Author Topic: New job / Old 401k  (Read 3316 times)

tracy322

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New job / Old 401k
« on: November 20, 2014, 05:21:07 PM »
I recently started a new job and need to figure out what to do with the money that remains in my former employer's 401k.  I think my options are 1) leave it; 2) move it to my new employer's 401k or 3) move it to an IRA.  It seems option 3 also has 2 options in that I could use either a self or professionally managed IRA.  This money represents the bulk of my retirement (and life!) savings so I am hoping this forum can help me figure out how to make a solid decision.  Thank you!

TN_Steve

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Re: New job / Old 401k
« Reply #1 on: November 20, 2014, 05:30:22 PM »
What are the investment options and costs at each of the employer 401k plans?

After you have that data, compare to cost of going with index funds at Vanguard.  Do not get a "professionally managed" 401k.  If you haven't invested much before (which I'm guessing), take a look at this for starters:  http://www.bogleheads.org/wiki/Three-fund_portfolio

The main determinates of investment returns are asset allocation, asset allocation, asset allocation, and keeping expenses down.

Asset allocation will be determined by your comfort level, your age (or years to retirement), your income needs in retirement, and your personal comfort level.

Please follow up in later posts, as there isn't a whole lot to say without more data.

EDIT___PS--make sure that any transfer of funds to new location is done "trustee to trustee" to avoid getting a check in your hand with adverse IRS implications.

tracy322

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Re: New job / Old 401k
« Reply #2 on: November 21, 2014, 06:49:01 AM »
Thanks for the feedback.  Here is a little more info.  The investment options in my new 401k are pretty limited (20 total, with most of those being target date funds).  The investment options in my old 401k are better.  Here is how each is currently invested:

OLD 401k
Allocation   Investment
35%           SPTN 500 Index Adv
25%           SPTN GLB xUS Index Adv
15%           SPTN US Bond Index Adv
10%           SPTN Mid Cap Index
10%           SPTN Small Cap Index
5%           SPTN Real Estate Index

NEW 401k
Allocation   Investment
45%           S&P 500 Index
25%           Int'l Equity Index
15%           Russell 2000 Index
15%           Fixed Income Index

So, based on all that, what are the thoughts on leaving it, moving it or going to an IRA?  Thanks again!



TN_Steve

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Re: New job / Old 401k
« Reply #3 on: November 21, 2014, 07:53:42 AM »
Do the funds have the standard expense ratios that you can pull up on the web?  Are there additional 401k fees that are taken out of employee accounts??

The Spartan funds are pretty good from expense standpoint (if rack rate); not as cheap as you could get in a Vanguard IRA, but better than many 401k plans.  The new 401k's investment descriptions are insufficient to tell what funds you have available and what the rack rate expense ratio might be--you could be looking at anything from better than Spartan to above 1%.  You should have been given the expense ratios when you signed up for the new plan and chose your allocations--and/or the information is available on the online portal to your new plan.

Your best approach probably is to do a table with three or four columns for each potential provider (Old 401k, New 401k, Vanguard IRA, and ______ IRA), and a row for each type of investment you want.  The expense ratio for the particular fund should be placed in the pertinent cell.  That'll give you a quick and easy way to line things up and look at them when making your decision.  Generally speaking, it will typically be best to roll out to Vanguard IRA, but you don't know for sure without comparing the numbers.

(BTW, saw you posted these questions over at bogleheads too.  You'll get good feedback there--but, like here, you need to flesh out the investment choices and costs to get informed commentary.  Also, as one of the responses over there indicated:  Don't feel like you have to rush this process.)

Catbert

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Re: New job / Old 401k
« Reply #4 on: November 21, 2014, 03:03:28 PM »
As TN Steve said there is no need to rush.

There are some advantages to 401ks over IRAs which are often forgotten:
-If you retire at 55 or over you can access the 401k of the employer you retired from w/o penalty.  With IRAs it's 59 1/2 or waiting for a 5 year Roth pipeline or doing a 72t election.
-401k are protected by Federal law in bankruptcies or being sued.  IRAs may have less protection (depending on state law.)
-You can borrow from a 401k with a 5 year payback.  If you take money from an IRA it must be returned within 60 days or it counts as a distribution.
-If you want to do backdoor/two-step Roth IRAs because your income is too high for a regular Roth, having other traditional IRAs can mess up the process.

If any of these might apply to the future you, investigate those issues and consider leaving all/some in the 401k.

kkbmustang

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Re: New job / Old 401k
« Reply #5 on: November 24, 2014, 04:47:07 PM »
Please also consider the following if your former plan had a matching or profit sharing contribution component AND you were not fully vested when you separated from service with your former employer:
1.  Is your former employer a former employer because they had a reduction in force and you were part of it?
2.  Is your former employer likely to be acquired by another company?
3.  Is it possible that your former employer would terminate the 401(k) plan?

If any of those three are possibilities, you should leave your 401(k) alone. While I am majorly oversimplifying the rules here, if one of those situations occur, the unvested amounts must be fully vested, regardless of whether you are still employed with the employer.

Also, if you think there is any way you will return to that employer in the next five years, consider leaving your account alone. There is an obscure forfeiture/repayment rule in this scenario.

mozar

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Re: New job / Old 401k
« Reply #6 on: November 24, 2014, 08:05:21 PM »
What companies though? I moved my old 401k out of Schwab into Vanguard. If you do a direct rollover you still might get a check in the mail. Get insurance when you mail it back out. I had a few restless nights when I forgot to get tracking/insurance and mailed a check for 26k just dropping it in a mailbox. They got it tho.