401k Rollover question

[Izybat]

I have a small 401k from a previous employer (I haven't worked there in over 8 years). It's currently sitting in Vanguard, but still in the previous company's 401k plan. I'm trying to decide if I should move these funds and either roll them over into my current 401k (through Principal), roll them into an IRA within Vanguard, or leave them alone to grow in the old 401k plan. I'm not really sure what the smartest option is. Any thoughts and suggestions would be helpful.

[ender]

I rolled mine into my existing IRAs with Vanguard.

Was easy, but took a while to process.

[Izybat]

I'm still really new to figuring out the whole investing thing, as I've been pretty much a set it and forget it retirement fund person until now. I'm trying to be more proactive about it, but I still haven't learned enough yet to truly understand the pros and cons here. What would I get for each scenario? What are the benefits of rolling over a 401k into an IRA? How would it be different than rolling a 401k into another 401k?

[JDsNova]

I have a 401k I need to rollover as well.  Rolling into a IR would make sense, except I have a Roth IRA.  It seems like the tax hit would be substantial.  What about rolling a 401k into a TSP account?   I'm a reservist.  Anyone have experience with that?

[ender]

I have a 401k I need to rollover as well.  Rolling into a IR would make sense, except I have a Roth IRA.  It seems like the tax hit would be substantial.  What about rolling a 401k into a TSP account?   I'm a reservist.  Anyone have experience with that?

You can roll it into a traditional IRA, too.

[JumpInTheFIRE]

I'm still really new to figuring out the whole investing thing, as I've been pretty much a set it and forget it retirement fund person until now. I'm trying to be more proactive about it, but I still haven't learned enough yet to truly understand the pros and cons here. What would I get for each scenario? What are the benefits of rolling over a 401k into an IRA? How would it be different than rolling a 401k into another 401k?

The benefit of rolling it into an IRA rather than another 401k would be costs.  401k plans usually have an extra entity in the equation (usually called the "plan administrator") that needs to get paid in addition to the expense ratio for the fund.  The IRA is all about you - the only other entity getting paid is Vanguard.  With an IRA you generally have access to all the investment vehicles available from your provider (i.e. all Vanguard funds, all Fidelity funds, etc.) where with a 401k you only have access to the funds the plan administrator gives you access to.  To sum up, an IRA gives you lower costs, greater flexibility and greater control over your investments.  I can't see any reason to roll to another 401k rather than an IRA, but if there is one I'm sure the smart people on this forum will point it out.

[VoteCthulu]

Rolling it into an IRA is usually the best option, for the above reasons.

The most common time it's not is when the (new or old) 401k offers better funds than you can get through an IRA. For instance, my company has very low administrative fees and offers Vanguard investor class shares, which means that I'll probably leave my money there after I leave.

[Pug Lover]

Hello Izybat - I'm basically in the same situation so I wanted to follow this thread to see what folks have to say about any pluses/minuses for each option you presented.

Similar to you, I have a 403b from previous employer (left job about 10 years ago) through Metlife that I haven't contributed to since leaving the company. The fund currently has an expense ratio of 0.94%, which I understand is considered high, and they don't really offer any funds with significantly lower expense ratios. Lately I've also been debating about what to do with it: leave it alone, roll it into my current company 401k, or roll it into a traditional IRA (probably with Vanguard into their VTSAX fund which has a much lower expense ratio of 0.05%).

Based on what others have said, unless one's previous employer has some great funds available with low expense ratios, it makes the most sense to roll the 401k (or 403b in my case) into a traditional IRA where more funds with low expense ratios are available. Sounds pretty clear cut - but definitely would like to make sure I'm not missing something here.

[VoteCthulu]

Another possible reason to not roll over to an ira is that some 401k plans allow distributions starting at 55. With roth ladders, etc. it shouldn't matter to most people here, but it's something to remember.

[overwhelmed]

Another person with similar questions (don't mean to hijack but didn't want to start another thread when this one is so similar -hope you don't mind).

