Cautionary Tale - Rollover and Employer Investment Plans

[mandies]

I don't know how many of you this will apply to, but I wanted to share an experience. A new mustachian, I took a close look at my employer-offered investment plan. Buried on their website were the expense ratios of the funds I was invested it -- 0.69 and 0.9! Yikes!

So, I had rolled over some previous retirement income, about $30,000 or so, which is now worth about $40,000 and wanted to see if there was anything I could do to mitigate the damage going forward. There was. Buried in their documentation was a reference that basically said anything you roll in, you can roll out. Yay! I set up an account at Vanguard for the rollover, and called the employer retirement benefits staff and asked for the paperwork.

So here's the strangest part -- the people on the phone had never heard of it, and repeatedly told me it was not possible. "I have never heard of this." "This is not possible." "You must be 59 1/2" Even though I explained that it was THEIR paperwork, they kept insisting I couldn't move the money back out of their plan. I had to politely ask for a supervisor, who then explained to them that it WAS in fact possible, and they have finally sent the paperwork. Then I put the paperwork in, and I get another call, telling me they can't fulfill my request. This woman was relentless! "I've check with our distribution team and it's not possible." "You can't do this!"  I even got a "What paperwork are you even referring to?"  AGAIN, I ask for a supervisor, and they have finally begun processing.

Just a cautionary tale against anyone facing a similar situation, especially job-hoppers. You may have access to your rollovers amounts even if you're stuck in an employer-based plan that isn't so great. I was very relieved, even though I have to keep all my contributions and employer contributions since I started working there invested there.

[JohnGalt]

Awesome that you were able to get it rolled back out. 

I'd imagine it's a rare situation where rolling an old 401k into a new one is better than just rolling it to an IRA. 

[Capsu78]

I would keep a sharp eye out the end of Jauuary for any indication that they submitted the transaction to the IRS as a "prior to 59 1/2" distribution.  I once ran afoul of a SEEP related contribution that a year later triggered a "can't do that" letter from the IRS.  Unwinding that transaction after I paid the taxes was a PITA...

[WillPen]

I'm in the middle of reading a book recommended to me called The Retirement Savings Time Bomb by Ed Slott. So far it has done a good job of laying out all of the do's & don'ts and can & can't-do's for IRAs, 401ks, Roths, etc.

I was getting ready to help you look up an answer before I saw that you found a solution :)

Good job following that up.

[chicagomeg]

Awesome that you were able to get it rolled back out. 

I'd imagine it's a rare situation where rolling an old 401k into a new one is better than just rolling it to an IRA.

Not rare at all, if your income is too high for a Roth IRA, you can still fund one through the backdoor method, but preexisting traditional IRA's will remove that option: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

[JohnGalt]

Awesome that you were able to get it rolled back out. 

I'd imagine it's a rare situation where rolling an old 401k into a new one is better than just rolling it to an IRA.

Not rare at all, if your income is too high for a Roth IRA, you can still fund one through the backdoor method, but preexisting traditional IRA's will remove that option: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Fair enough.