Re: Just retired...any reason to move 401K to IRA?

Post by Sagenick48 »

I will add one comment which I didn't see in my quick skim of all the other contributions. If you have been making non-deductible contributions to an IRA and you convert your 401k to an IRA then your basis will get spread out over all your IRA money versus just being spread over the old IRA. This could have a tax impact. Personally I would keep them separate for that reason. If you don't have an existing IRA with nondeductible contributions this wouldn't matter.
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dbr
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Re: Just retired...any reason to move 401K to IRA?

Post by dbr »

The above two posts point out cases where investments in a 401K can have tax handling issues that a person should consider before just rolling over.
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hoppy08520
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Re: Just retired...any reason to move 401K to IRA?

Post by hoppy08520 »

FYI, this excellent article from Money magazine is now online:
Why is rolling over my 401(k) such a big deal?
hoppy08520 wrote:
GerryL wrote:As referenced above, the July issue of Money Magazine (just arrived in my mailbox) has a cover story on this issue titled: "The one retirement move you must get right." Might be worth a read if you are contemplating moving your funds from a 401k to an IRA. No one right answer for everyone. The article delves into the different issues you need to consider before making a decision.
I second the recommendation to read this 7-page article.....
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Re: Just retired...any reason to move 401K to IRA?

Post by rustymutt »

I got my 401k rolled over into Vanguard as a IRA . Then I was able to gain access to the correct asset classes for my investing goals. That was my reason for moving it. The cost of investing at Vanguard was and is so low compared to others.
I couldn't resist the Boglehead desire to save on expenses, and keep more of my money for us.
Even educators need education. And some can be hard headed to the point of needing time out.
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hoppy08520
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Re: Just retired...any reason to move 401K to IRA?

Post by hoppy08520 »

rustymutt wrote:I got my 401k rolled over into Vanguard as a IRA . Then I was able to gain access to the correct asset classes for my investing goals. That was my reason for moving it. The cost of investing at Vanguard was and is so low compared to others.
I couldn't resist the Boglehead desire to save on expenses, and keep more of my money for us.
I did the same thing, as soon as I had the option to roll over my 401(k).

Unfortunately all too many of our colleagues just have no idea what they're doing:
GDBryan in [url=http://www.bogleheads.org/forum/viewtopic.php?f=1&t=142880]Another reason I am my own advisor[/url] wrote:401(k) rollover boom enriches brokers at retirees’ expense
http://seattletimes.com/html/businesste ... gexml.html
article wrote:... She [the advisor] encouraged hundreds of departing AT&T employees to roll over their [401(k)] retirement money into the kind of risky high-commission investments that Wall Street’s self-regulatory agency warns against on its website.
When I left my former employer, I was a true investment novice. I went to a seemingly honest investment adviser, who recommended a very complex portfolio including stock picking with a 1% commission, a single REIT and an annuity. (I shudder to think what the commissions might have been on the last two.) Luckily it took several months for some company stock sales to be completed. During that time I educated myself, reading several good books and monitoring this forum.
Trurl Klapaucius
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Re: Just retired...any reason to move 401K to IRA?

Post by Trurl Klapaucius »

I think the ERISA asset protection offered by a 401K is valuable, and shouldn’t be dismissed lightly. If your retirement assets were held only in an IRA, how much would it cost you to purchase similar protection? Answer: you couldn’t get it anywhere!

Here is a relevant clip from the wiki (http://www.bogleheads.org/wiki/Asset_protection) :

The Employee Retirement Income Security Act (ERISA) provides 401Ks and other ERISA-governed retirement plans with rock-solid protection from creditor judgments. This protection applies to judgments other than bankruptcy, and it applies in all 50 U.S. states.

Individual Retirement Accounts (IRAs) don't receive those federal protections, although some states shield IRA assets from creditor judgments.

In short, maximizing contributions to a 401K plan is an excellent asset protection strategy; investors considering rolling over assets from a 401K plan to an IRA should carefully consider the asset protection implications.
nickfrank
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Re: Just retired...any reason to move 401K to IRA?

Post by nickfrank »

Another reason not to move 401K to IRA. If you continue to work past age 70.5 you are not required to take an RMD from the 401K account. I found this out the hard way when I rolled my 401K to Vanguard to reduce the high er. and then continued to work and contribute to my 401K to reduce income from taxes. I am now 73 and still working and taking RMD from my IRA which I don't need for expenses. My IRA is much larger due to the 401K rollover. I consider myself semi-retired since I work part time.
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Julieta
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Re: Just retired...any reason to move 401K to IRA?

Post by Julieta »

JW Nearly Retired wrote:
Dave C. wrote:My Fidelity guy says most people make the move from 401K to an IRA at retirement, maInly for a wider selection of options for investment. This may be an unusual fact, but my company's 401(k) plan offers exactly the type of index funds I am interested in.
Am I missing a point? My former employer is a large international pharmaceutical firm.
This is self serving advice because for the same account size Fidelity makes twice as much money on IRAs than on 401ks. (Source: Rollovers article July 2014 Money page 46.)

The backdoor Roth problem if you have a rollover IRA has been mentioned already. This is a big reason not to rollover unless you are certain you will never make too much money to make direct Roth contributions.

Lastly, 401k accounts are said to have better Federal ERSIA asset protection in lawsuits. IRAs have some protection only if you declare bankruptcy and it varies by state. I believe this is true but not a lawyer so check for yourself. I've left my own 401k where it is mainly for this reason as it has very low cost options and no downside I can see. Dealing with the 401k administrator (ING) is just like dealing with Fidelity or Vanguard. I've never needed to talk to my old company HR as they have farmed everything to ING.



