The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: goofiefoot on October 06, 2016, 06:16:52 PM
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I just started a 12-month contract job at a large financial company. I am officially employed by a contract company but have a decent chance of being hired as a full-time employee at the financial company, possibly before the end of my contract.
The contract company offers a Fidelity 401k once I've been there for 4 weeks. I don't want to have too much of a gap in my planning, so I'd like to roll over the $118k I have sitting in my former employer's 401k into this one once I'm eligible.
So a couple of questions:
If I'm in a job for a year, would there be any fees or other financial impact I should consider rolling over a 401k for less than 12 months?
If I do get hired by the financial company (who offers a really nice match in their 401k), will there be any issues rolling over 401k's twice in a 12-month period?
Any input is appreciated!
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Why do you want to roll the 401k over into another 401k? IMO you would be better off rolling it to an IRA where you have more investment options and lower fees.
As far as your questions, the time-frame is short enough that fees will not make a significant difference. For rolling over the 401k's, I do not know why there would be any issues rolling them over twice in a 12 month period. Once you are no longer an employee you are no longer eligible for the plan and depending on how the plan is set up may be required to move your account out of the plan.
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Why do you want to roll the 401k over into another 401k? IMO you would be better off rolling it to an IRA where you have more investment options and lower fees.
It is possible -- but unlikely -- that either the old or new 401k has lower expenses than a Vanguard IRA, namely if the fees are $0 and it offers VINIX or VIIIX.
If the old one is like that, keep it and roll the new 401k into the old when the contract is up.
If the new one is like that, roll the old 401k into it.
If neither is like that, roll the old one into a Vanguard IRA now and the new one into the same Vanguard IRA when the contract is up.
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Nothing like asking a question, then disappearing, right?
Back to it. Thanks for the input on these. I spoke with a rep today at Schwab, where my old 401k is housed, and got some insight. Several years ago, I used their guided service to re-set my investments. At that time, for whatever reason I don't remember, I changed my distribution to 50% traditional 401k, and 50% Roth 401k. Since I have a mixture of pre- and post-tax deposits, if I rollover, I would have to split the amount between a traditional rollover IRA and a Roth IRA. I could then regularly contribute to the Roth, and have the rollover account growing alongside. Plus, if I start the 401k with the contract company, I can rollover whatever I've contributed and earned over that length of time into the same rollover IRA.
Of course, Schwab would love to roll me over to their account, and keep me as a customer, but my understanding is I can roll that 401k over to any institution in the same way. Does that sound about right?
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Yeah, you're free to open an IRA at any institution and move your 401(k) money there. Schwab has a number of index ETFs that seem basically just as good as Vanguard's if you would like to stick with them.
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I could then regularly contribute to the Roth, and have the rollover account growing alongside.
Or you could regularly contribute to the traditional and have the Roth growing alongside, which would probably be better (http://www.madfientist.com/traditional-ira-vs-roth-ira/).
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I could then regularly contribute to the Roth, and have the rollover account growing alongside.
Or you could regularly contribute to the traditional and have the Roth growing alongside, which would probably be better (http://www.madfientist.com/traditional-ira-vs-roth-ira/).
That brings up a good subject for clarification. My understanding was that once I rolled over, I could not contribute to the pre-tax rollover IRA, other than rolling over future pre-tax 401k's - much like no longer being able to contribute to my old 401k. Is that not the case? How would I set up to contribute pre-tax to this type of account?
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401(k) plans generally limit your choices, and might have funds that are about the same cost. Maybe they offer the Institutional class S&P 500, but only the investor shares of small- and mid-cap. The difference between admiral and institutional expense ratios is much smaller than the gap between investor and admiral class shares. So I wouldn't roll over to another 401(k) plan without being very convinced of the plan choices (which can change by the way, and you'll be forced to switch investments if it does).
I'd favor separate Roth IRA and Traditional IRA at Vanguard. You get low costs and control.
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That brings up a good subject for clarification. My understanding was that once I rolled over, I could not contribute to the pre-tax rollover IRA, other than rolling over future pre-tax 401k's - much like no longer being able to contribute to my old 401k. Is that not the case? How would I set up to contribute pre-tax to this type of account?
A rollover IRA is basically the same as a traditional IRA, except that it's named "rollover." Apparently, there actually are some material differences (https://www.irahelp.com/forum-post/18141-traditional-ira-vs-rollover-ira) (which I didn't know about before writing this post), but they're not important.
I make new contributions to my "rollover" IRA every week.