Author Topic: 401k withdrawal  (Read 834 times)

ericbonabike

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401k withdrawal
« on: January 21, 2020, 01:07:55 PM »
Am I correct in understanding that unless your employer allows "in-service transfers" that there is literally no other way to get money out of a 401k without quitting?

am asking because my employer is rolling out a 1/4% AUM fee.  I'm irritated and i want my money out ASAP.


DadJokes

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Re: 401k withdrawal
« Reply #1 on: January 21, 2020, 01:12:58 PM »
If they don't allow in-service withdrawals, you are out of luck. I would recommend talking to your employer about your disapproval of the new plan. If you don't particularly like your job, it could even be the straw that makes you start looking elsewhere.

ericbonabike

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Re: 401k withdrawal
« Reply #2 on: January 22, 2020, 10:09:24 AM »
Well, I've reached out to my CFO.  Who blamed it on change in Dept of Labor laws.  But the law says that 401k companies can either assess fees using a pro rata method (which is what they've done), or pro capita method (fixed amount for each employee).   Hard to believe that anyone would sign off on a pro rata? 

I've arranged a 1 hour meeting with my local VP. And have prepared about 10 slides discussing the extent to which this small fee will screw employees. 
The amount of money is actually staggering. And I have a new and profound appreciation for investing in low cost index funds.

My projections:

New Employee #1:  Starts at age 25.   0 initial balance.  Invests 5k annually, company matches 5k.  averages 7% Annual.  If she retires at age 55, she'll lose an additional 20k to this fee.  If she retires at age 65, she'll lose an additional 110k to this fee.

New Employee #2.  Same as above, except she averages 10% annually.  If she retires at age 55, she'll lose an additional 90k.  If she retires at age 65, she'll lose an additional 350k. 

Old Employee #1:  Age 35.  300k initial balance.  Invests 10k annually.  Company matches 6k annually.  Averages 9%.   If she retires at age 55 (works 20 years), she'll lose an additional 100k.  If she retires at age 65 (works 30 years), she'll lose an additional ~400k. 

Old employee #2:  Age 45.  600k initial balance.  Invests 19.5k annually.  Company matches 9k annually.  Averages 9%.  If she retires at age 55 (works 10 years), she'll lose an additional 40k.  If she retires at age 65 (works 20 years), she'll lose an additional 200k.

These are staggering amounts of money for what is being called a "small fee".


dandarc

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Re: 401k withdrawal
« Reply #3 on: January 22, 2020, 10:31:37 AM »
Even better than pro-rata or pro-capita - company pays that fee or does whatever work is being done to earn that fee themselves if they can do it cheaper.

How large is this company?

DaMa

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Re: 401k withdrawal
« Reply #4 on: January 22, 2020, 11:18:05 AM »
I recently worked for a company where the 401k management company 1-1.5% fee to every fund.  Imagine my shock when VTSAX was listed with a 1.54% expense ratio.  It turned out the 401k management company was owned by "friends and family" of the CEO (as were most of the vendors).

I wasn't there long.

I don't know anything about the rules, but can you push for in-service conversions?

ericbonabike

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Re: 401k withdrawal
« Reply #5 on: January 22, 2020, 12:19:54 PM »
I recently worked for a company where the 401k management company 1-1.5% fee to every fund.  Imagine my shock when VTSAX was listed with a 1.54% expense ratio.  It turned out the 401k management company was owned by "friends and family" of the CEO (as were most of the vendors).

I wasn't there long.

I don't know anything about the rules, but can you push for in-service conversions?

I have three possible solutions to this problem:

1) Move to a more reasonable pro capita fee structure.  A $200 annual fee doesn't appear to be unreasonable to me.

2) Allow in-service transfers.  I would move 100% of my money out as it was put in.

3) Find a new 401k provider.


A 1.5% surcharge on VTSAX?? Holy shit.


ericbonabike

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Re: 401k withdrawal
« Reply #6 on: January 22, 2020, 12:22:07 PM »
Even better than pro-rata or pro-capita - company pays that fee or does whatever work is being done to earn that fee themselves if they can do it cheaper.

How large is this company?

We're right at 1000 folks.   This might be reason to leave, but I'm 5 years away from retirement, and my ESOP holdings are likely to double in that time span(currently holding 300k)

dandarc

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Re: 401k withdrawal
« Reply #7 on: January 22, 2020, 12:25:45 PM »
Even better than pro-rata or pro-capita - company pays that fee or does whatever work is being done to earn that fee themselves if they can do it cheaper.

How large is this company?

We're right at 1000 folks.   This might be reason to leave, but I'm 5 years away from retirement, and my ESOP holdings are likely to double in that time span(currently holding 300k)
Right - so the time is short, the tax savings and match should swamp the ridiculous new fee, but keep on pushing for change.