401K - Previous Employer

[rlogue06]

Good day all!  I’ve been following the website and the forum for a while now (lurking), and there’s a lot of very sharp people in here.  I’d like to get your thoughts on my old 401K.

There’s a couple things I don’t really quite understand:

1.  I’m really liking Betterment, I like the hands-off auto balancing approach.  If I were to roll over into an IRA, am I opening myself up to risk / liability?  For example if I got sued for some reason, car wreck, medical bills?  I don’t have any of that going on now, but my understanding is it’s safe from creditors in the 401K.

2.  I could roll it over into my new 401K, I can’t quite wrap my mind around this though (or rolling over anywhere):  The largest portion of my holdings were purchased when the market was much lower.  Would I not in effect, be selling all the holdings I bought cheap for similar holdings that are very expensive?  Can’t quite get this concept.

3.  If I do roll over, is it a good idea to do it in stages?  Or just dump it in all at once to my desired allocation?

Any insight would be appreciated.  I’ve got about 15 years or so to work if things go right... if not then closer to 20.

Thanks in advance!

[rubybeth]

Generally, you wouldn’t cash out your 401k, you’d do a rollover to an IRA, which would be protected from creditors in the same way: https://www.investopedia.com/ask/answers/07/seizing-savings.asp

I don’t really think you’d want to roll it to your current 401k—there are likely much better options via Fidelity, Vanguard, etc. with lower fees and fund options vs. your current 401k. Also, shares cost more than than before? Not really a problem. You sell off what’s in your 401k and buy into a different fund. You keep the value.

Do a rollover all at once, not in stages.

[rlogue06]

Thanks for the response, much appreciated.

[rubybeth]

Sure, we just rolled my DH's previous 401k to Vanguard, and it was pretty easy, except for needing to get a medallion signature guarantee and notary stamp for the documents. They have the steps on their site: https://investor.vanguard.com/401k-rollover/how-to-roll-over

Fidelity has a similar page: https://www.fidelity.com/retirement-ira/401k-rollover

I'd suggest doing more reading about potential investments.

For us, it was a choice between FUSVX (FUSEX) or VTSAX (VTSMX). I have my IRA with Fidelity, DH has his with Vanguard, so he decided to roll to Vanguard so it's in one place.

[Aggie1999]

If you do decide to roll over your 401k to an IRA stay away from Betterment. Their claim to fame is tax loss harvesting which doesn't apply to tax-advantaged accounts. Even in taxable account the benefit is debatable. If you went to Betterment you would basically be paying 0.25% extra for no benefit. If you decode to roll over your 401k go with Vanguard, Fidelity or Schwab and their low cost total market index funds.

On whether you should roll over to an IRA or not depends on a couple things. One, what is the 401k costing you? Does it have low expense ratios for total market funds? Is there an additional administrative fee on top of the ER's? Two, do you plan to do a mega-backdoor roth where you roll your funds from an tIRA to a rIRA over time? I don't believe you can do this from a 401k to a rIRA.

[seattlecyclone]

1.  I’m really liking Betterment, I like the hands-off auto balancing approach.  If I were to roll over into an IRA, am I opening myself up to risk / liability?  For example if I got sued for some reason, car wreck, medical bills?  I don’t have any of that going on now, but my understanding is it’s safe from creditors in the 401K.

I think that different states may have slightly different protection against creditors for 401(k)s vs. IRAs. Not sure we can give a blanket answer here.

2.  I could roll it over into my new 401K, I can’t quite wrap my mind around this though (or rolling over anywhere):  The largest portion of my holdings were purchased when the market was much lower.  Would I not in effect, be selling all the holdings I bought cheap for similar holdings that are very expensive?  Can’t quite get this concept.

Pretend you simply sold all the shares in your current 401(k) and then bought the exact same number of shares back again a minute later. Yes you would technically have purchased the shares for more money today than you originally did a few years ago, but so what? You still have the same assets as you did yesterday. A rollover can be the same: you sell shares in one account and buy back the same thing in the new account.

3.  If I do roll over, is it a good idea to do it in stages?  Or just dump it in all at once to my desired allocation?

Just do it all at once.

As to the question of whether you should roll it over into a 401(k) or an IRA, take a look at what funds are available in your new 401(k). Some companies have really good 401(k)s with institutional class index funds that have lower expense ratios than you can get in an IRA. Many companies give you worse options than you could get in an IRA. It all depends.