Old 401k - $8.00 fee quarterly, YTD - 12%
Current 401k - no fees, a little higher YTD %
Wildcard - Vanguard - opening account & will fund my first Roth for 2016. Planning to begin after tax as well in 2017.

It seems outside of leaving it where it is, these are the best other options:
Roll old to current
Pro: no fees, good return & increasing the balance could help reach my goals faster since the money is consolidated.
Con: all retirement stache is in the same 401k (if I only had 1 employer I would be in the same position so there is that)

Roll old to tIRA with Vanguard
Pro: create diversification within my retirement stache
Con: potentially missing out getting a better return that consolidating may provide

Based on my thoughts (which is why I'm asking...in case my logic is flawed)
I am leaning toward consolidating into the current 401k. I already plan to open a Vanguard account, fund a Roth (MAGI too high for a tIRA) & hopefully an after tax. Doing that will start creating the diversification I currently lack.

Misc: I don't have a specific FIRE date in mind yet, don't think before 2022. I will be 55 & the kids should be into their own life pursuits.

Thanks for any thoughts you might have.

[Pug Lover]

So, just an update to my situation, which was very similar to the OP's: At the end of the week I submitted the forms to rollover my previous employer's 403b plan (through Metlife) into a traditional IRA with Vanguard. Planning to dump it all into VTSAX. All the fund options in that 403b had pretty high expense ratios and honestly there could have been other fees that I was unaware of (this was from pre-mustachian days), so it seemed like a no brainer.

I burned though the J L Collins Stock Series (http://jlcollinsnh.com/stock-series/) prior to doing this move and it confirmed that unless one had some rare sweet options (no fees, minimal expense ratio) within a previous employer's 401k/403b plan, it would be best to roll the balance into a traditional IRA upon leaving the company.

Hoping I did the right thing! :)

Did you make a decision, "Izybat"? Curious to know what you decided to do.

And to "overwhelmed" - I'm in no position to offer advice, as I'm just wrapping my head around all of this, but another thing to look at with the 401k's are the expense ratios and other admin fees they may be charging. That Stock Series that I mentioned above does talk about that more, so I would definitely recommend checking it out. I also don't believe consolidating your retirement to one place provides any sort of financial advantage, though I could be wrong. Although I do agree that it's easier to keep track of it when all the money is in one place (one less username/password to remember, right?). Another significant benefit to transferring to a traditional IRA, which I'd suggest you add to your "Pro" column, is more control over which funds you want to invest in (you are not stuck only with the one's your employer provides) and also Vanguard funds likely have significantly lower expense ratios and there are no additional operating fees.

[overwhelmed]

And to "overwhelmed" - I'm in no position to offer advice, as I'm just wrapping my head around all of this, but another thing to look at with the 401k's are the expense ratios and other admin fees they may be charging. That Stock Series that I mentioned above does talk about that more, so I would definitely recommend checking it out. I also don't believe consolidating your retirement to one place provides any sort of financial advantage, though I could be wrong. Although I do agree that it's easier to keep track of it when all the money is in one place (one less username/password to remember, right?). Another significant benefit to transferring to a traditional IRA, which I'd suggest you add to your "Pro" column, is more control over which funds you want to invest in (you are not stuck only with the one's your employer provides) and also Vanguard funds likely have significantly lower expense ratios and there are no additional operating fees.

Hey Pug Lover -
Thanks, I started reading that series & then got distracted so I appreciate the reminder, I will get back to it.
Appreciate the thoughts & suggestions.

[Izybat]

I decided to roll the really old 401k into an IRA within Vanguard. There are the benefits that were mentioned here (lower fees, more fund choices), but honestly, it was mostly just easier. I've thought about rolling this 401k over in the past, and they kept saying I need to get a hold of my "fund manager" or some such nonsense. I had no idea who that was or how I would get a hold of them. Rolling from an employer sponsored 401k into an IRA within Vanguard was super easy and took maybe 20 minutes of work, then like five days to wait for the transfer. Overall, pretty easy.