Any regrets rolling over 401k to Vanguard IRA?

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Sage16
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Any regrets rolling over 401k to Vanguard IRA?

Post by Sage16 »

I am thinking of rolling over my entire 401k balance into an existing Vanguard IRA and wonder if anyone has done that and regretted it after the fact? I am retired and left my 401k in place. Other than the index funds in my 401 k plan the investment options are not great. It does offer a stable value fund that is average and currently yields slightly over 2%. Withdraw options are limited and restrictive in the plan and its not being administered by any of the brokerage firms where I would consider rolling it in place or have an option to add a brokerage account to it. My wife's 401k is at Fidelity and we are not thinking of moving it at this time.

Pros for moving to Vanguard: I can consolidate an account. More flexibility for withdrawal options. More low cost investment options, although I would probably put most of it back into index funds. If something happened to me, my wife could use Vanguard's PAS and not have to find and move accounts.

Cons for moving away from the 401k: More lawsuit protection in the 401 k than in an IRA, and from what I can tell the IRA lawsuit protection rules vary from state to state. I do have an umbrella policy for additional liability protection but you never know what risks lie ahead. Keeping the 401 k account limits exposure to a hack at Vanguard.

Anyone consolidate their accounts to Vanguard and think I am worrying too much about the risks? Anyone roll-over their 401 k plan to an IRA and wish they hadn't?
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by sport »

I have rolled two 401k accounts to Vanguard. It has been a long time, the first one was in 1992. I have been very happy to have done both of them. One caution: Do a direct rollover rather than cash out the 401k. If you cash out the 401k, they will withhold 20% for income taxes. This withholding would be a taxable withdrawal unless you make it up with other money deposited into your IRA. A direct rollover does not require withholding. If the 401k administrator insists on sending you a check, have it made out to your new IRA custodian. That custodian will tell you how to have the check made out.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by jebmke »

Sage16 wrote: Sun Nov 26, 2017 3:19 pm I am thinking of rolling over my entire 401k balance into an existing Vanguard IRA and wonder if anyone has done that and regretted it after the fact?
I rolled mine to IRAs (part to TIRA and part to ROTH). I have done taxes for people who regretted it later. In Maryland, when you turn 65 up to ~30K of qualified retirement income is excludable for state income taxes. IRA distributions do not qualify for this exclusion but 401(k) distributions do. In my case, I will have other retirement income to use the exclusion against.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Broken Man 1999 »

No regrets from wife or myself. We rolled my 401k, and two 401k accounts to Vanguard with zero problems. Also I have rolled three accounts for BIL with zero problems. My BIL said he is finally making more money on his accounts than his advisor, sadly a distant family member. Loaded funds plus high expenses...ouch! :shock:

I found it very easy to accomplish, but I didn't leave anything for Vanguard to wonder about our intentions. IOW, leave no doubt of what you want accomplished

First, I always set up a shell account to receive the proceeds. Then I could reference the actual account number, sometimes via a check made out to Vanguard FBO XXXXX X XXXX (name) Vanguard account xxxxxxx. Then I would write a short note stating to deposit proceeds in xxxxxx usually in the Federal Money Market Fund. On some accounts no check was received, but Vanguard knew to transfer in kind based on the "funding" option when telling Vanguard where the account was being held on their online rollover request.

The more information provided, the better. You just want to be sure Vanguard has zero questions about your desires for the incoming proceeds. And having the shell account established first makes everything easier, and less chance of problems.

So far so good. We recently did an in-service rollover as BIL was 59 1/2 to take advantage of much lower expenses at Vanguard than at his current work 401k. No issues.

No regrets at this time.

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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Small Law Survivor »

Just did it a week ago - taxable and Roth. Worked very closely with Vanguard rep to make sure I did it correctly, and had no problem. Regrets? None so far, none that I anticipate, although I don't understand the comment re Maryland law in the post above.

Feels good to have money consolidated in one place.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by jebmke »

Small Law Survivor wrote: Sun Nov 26, 2017 3:53 pm although I don't understand the comment re Maryland law in the post above.
distributions from qualified retirement plans are normally considered income. However, Maryland allows you to reduce your AGI by up to $30K every year you file after you turn 65; you can't exclude more than the qualified retirement income. It is commonly called the "Pension Exemption." A 401(k) distribution is a qualified retirement plan and therefore, you can exclude up to $30K from this income from your Maryland income. IRA distributions are not considered qualified plans even if the money originally came from a qualified plan. If you roll a qualified plan (like 401, 403 ..) into an IRA you can lose the exclusion if this was your only pension income.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by jhfenton »

We've always rolled our 401(k)s to IRAs. We've yet to have a 401(k) with investment options as attractive as we can get on our own, so we've never hesitated.

