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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: LVBRN on November 12, 2016, 09:31:45 AM

Title: What to do with old 401k?
Post by: LVBRN on November 12, 2016, 09:31:45 AM
Hi all.  Newbie here, I attempted to search this through the search function but it wouldn't bring up results so I apologize if this question has been answered.

I am 33, and just took a new job.  I have a 401k through my old employer with roughly 25K in it.  This is my only retirement savings right now other than the new one I started with my new employer. When I called to see what I should do with it, the man at Fidelity said I had a couple different options.  I could keep it as is in a person managed account (for about $6/mo), keep it managed by computers (less money but I forget the dollar amount), or roll it over into an IRA.  He said the cost of managing the account over the next 20 years or so would add up and would recommend switching to the IRA.  I'm unfamiliar with any of this and so I'm seeking advice.  Thanks in advance!
Title: Re: What to do with old 401k?
Post by: Catbert on November 12, 2016, 10:30:10 AM
Check out the 401k at your new job.  Do they have good mutual fund options?  If so, will they allow you to roll in your previous 401k?  Many companies allow you to transfer in from former employers.  That has the advantage of keeping your money in one account.

Title: Re: What to do with old 401k?
Post by: soccerluvof4 on November 12, 2016, 11:19:54 AM
I would put it in a roll over IRA brokerage account at Vanguard.
Title: Re: What to do with old 401k?
Post by: Hotstreak on November 12, 2016, 11:31:37 AM
I would put it in a roll over IRA brokerage account at Vanguard.


This is going to be your best move.


The suggestion to move it to your new employers 401k would make financial sense only if that new account has lower expense ratios than Vanguard (highly unlikely). 
Title: Re: What to do with old 401k?
Post by: LVBRN on November 12, 2016, 12:51:17 PM
Thanks for the input.  Would that be a Roth IRA or a Traditional IRA?
Title: Re: What to do with old 401k?
Post by: Hotstreak on November 12, 2016, 01:11:55 PM
Most 401k's are pre-tax dollars, which would rollover in to a Traditional IRA.  If you have a Roth 401k (where your contributions were post-tax) then you would want a Roth IRA.  Most likely you are in a regular pre-tax 401k, but you would need to review your documents or call the services to find out for sure.



Title: Re: What to do with old 401k?
Post by: LeRainDrop on November 12, 2016, 01:37:12 PM
Yes, I would definitely do a rollover from your 401(k) into an IRA at Vanguard.  If it was a Traditional 401(k), then you'd roll it into a Traditional IRA; if it was a Roth 401(k) (which is less common), then you'd roll it into a Roth IRA.  You would also need to decide what index funds you want to buy within that IRA.  It's pretty common for people to buy the target date year that is closest to their own, so perhaps Vanguard Target Retirement 2040 (VFORX) or whatever year seems most appropriate to you.  The way to accomplish this is to CALL Vanguard, or you can start the process at Vanguard's website.

FYI, when I left my old employer earlier this year, I rolled my Traditional 401(k) and Roth 401(k) from Charles Schwab over to a Traditional IRA and Roth IRA, respectively, with Vanguard.  I called Vanguard, and they handled everything for me, except there is one action that I needed to handle:  When Schwab cut the checks to "Vanguard FBO My Name," they had to mail those to my home, and then I mailed (or FedExed) them to Vanguard.  Vanguard will explain the whole process to you.
Title: Re: What to do with old 401k?
Post by: Frankies Girl on November 12, 2016, 02:05:06 PM
I am assuming this was a tax deferred 401k, not a Roth 401k:

You can roll it to an traditional (rollover) IRA at Fidelity. They have excellent customer service, and their index funds beat Vanguard's in several cases. If you avoid their managed funds and stick with their index funds, Fido is fine to stay with.

Vanguard is the gold standard, but Fido is great too. And their customer service/interface is better in my opinion. And it is just an extra hassle to transfer it out of Fido to Vanguard for no real benefit since Fido is so competitive with them. I get why everyone pushes Vanguard, but there really isn't any good reason to leave Fido if you are okay with them.

https://www.bogleheads.org/wiki/Fidelity
^comparison of the Vanguard and Fido funds

I have all my portfolio with Fido, and am very happy there. I do a Boglehead style lazy portfolio containing:
Fidelity Total Market Index Fund (FSTVX)
Fidelity U.S. Bond Index Fund (FSITX)
with a small amount of Fidelity Real Estate Index Fund (FSRVX)

Just contact the rep to walk you through the steps and confirm the exact procedures, but it essentially is like this (I've done this exact thing about 2 years ago):

1. Create a new account as a ROLLOVER IRA (can be done online easily, or contact rep if this seems hard to do).
2. Contact rep to initiate rollover from 401k into the new IRA account.
3. Sell off any/all funds in new account that do not match up with your asset allocation (AA).
4. Buy funds that fit your AA

It's super easy and won't take them very long either. And once you've got the funds in there that you want... you basically forget about it unless you want to contribute to it as a traditional IRA (up to $5,500/per year as long as you have earned income).
Title: Re: What to do with old 401k?
Post by: LeRainDrop on November 12, 2016, 02:22:28 PM
You can roll it to an traditional (rollover) IRA at Fidelity. They have excellent customer service, and their index funds beat Vanguard's in several cases. If you avoid their managed funds and stick with their index funds, Fido is fine to stay with.

That's a fair point, Frankies Girl.  Vanguard and Fidelity are typically considered the top two low-cost online brokers.  If the OP would rather stick with Fidelity, that's a fine choice, too.  But, for sure, the rollover to an IRA is the way to go.
Title: Re: What to do with old 401k?
Post by: biglawinvestor on November 14, 2016, 03:21:32 PM
I agree with the other posters here. Rolling it over to a Traditional IRA (assuming your 401(k) is filled with pre-tax contributions) at Vanguard or Fidelity (low-cost index funds) is the way to go. Only thing to keep in mind is that by having a Traditional IRA, you'll mess up your ability to make backdoor Roth IRA contributions. If that's not something you're doing right now, I wouldn't worry about it. In the future, if you want to make a backdoor Roth IRA contribution, you'll have to move that money from a Traditional IRA back into a 401(k). This is all assuming you don't meet the income requirements for a regular Roth IRA contribution anyway.
Title: Re: What to do with old 401k?
Post by: DailyGrindFree on November 14, 2016, 03:37:46 PM
Hi all.  Newbie here, I attempted to search this through the search function but it wouldn't bring up results so I apologize if this question has been answered.

I am 33, and just took a new job.  I have a 401k through my old employer with roughly 25K in it.  This is my only retirement savings right now other than the new one I started with my new employer. When I called to see what I should do with it, the man at Fidelity said I had a couple different options.  I could keep it as is in a person managed account (for about $6/mo), keep it managed by computers (less money but I forget the dollar amount), or roll it over into an IRA.  He said the cost of managing the account over the next 20 years or so would add up and would recommend switching to the IRA.  I'm unfamiliar with any of this and so I'm seeking advice.  Thanks in advance!

A few weeks ago, I moved my old 401(K) from my previous employer to a Vanguard Rollover IRA account. The process was relatively smooth and I didnít encounter any issues during the process. I documented the whole process. If you would like check it out to see if it can be any help to you here is the link: http://www.dailygrindfree.com/2016/11/14/moving-401k-to-vanguard-rollovertraditional-ira/ (http://www.dailygrindfree.com/2016/11/14/moving-401k-to-vanguard-rollovertraditional-ira/)