The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Joel on December 30, 2013, 05:49:59 PM
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I currently have my IRA & Roth-IRA funds at Vanguard invested in the Vanguard Total Stock Market Index Fund, Admiral Shares with 0.05% expense ratio.
My employer offers the same fund through its 401k at Merrill Lynch at a 0.02% expense ratio.
I know that it is very minimal, but I don't see any reason why I should not rollover the funds in my IRA to my 401k. You can rollover traditional and roth funds to my 401k. There is not limit to the amount that can be rolled over, and no additional fees for my 401k. I plan to keep at least 10k in my IRA and 10k in my Roth IRA at Vanguard so that I can easily contribute the exact amount needed to manipulate my taxes each year (as I am currently bordering the 15% and 25% tax brackets).
I really can't see any reason why I shouldn't roll my funds over from the IRA to the employer-sponsored 401k.
Is there anything that I am overlooking that I should consider before pulling the trigger?
I would be rolling over my IRA funds to my 401k, and my Roth IRA funds to my Roth 401k.
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There is not limit to the amount that can be rolled over, and no additional fees for my 401k.
So there are no fees to add the rollover funds. What about for removing them when you're done with this job and want to convert them back to an IRA? Lots of plans have fees on the back end. Of course lots don't offer those amazing expense ratios either. Something to look into though.
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There are no fees to rollover funds either direction with the 401k, or at Vanguard.
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Generally you never roll INTO a 401(k). Your new 401(k) sounds like it has excellent options. However, there is no way that Merrill Lynch can offer you a lower ER than that of Vanguard for their own funds. What I surmise that is buried in the fine print is that the Merrill Lynch ER just to run your 401(k) is 0.02% on top of whatever the ER is for the funds you choose within the plan. So you would still have the 0.05% for the Vanguard Total Stock Market and then 0.02% to ML. This is why it is pretty much unanimously recommended to roll 401(k) money into an IRA of your choice when you leave a company.
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Generally you never roll INTO a 401(k). Your new 401(k) sounds like it has excellent options. However, there is no way that Merrill Lynch can offer you a lower ER than that of Vanguard for their own funds. What I surmise that is buried in the fine print is that the Merrill Lynch ER just to run your 401(k) is 0.02% on top of whatever the ER is for the funds you choose within the plan. So you would still have the 0.05% for the Vanguard Total Stock Market and then 0.02% to ML. This is why it is pretty much unanimously recommended to roll 401(k) money into an IRA of your choice when you leave a company.
^this
I have the option in my Fidelity accounts of getting Vanguard's funds, but they charge a fee on top of the operating fee Vanguard itself charges, and I would be VERY surprised if ML would offer you that option without taking a cut themselves.
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The fund that is offered through my 401k is actually VKPMG, which is the equivalent of the Vanguard Total Stock Market Index Fund (or more closely the S&P 500.
I truly believe that it is 0.02% fees. That is not on top of what Vanguard charges. It sounds reasonable as the company is one of the Big 4 Accounting firms, and has an incredible reach.
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My wife's employer and my own both offer good 401(k) plans as well. Low-fee options, transparent and reasonable plan fees, lots of cool options like generous after-tax contribution limits and in-plan conversions.
Here's a potentially great reason to do what you're thinking: if you make too much money for direct Roth contributions, then depleting your IRA could reduce your liability on back-door contributions. (I've never had a traditional IRA balance, so I haven't done due diligence on that, but it seems like it should work.) Even if you don't make enough now for that to be a problem, it could become one if you're single now and get married later. The limits aren't much higher for married couples than single ones.
Here's another good reason: ERISA liability protection. Now, I'm not super-familiar with these how these laws interact with IRA rollovers either, but from what I've seen, it looks like money in your 401(k) is completely untouchable by creditors, regardless of what state you live in. IRAs are much spottier, with some states extending protections and others not doing so. Personally, I hope to be completely judgment proof in about twenty years or so, and that boils down to positioning ourselves so all our assets are covered under ERISA. Again: not sure if the protections attach to money that gets rolled over into the account, but I'd be a little surprised if they didn't.
Do get familiar with the SPD. Do lobby your HR folks for better plan options. If you have a good plan, it's because they listen to other people in your company like you, so add your voice to the chorus.