In my wife's case, we've done two 401(k) rollovers in the last few years. The first we did from a Schwab-custodied 401(k) to TD Ameritrade. TD Ameritrade set up a virtual ACH tied to a rollover IRA and Schwab ACH'd the money to TD Ameritrade. The money was out of the market 1 day (2 nights). It was a six-figure account, so I was glad the transfer was electronic.

The second, tiny rollover went straight from a small 401(k) custodian to Vanguard. Vanguard has no ability to set up a virtual ACH to accept a 401(k) rollover--and the custodian wouldn't have done it anyway. So they mailed a check to Vanguard. It was only a few thousand dollars, so I just made an offsetting adjustment elsewhere in our portfolio for the week it took the check to arrive and be deposited.

My 401(k) is custodied at Fidelity. I already know that when I leave, I'm going to roll the 401(k) into a Fidelity IRA before I transfer in-kind to Vanguard. It's a six-figure account, and I don't want to rely on a check being mailed to Vanguard for that amount. I can buy commission-free iShares ETFs and then sell them at Vanguard for $0/$2 each.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Sage16 »

[/quote]
you can exclude up to $30K from this income from your Maryland income.
[/quote]

I have pension income so that isn't an issue. I don't live in Maryland but don't know where we may end up later in retirement years so the state rules could be a risk factor. Sounds like any lawsuit risk wasn't a concern for you.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by noco-hawkeye »

I think the main regret you'd find would be that this can mess up the taxes for a backdoor roth. I'm not sure you are in this situation, but I imagine this would be a common regret for higher income earners.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Sage16 »

jhfenton wrote: Sun Nov 26, 2017 4:33 pm The money was out of the market 1 day (2 nights). It was a six-figure account, so I was glad the transfer was electronic.
Understanding how my transfer may occur would be a good consideration. thanks for mentioning this.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by jhfenton »

Sage16 wrote: Sun Nov 26, 2017 4:43 pm
jhfenton wrote: Sun Nov 26, 2017 4:33 pm The money was out of the market 1 day (2 nights). It was a six-figure account, so I was glad the transfer was electronic.
Understanding how my transfer may occur would be a good consideration. thanks for mentioning this.
I'd be reluctant to roll a large 401(k) directly over to Vanguard simply because of the time out of the market. It would drive me crazy to an irrational degree. :beer

I'd explore other options, maybe collect a brokerage bonus somewhere that accepted electronic rollovers (if my 401(k) custodian offered it), and then transfer in-kind to Vanguard. It's easy with my 401(k) at Fidelity. I know from a former co-worker that they transferred the money to in-house IRA with no delay.
Last edited by jhfenton on Sun Nov 26, 2017 4:47 pm, edited 2 times in total.
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Re: Any regrets rolling over 401k to Vanguard IRA?

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noco-hawkeye wrote: Sun Nov 26, 2017 4:39 pm I think the main regret you'd find would be that this can mess up the taxes for a backdoor roth. I'm not sure you are in this situation, but I imagine this would be a common regret for higher income earners.
I have looked into the backdoor Roth and it's not an option for me. I have an IRA that can't be rolled into a 401k and no longer have earned income.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by darrvao777 »

Interesting topic

We are planning on doing the same shortly for my wife's 401k

She is now retired and her company has switched 401k providers twice in 2 years.

For simplicity and stability's sake, we plan on rolling over the 401k to a Vanguard IRA (where we keep almost all our investable assets) and then converting it to a Roth IRA. We are market timing a bit as we want to wait for a market correction before doing so to minimize taxes during conversion. (This allows us to keep the backdoor Roth option open)
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by JW-Retired »

Sage16 wrote: Sun Nov 26, 2017 3:19 pm I am thinking of rolling over my entire 401k balance into an existing Vanguard IRA and wonder if anyone has done that and regretted it after the fact? I am retired and left my 401k in place. Other than the index funds in my 401 k plan the investment options are not great. It does offer a stable value fund that is average and currently yields slightly over 2%.

Cons for moving away from the 401k: More lawsuit protection in the 401 k than in an IRA, and from what I can tell the IRA lawsuit protection rules vary from state to state. I do have an umbrella policy for additional liability protection but you never know what risks lie ahead.
Is is possible you are being hasty with this? I sure would regret moving my 401k away from my employer and throw away that strong lawsuit protection. Mine does have low costs, but if your 401k has good index funds and that stable value fund, what more do you want? I'm pretty sure you can't get a stable value fund outside of an employer plan.

No state has anything as bulletproof as the 401k's ERISA lawsuit protection, but some states (like CA) are much worse than others. How does your state rank in this?
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Re: Any regrets rolling over 401k to Vanguard IRA?

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JW-Retired wrote: Sun Nov 26, 2017 6:25 pm
No state has anything as bulletproof as the 401k's ERISA lawsuit protection, but some states (like CA) are much worse than others. How does your state rank in this?
JW
From a LA Times article.

