Author Topic: Which Makes More Sense?  (Read 1541 times)

nexus

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Which Makes More Sense?
« on: February 22, 2017, 03:00:25 PM »
I recently switched jobs and have a 401k valued around $5k with Fidelity through my old employer.

My question is, should I roll over my old 401k to my new employer's program or should I just transfer my old 401k to Vanguard and just let it be? Any advantages/disadvantages?

Things to consider
- I plan on staying with the current job until I hit FI/RE (basically just went from temp/contractor to permanent in the same company)
- I've never done this before so I'm not sure how it works. If I transfer to Vanguard, will the old 401k shares just be left in tact and continue to gradually grow over time?
- If I transfer to my current employer's 401k (which doesn't offer the same investment options), my old holdings will just stay there and keep being reinvested, right? Could I sell them and buy whatever my new 401k offers?
     -> If my portfolio automatically rebalances, will it sell my old 401k holdings and realign the portfolio with whatever allocations I've selected?

Can I do either of these transfers/rollovers with just a phone call?

Many thanks, very fun to be learning new things.

neo von retorch

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Re: Which Makes More Sense?
« Reply #1 on: February 22, 2017, 03:10:49 PM »
The only reason to rollover a 401(k) to a new employer's program is a) they have great fund options with low expenses AND b) you perhaps plan on making withdraws directly from the 401(k) when you hit 55. Since you're 26... I'm suspecting this is not relevant to you.

If you transfer to Vanguard, there's actually a pretty good chance it will be liquidated. Since this is a tax-advantaged account, there's no (immediate) taxable event, so it's no problem that it's liquidated, and once in Vanguard, you can buy the funds you prefer. Likewise, if they are not liquidated, you can do that - sell them and buy what you want.

When you talk about your "portfolio automatically rebalancing," what are you talking about? Do you mean in a new 401(k)? This would definitely rely on you having bought into their funds. In fact, I'm almost certain if you rollover to a new 401(k), the old funds will be liquidated in the process. So your new 401(k) will entirely consist of funds available from that program, and the rebalancing program they offer will sell/buy within those parameters.

Personally, I did rollovers using just a computer because I don't even like to talk on the phone, but yes, you can absolutely call Vanguard and they'll walk you through a rollover from a 401(k) into an IRA with them.

Hopefully that answers your questions. My personal preference is to move everything into Vanguard when that's an option, to hold just a very small selection of broad Vanguard "total" funds, and to rebalance myself once a year using a very simple Excel spreadsheet. Odds are, the funds in the new 401(k) are not as nice as Vanguard especially when you look at expense ratios!

nexus

  • Bristles
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Re: Which Makes More Sense?
« Reply #2 on: February 22, 2017, 03:52:30 PM »
Neo,

What a great response! I was not aware that my funds would be liquidated regardless of where I send them. I was thinking more along the lines of a transfer in kind, but what you said makes sense. I'd definitely prefer to move them over to Vanguard then. I plan on hitting FIRE in my late 30's at the latest.

The funds I've chosen for my new 401k are below. Prior to enrolling, I'd never even heard of State Street, but they have a cool pirate ship-looking logo. I won't bore you with my percentages allocated to each one. The fees aren't bad, especially considering a majority of my contribution each pay period will be towards #1.
1.State Street S&P 500 Index Fund Class K - Expense Ratio: 0.02%
2.State Street International Index Fund Class C- 0.09%
3.State Street NASDAQ 100 Index Fund Class C - 0.07%
4.Company ESOP Plan - 0.00%

VTSAX has an expense ratio of 0.05%, so my choices aren't too far off...right? :)

neo von retorch

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Re: Which Makes More Sense?
« Reply #3 on: February 22, 2017, 04:07:46 PM »
Wow - my 401(k) has very similar funds (and are the ones I chose) except my expense ratios are near 0.5%. That's very nice. No load on any of those either? (I'd imagine not, if it's already a solid plan with great expense ratios!)

MDM

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Re: Which Makes More Sense?
« Reply #4 on: February 22, 2017, 04:19:07 PM »
My question is, should I roll over my old 401k to my new employer's program or should I just transfer my old 401k to Vanguard and just let it be? Any advantages/disadvantages?
If it goes to Vanguard it will be held as a traditional IRA.

If you think you might want/need to do a Backdoor Roth IRA at some time, it would be better to have a $0 tIRA balance.

If the backdoor IRA route is irrelevant, then Vanguard would likely be fine for you.

nexus

  • Bristles
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Re: Which Makes More Sense?
« Reply #5 on: February 22, 2017, 05:27:07 PM »
So, then based on the options I have available in my new 401k, would it make more sense to rollover my old 401k into my new one rather than open an IRA with Vanguard? Especially considering the fact that the old 401k balance is pretty low (doesn't meet the Admiral Shares threshold for Vanguard)?

I read the wiki on the Backdoor Roth IRA, but am still unclear on why/when I would need to use it. Can anyone provide any examples?
-Quick notes since I read another article from Betterment on the subject while writing this reply:
   a. I don't expect my income to get above 131k (single) or 193/4k (married) during my employment with new company.

MDM

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Re: Which Makes More Sense?
« Reply #6 on: February 22, 2017, 07:47:30 PM »
So, then based on the options I have available in my new 401k, would it make more sense to rollover my old 401k into my new one rather than open an IRA with Vanguard? Especially considering the fact that the old 401k balance is pretty low (doesn't meet the Admiral Shares threshold for Vanguard)?
If the new 401k has "institutional class" (i.e., very low expense ratio) shares then that is likely better than an IRA.  Otherwise the IRA will be better.  Just compare the expense ratios in funds you would choose to use.

Quote
I read the wiki on the Backdoor Roth IRA, but am still unclear on why/when I would need to use it. Can anyone provide any examples?
-Quick notes since I read another article from Betterment on the subject while writing this reply:
   a. I don't expect my income to get above 131k (single) or 193/4k (married) during my employment with new company.
Yes, you have answered your question.