JW
JW, what is the backdoor Roth problem with a rollover IRA?
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swimirvine
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Re: Just retired...any reason to move 401K to IRA?

Post by swimirvine »

I was helping my mother-in-law with some of her finances and told her something very similar: "Now that you're retired, you should probably move your 401(k) over to an IRA at Vanguard and have it all in 1 balanced fund. It'll make things simple and the costs are very low."

When I looked at her 401(k) she was invested in Vanguard Index Funds with and ERs of 0.0 ... what?!?! I had to read all the fine print and we even called State Farm.

She worked for State Farm for 30+ years and evidently State Farm pays the institutional expense ratio on some of the funds for their employees. The ER would have been 0.06 or so.

There are 20+ funds to choose from and 3 or 4 of them have ERs listed at 0.0. I asked if there were any other fees or expenses associated with the account and the answer was "no."

Talk about getting her fair share of the market return!

Has anyone heard of something like this before?
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an_asker
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Re: Just retired...any reason to move 401K to IRA?

Post by an_asker »

midareff wrote:
nisiprius wrote:
JW Nearly Retired wrote:
nisiprius wrote:What about costs? Do you know absolutely for sure what your expenses for hold those funds in your 401(k) are, compared to in a rollover IRA?
This is a very good point that everyone should take seriously. Perhaps it's easier to check now, but some years ago I went to the point of zeroing out my contributions to one 401k test case fund (SP500) for a whole year so I could compare the SP500 account balance year-over-year growth to a Vanguard SP500 fund. My 401k SP500 fund actually had slightly more unpolluted by contributions growth, confirming the ER's listed.

I felt a lot better about the validity of my stated 401k costs after that. I've been hooked and can be reeled in now. :)
JW
My dim, dim, dim recollection may be totally wrong--I wish I'd saved paper and printouts.

What I remember is that the stated mutual fund costs in my 401(k) plan were in fact accurate. If the plan literature said that the expense ratio for FUSEX was 0.XX%, it really was 0.XX%--for participants in the plan. The problem is that I was a dummy and just assumed that "'the' expense ratio of FUSEX" was a characteristic of FUSEX and was always the same. If I'd been sharper, and gone to Fidelity's regular website instead of their 401(k) plan website--as I eventually did--I would have seen that "the" expense ratio for FUSEX, held in an ordinary brokerage account, was a different and lower number.


In other words, instead of explaining clearly that the expense ratio shown for my FUSEX holding in the plan was the sum of two layers of expenses--the FUSEX fund's own expenses plus a second layer of 401(k) administrative expenses--they bundled them together, allowing me to assume (idiotically) that it was the same as the cost of holding FUSEX outside the plan.

If my memories are inaccurate, I apologize. Anyway, it wouldn't take ten minutes to compare the expense ratios listed in your 401(k) plan with the expense ratios for the same ticker symbol outside the plan, and I'd appreciate it if someone would do this and report what they see.

Good points Nisi... generally there is an annual charge for the administrator which you would not pay at Fido or Vanguard and the costs of buyng/selling may be much higher. They were when I had to use Nationwide/Schwab in my 457B.
I don't know about Nisi's case of course, but in my case, barring any fine print, I got the same expense ratios via Fidelity Rollover IRA that I got through their 401(k).
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Kevin M
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Re: Just retired...any reason to move 401K to IRA?

Post by Kevin M »

Julieta wrote: what is the backdoor Roth problem with a rollover IRA?
Julieta sent me a PM about this, and I answered. Here is my answer (feel free to correct any errors):

This is mainly an issue for those wanting to do backdoor Roth contributions, but in general is true if you have a basis in your traditional IRAs. Basis is the total of all non-deductible contributions made, reduced by how much of the basis has been converted or withdrawn.

Simple case, backdoor Roth: you have no tradtional IRAs, and have too much income to qualify for contribution to a Roth IRA. You make a non-deductible contribution of $5,500 to tIRA. Your basis is $5,500. You immediately convert to Roth. Since your tIRA contribution was non-deductible (you already paid taxes on the income used for the contribution), there is no income tax on the conversion. You are not taxed because your basis in the tIRA was 100%.

Now say you first roll $5,500 from a (traditional) 401k into an IRA. At this point your basis is 0, since the rollover was from pre-tax contributions. Now you contribute $5,500, non-deductible, to tIRA. Your basis is now $5,500, or 50% of your IRA value. Now you convert it all to a Roth (assume no earnings in tIRA). You owe income tax on 50% of the converted amount. So you pay tax prorata on any conversion or distributions, depending on your basis. The larger your basis as a proportion of your tIRA values, the less tax you pay.

So if someone has no tIRA and rolls over $100K into a tIRA, then makes a 5,500 non-deductible contribution thinking they want to do a backdoor Roth, they will owe taxes on 100,000/105,500 = 94.8% of the converted amount, regardless of how much they convert. Even if they just convert the $5,500, they will owe tax on 94.8% of it. You can't separate out the non-deductible contribution (basis) from the pre-tax amount for purposes of income taxes.

In my case I had a relatively small IRA that was largely from non-deductible contributions. If I had not rolled my relatively large 401k into a tIRA, I could have converted the entire tIRA at very low tax cost, but now since my basis is very small relative to the total, I pay taxes on most of any Roth conversions.

Kevin
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