"Other states, such as Texas, Arizona and Washington, protect virtually everything inside an IRA from creditors. In Arizona, for example, only contributions made within the last 120 days can be subject to creditors' claims in a bankruptcy. (Interestingly, two of those three states, Washington and Texas, also have no income tax, which makes their appeal to wealthy retirees even more clear.)."

The good news is that I currently live in WA but we continue to talk about maybe relocating to a warmer drier climate.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by JW-Retired »

Sage16 wrote: Sun Nov 26, 2017 7:16 pm
JW-Retired wrote: Sun Nov 26, 2017 6:25 pm
No state has anything as bulletproof as the 401k's ERISA lawsuit protection, but some states (like CA) are much worse than others. How does your state rank in this?
JW
From a LA Times article.

"Other states, such as Texas, Arizona and Washington, protect virtually everything inside an IRA from creditors. In Arizona, for example, only contributions made within the last 120 days can be subject to creditors' claims in a bankruptcy. (Interestingly, two of those three states, Washington and Texas, also have no income tax, which makes their appeal to wealthy retirees even more clear.)."

The good news is that I currently live in WA but we continue to talk about maybe relocating to a warmer drier climate.
Suggest you skip over California if you follow your plan.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Wildebeest »

If you would transfer your 401 K into an E trade IRA or any of the other of the brokerage houses which offer a bonus and you could get up to $ 2500 for a million dollar 401 K account.

You might interested in Earl Lemongrab's The final and definitive thread on brokerage transfer bonuses: viewtopic.php?t=196884
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Sage16 »

Wildebeest wrote: Sun Nov 26, 2017 7:42 pm If you would transfer your 401 K into an E trade IRA or any of the other of the brokerage houses which offer a bonus and you could get up to $ 2500 for a million dollar 401 K account.

You might interested in Earl Lemongrab's The final and definitive thread on brokerage transfer bonuses: viewtopic.php?t=196884
Interesting. But I an trying to assess what I give up and gain by moving out of my 401k and consolidate into an existing IRA at Vanguard. On a really good or bad day in the market my account can fluctuate more than the bonus amount so that is not enough incentive to add another account/ move in the mix.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by afan »

Lawsuit protection: It is complicated. There are both bankruptcy and nonbankruptcy exposures. Although there are federal protections, the state rules for each vary by state. It is possible for one to have better protection under federal law in some cases and under state law in others. Focusing only on bankruptcy protection can be highly misleading.

According to my attorney, money rolled into an IRA from a qualified plan retains its protection from the qualified plan. Money invested directly into an IRA has relatively poor protection under my state law. So the rollover IRA is better protected than money directly put into an IRA. Of course, one would create a rollover IRA and keep the assets separate from any self funded IRA.

Since I was paying for the advice, I did not up the ante by asking whether this was based on state or federal law. If it is state law, it is possible the rules may be different depending on your state. I tried to look this up myself and never found a straight answer understandable to a layperson. Before I would do it I would check whether moving to another state could change the protections.

This has come up on bogleheads before but unfortunately none of the attorneys active on here have addressed it. At least not that I have been able to find.
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Earl Lemongrab »

Sage16 wrote: Sun Nov 26, 2017 7:56 pm Interesting. But I an trying to assess what I give up and gain by moving out of my 401k and consolidate into an existing IRA at Vanguard. On a really good or bad day in the market my account can fluctuate more than the bonus amount so that is not enough incentive to add another account/ move in the mix.
There are two questions. One is whether to roll out of the 401(k) and the other where to roll it. The time out of market is going to be a factor no matter where. The other is whether to roll it to a custodian with a bonus. If you only want one account (and to me that's a non-factor especially in retirement) then you could move the existing Vanguard account to the new brokerage as well. I mean, you wouldn't pass up a $100 on the sidewalk because it's small compared to investment results, would you?
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Re: Any regrets rolling over 401k to Vanguard IRA?

Post by Sage16 »

Earl Lemongrab wrote: Mon Nov 27, 2017 11:17 am
Sage16 wrote: Sun Nov 26, 2017 7:56 pm Interesting. But I an trying to assess what I give up and gain by moving out of my 401k and consolidate into an existing IRA at Vanguard. On a really good or bad day in the market my account can fluctuate more than the bonus amount so that is not enough incentive to add another account/ move in the mix.
There are two questions. One is whether to roll out of the 401(k) and the other where to roll it. The time out of market is going to be a factor no matter where. The other is whether to roll it to a custodian with a bonus. If you only want one account (and to me that's a non-factor especially in retirement) then you could move the existing Vanguard account to the new brokerage as well. I mean, you wouldn't pass up a $100 on the sidewalk because it's small compared to investment results, would you?
The more I look into this, and the lack of clarity around the IRA protection vs 401k's, I am leaning toward playing it safe for now and leaving the 401k in place. But if I found a $100 on the sidewalk I would surely pick it up, (unless it appears to be the turkey drop scam they warn you about when traveling abroad :happy ).
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