Old 401K: Roll into new 401K or an IRA?

[tracymc24]

Hi there,

It's my first post, so my apologies if I miss any of the etiquette here! :)

I have ~$170K in an old 401K with Fidelity, from a job I left in June. I just started a new job, and have a new 401K with Vanguard. The new 401K has some good options, including Target Date Retirement funds with expenses of .07, as well as Vanguard Institutional Index Fund Institutional Shares (VINIX) for .04%.

I'm wondering whether I should roll my old 401K into the new 401K or into an IRA. I'm having a hard time understanding the pros/cons of each option. (I do think I'd like to move it over to Vanguard rather than keeping it with Fidelity though, just to simplify.)

I'd appreciate any advice! Thanks!
-Tracy

[MDM]

tracymc24, welcome to the forum.  Perfectly reasonable first post.

If your 401k at Fidelity also has good options, you could leave it there.  Nothing wrong with that, but also nothing wrong with moving it to the new 401k at Vanguard.

Keeping the money in the 401k seems best for two reasons:
1) Access to the institutional share fees
2) Retains the ability to do a backdoor Roth without worrying about an existing tIRA (that is, if you don't currently have a tIRA).

[tracymc24]

I found out that Fidelity doesn't charge any management fees for my old 401K, whereas Vanguard will charge me $11/quarter in fees once I'm no longer with my current company. $44/year isn't a ton, but will add up over time. (Which is a bummer because otherwise I think Vanguard is fabulous.) So I'm planning to leave my old 401K with Fidelity, and potentially try to roll my new one to Fidelity as well when I retire.

Thanks for the confirmation!
-Tracy

[seattlecyclone]

I'd roll it into the new 401(k). Institutional class shares are a nice way to have a lower expense ratio than you can get as an individual investor. When you leave the company you can re-evaluate your options. Suppose you have a $250k balance in the account when you leave. A $44 annual fee is like adding an extra 0.0176% to the expense ratio of all the funds in the plan. That might still be cheaper than you can get elsewhere. If it isn't, you can always roll it into an IRA and Vanguard or Fidelity at that time.

[GGNoob]

I found out that Fidelity doesn't charge any management fees for my old 401K, whereas Vanguard will charge me $11/quarter in fees once I'm no longer with my current company. $44/year isn't a ton, but will add up over time. (Which is a bummer because otherwise I think Vanguard is fabulous.) So I'm planning to leave my old 401K with Fidelity, and potentially try to roll my new one to Fidelity as well when I retire.

Thanks for the confirmation!
-Tracy

I think your best bet would be to roll the old 401k from Fidelity into the new 401k at Vanguard. Then when you retire, you roll your 401k into a Traditional IRA at Vanguard where there will be no fees (other than expense ratios).

[TomTX]

To chime in:

Roll it into the new 401k.

When you eventually leave that job, you can decide at that point whether to leave it or roll it into an IRA.

Or, if you're 55, you can start drawing on it ;)

[rmendpara]

Dont' lose the forest looking for the trees.

$44 in fees on a $100k balance is 0.04%. Chances are you are saving more than that on some of the institutional class shares (I'd look into your plan options to verify).

If you just want to simplify your life, you can roll into a personal IRA and get some great rates as well on the Vanguard Admiral shares.

Only advantage of adding old 401k to new 401k would be if your new 401k has better options than what you could get in an IRA.

[Jellyfish]

Keeping the money in the 401k seems best for two reasons:
1) Access to the institutional share fees
2) Retains the ability to do a backdoor Roth without worrying about an existing tIRA (that is, if you don't currently have a tIRA).

Agree with MDM. I am doing a backdoor Roth this year and am spending weeks dumping a tIRA that was a rollover from a former employer 401(k) back into my current 401(k) to minimize taxes on the backdoor Roth.  It's been a total pain.  If you think you might do a backdoor Roth at any point in the future save yourself the hassle.