Down sides to rolling IRA into 401k plan?

[Freedom2016]

Hi all,

My (very small) company is going to provide a new 401k plan through Fidelity. The more assets we collectively put into the 401k, the lower the annual fee to the company will be, so we are suggesting that people consider rolling any outside tIRA's into the new 401k plan.

One of my partners has asked if there are any down sides to doing so, and I realized I don't know the answer. Do any of you know of any down sides of rolling IRA's into a 401k plan? Thanks in advance!

[Left]

i thought you could only roll 401k to tIRA and not other way.
down side is depending on where, tIRA has more choices and no management fees outside of fund ER. 401k still has ER then a management fee sometimes

[GGNoob]

Found this with a quick search: http://www.reuters.com/article/2014/04/09/column-stern-advice-idUSL2N0N01U420140409

This link shows the benefits of rolling an IRA into your 401k. Turns out there actually is some.

[Freedom2016]

Google tells me it's called a 'reverse rollover' (thanks Logan, I found the same link minutes ago!). And the good news is that I am on the committee that is going to choose the investment options that will be offered in the 401k - so lots of low cost index funds will be there, Fidelity and Vanguard both. :)

There will be no "management fee" on the 401k plan - only the expense ratios of the funds we choose to include. We DO have an annual administrative fee that covers required annual filings, and makes Fidelity the trustee on the plan. Right now they're quoting us $2500/yr with $1.5m assets (or, $500 per partner, which in my case is 0.16% of assets). And as I said that fee goes down the more assets we have in the plan, all the way down to $0 once we get to $2.7m total assets.

As a side note, this is a huge win for me, as DH and I made a kind of boneheaded move last year to move our retirement funds to Merrill Lynch, which is charging us 1.25% (UGH).

[ZiziPB]

The downside is that you will be limited to the investment options offered by the 401k.  If the options are good, then it should be fine.  An IRA gives you unlimited investment options (including individual stocks and ETFs which are not an option in a 401k).

[ioseftavi]

The downside is that you will be limited to the investment options offered by the 401k.  If the options are good, then it should be fine.  An IRA gives you unlimited investment options (including individual stocks and ETFs which are not an option in a 401k).

This is the short answer that I'd agree with.  Incidentally, Course11, you sound like a pretty savvy plan administrator as far as looking out for what's best for your plan participants.  I know you said you work for a "very small" company, but you'd be surprised at the number of mid- to large-sized firms with absolutely terrible 401(k) plans, terrible fund choices, zero transparency, etc.

I don't think I'd be offended if my employer said, "Hey, we're trying to get our 401(k) fees down, and we're setting it up with low-cost, thoughtfully chosen investment options.  Would you guys consider reverse rolling your rollover IRAs back in so we can get plan assets up?" 

[teen persuasion]

Unless your plan allows in-service distributions, rolling your IRA into the 401k means you can't access it until you leave the company.  Say, if you wanted to convert some tIRA funds to Roth.  As long as you don't plan to start converting until you leave your employer, and fees are low and fund choice is good, rolling it in would be advantageous if you were doing a backdoor Roth.

[neil]

http://rodgers-associates.com/blog/401k-upgrade-fidelity-brokeragelink/

I wonder how much this "costs" to have.  My employer has it.  We have a couple good index funds (VIIIX and some private Russell 2500 index) but we were missing an international and bond index.  Brokeragelink has iShares ETFs commission free which covers the other categories.

[Freedom2016]

Thanks for the additional comments - useful stuff! I'll communicate back the limitation on accessing the IRA funds once reverse rolled, and also share the brokerage link.

No one has been offended at the suggestion of reverse rolling - we partners share costs equally so it helps all of us to reduce the administrative fees as much as possible. In fact, I'm lucky in that my partners and our two key employees are really listening to my advice on this. I have the MMM forum to thank for whatever knowledge I've gained over the last year on retirement investing.

When it comes time to create the portfolio of investment options I will probably post again to get some input. :)