The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: kenmoremmm on July 23, 2020, 09:17:41 PM
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the company i work for is being acquired in a merger. i have the option to rollover my 401k to the new plan (custodian: Principal) or take it elsewhere. i haven't looked much into this, but am thinking that i will just dump it into my vanguard account where i hold my roth and taxable accounts.
is there a drawback to this approach?
my current 401k plan has roth 401k, traditional 401k, profit sharing that was rolled over from a previous company, and company matching through my current employer. i think each of these will be handled uniquely in the future when i go to withdraw them (but haven't really paid attention to this much).
thanks
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The main consideration I would have is rolling the pre tax funds into a traditional IRA means you may lose access to a backdoor Roth in the future.
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I recommend Vanguard when any of my friends in the physical world ask... But to cover the basics. What are the fees like at Principal? The only (minor) drawback is having additional accounts to track, but that could be a very profitable inconvenience. For example saving a 1% management fee on a $100k portfolio earns you $1000 a year for the "headache" of having an additional account! And don't get me started on front load fees. I'd be tens of thousands ahead if I had known about Vanguard during my first job.
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On Principal's website, they brag about an article that ranked investment firms on their 1 year performance. And the fund cited in the article appears to charge 1.88% per year, with a possible 5% "load" upon purchase. That is probably not what your 401(k) would hold... but it's an example of how that company operates.
https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR04SFR
In your situation, I'd avoid Principal and migrate to Vanguard. Vanguard funds and ETFs have much lower expense ratios, so it's much harder to make a bad choice there.
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On Principal's website, they brag about an article that ranked investment firms on their 1 year performance. And the fund cited in the article appears to charge 1.88% per year, with a possible 5% "load" upon purchase. That is probably not what your 401(k) would hold... but it's an example of how that company operates.
https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR04SFR
In your situation, I'd avoid Principal and migrate to Vanguard. Vanguard funds and ETFs have much lower expense ratios, so it's much harder to make a bad choice there.
WHoly Outrageous Fees! I assumed they would be more expensive than vanguard, but I never dreamed of that insanity... 5% off the top and then 1.8% a year? Around the time I started reading MMM my advisor at (big financial company) tried to sell me on moving money I had in funds with a front load and no annual fee into funds that had annual fees because "that's where the industry is going". That line of bull pushed me to indexing and Vanguard...
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While I lean towards rolling everything over to accounts at Vanguard, I would try to find out what the new plan with Principal offers for investment options and the specific investment related expenses as well as how the overall plan expenses are calculated. Another consideration would be how the merger effects your current vesting if you're not already fully vested.
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Is there an option to suggest post-merger to move to Vanguard or Guideline (mainly Vanguard funds) or something better than Principal.
Unsure of size of your company, but ~March-April 2019, my SMB employer moved to Guideline from American Funds based on a data-driven report I wrote to upper management.
I had Principal at my first employer, I learnt a lot from that debacle.
Cousin worked at Principal. He said "Principal" means they come first, you later.