Author Topic: Rolling over 401k to IRA  (Read 2869 times)

SpendyMcSpend

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Rolling over 401k to IRA
« on: July 31, 2014, 10:03:08 AM »
I left my job last year and eventually want to roll my 401k over into an IRA.  However, and I know very little about this, will this cause me to have to pay commissions and lose my dividends etc.  How do I know when the best time to roll over is? 

Cheddar Stacker

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Re: Rolling over 401k to IRA
« Reply #1 on: July 31, 2014, 10:12:45 AM »
You would keep the same investments, they would just move accounts. So there would be no payment of commissions or loss of dividends.

Once they are moved, you can change the funds you are invested in if you'd like. Many places can do this all for you, and many people here recommend Vanguard. The best time to do it is right away in most situations since you will likely pay much less in fees.

One drawback - you won't be able to do a backdoor Roth contribution without paying some taxes. If you don't know what that is, it's likely not a problem.

seattlecyclone

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Re: Rolling over 401k to IRA
« Reply #2 on: July 31, 2014, 10:47:14 AM »
I left my job last year and eventually want to roll my 401k over into an IRA.  However, and I know very little about this, will this cause me to have to pay commissions and lose my dividends etc.  How do I know when the best time to roll over is? 

In many (all?) cases, a rollover will cause you to liquidate the 401(k) funds. If you're rolling over to an IRA with the same provider, they may just transfer the cash for you and reinvest it in the same funds if that's what you want to do. If you're switching to an IRA with a different company than your 401(k), they 401(k) provider will often mail you a check made out to "Vanguard (FBO seattlecyclone)" as an example. Then you have to forward the check on to your IRA provider, at which point you'll have to make some decisions on how you want to invest that money going forward.

I have never encountered a 401(k) plan that charged commissions when liquidating funds for a rollover, but I don't know of any rule that would prevent this in general.

nawhite

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Re: Rolling over 401k to IRA
« Reply #3 on: July 31, 2014, 10:54:44 AM »
I've done this 3 times in the past 18 months with Vanguard, first 401k from Aon Hewitt, then Fidelity, then Wells Fargo. The steps are easy:

1. Pick what type of IRA you want the money to go to (probably a "traditional" IRA if you are coming from a normal tax-deferred 401k). This is the easiest and creates no tax issues to deal with.

2. Pick what type of investments you want your money to go into. Around here, most people recommend either a S&P500 or a Total Stock Market index fund (VFIAX or VTSAX if you have more than $10k you are rolling over and qualify for "Admiral Shares" which have lower expense ratios)

3. Find the phone number for your current 401k manager (for instance, if your 401k is managed by Wells Fargo, you'll need the Wells Fargo Retirement Customer Service number)

4. Call Vanguard at 1-800-523-9442. You will quickly talk to a real person who will create a new account for you and then conference call with your old 401k provider. Doing it this way skips all of the bullshit you might get from some companies that want to continue to manage your 401k (and thus collect fees from you). With the Vanguard representative on the line recording the call, the other company wants to move quickly and get it done.

In the conference call, your old 401k will ask you to verify your account details and then ask for permission to discuss your account with the rep from Vanguard. You say yes, and then they talk among themselves for a few minutes about how to do the transfer. Usually it involves your old bank mailing a check to Vanguard so they have to exchange addresses and who to make the check out to etc. Then the old 401k rep will ask you to confirm all the details and then hang up. The Vanguard rep will tell you everything is set and it will be in your account as soon as the check arrives.

As for commissions, when transferring to Vanguard, the only commission you MAY have to pay is to the old bank but most don't have a fee for that (none of my 3 rollovers recently had any fees).

As for dividends, I think you're asking when do companies announce dividends and the answer is could be every 3 months could be every month, could be once a year, but each company is different so there shouldn't be any one week that is better than another to do the rollover. Basically the rollover will cause you to not own a stock for the time the check is in the mail, so if a company announces a dividend based on ownership of the stock on a day while your check was in the mail you'll miss out on that dividend. But because every company is different, you likely will not miss out on anything too large (at least assuming no one company has a overly large portion of your assets).

jawisco

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Re: Rolling over 401k to IRA
« Reply #4 on: July 31, 2014, 11:27:21 AM »
One thing to keep in mind - you do lose some bankruptcy protections when you rollover 401K to IRA.  It might not matter depending on which state you live in (some states give IRAs bankruptcy protection), but I just thought I would bring this up.  Also, if your state does not offer IRA bankruptcy protection, there are some things you can do to make it more likely to be protected (like rollover 401K to seperate IRA and not comingle other funds in there)...