Author Topic: What to do with Old 401k?  (Read 3810 times)

2Birds1Stone

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What to do with Old 401k?
« on: February 16, 2015, 09:50:13 AM »
Hey there MMM world. I am a little torn as to what to do with my old employers 401k.

I have ~$21,000 sitting in my old employers 401k since December. It is through Fidelity and it does have some good low expense ratio funds.
My new employers 401k is through Fidelity as well and offers some great low cost institutional class funds as well.

My Roth IRA is through Vanguard and I have been happy with them as well.

I am not sure whether to

A) Keep my 401k in former employers program, with the ability to roll it into an IRA in the future if I chose to.
B) Roll it into my current employers 401k with slightly better fund options.
C) Roll it into a Fidelity IRA
D) Roll it into a Vanguard IRA

I know the benefit of keeping it in either 401k is that the money is protected in case of a lawsuit, bankruptcy, etc. Which I believe is not the case with an IRA.

The benefit of the IRA is being able to do a Roth conversion ladder down the line, as well as having more options to invest the $$.

Is there a huge difference with IRA's between Vanguard and Fidelity, I am pretty sure I can buy vanguard funds/ETF's through a Fidelity IRA. The benefit of the Fidelity IRA would be simplicity, no paperwork to roll it over VS moving the funds to Vanguard.

What would you do? And why?

seattlecyclone

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Re: What to do with Old 401k?
« Reply #1 on: February 16, 2015, 09:54:11 AM »
Are the funds in your new 401(k) as good as (or better than) what you would invest in with an IRA? If so, I would probably put it in the new employer's 401(k). Institutional class funds are nice. You can always use 401(k) funds for a Roth ladder in the future if you want to pursue that strategy.

johnny847

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Re: What to do with Old 401k?
« Reply #2 on: February 16, 2015, 10:07:19 AM »
What seattlecyclone said, for the most part.

If the expense ratios in the old 401k are comparable or even slightly worse, I would still leave it in there. The reason I recommend this is that once you roll over that money into your new 401k, there's no takebacks. If at any point in the future your new employer decides to change up the 401k offerings into higher expense ratio funds, then you're just stuck with them.

Also, if you make too much to make direct contributions to a Roth IRA, and you don't already have a traditional IRA, then you would want to keep the backdoor Roth open. Because you already have some good funds in your old 401k, in that scenario I would just leave your money there.

2Birds1Stone

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Re: What to do with Old 401k?
« Reply #3 on: February 16, 2015, 10:37:32 AM »
Ok I looked a little deeper at the fund offerings. The old employers 401k has 2 funds with good expense ratio's. The Spartan S&P 500 index fund, which I have, and another Mid Cap Spartan Fund which I do not. I have about $8000 in a T. Rowe Price Target Date fund with a .76% Expense Ratio, and $2000 in a Bond Fund with a .68% expense ratio. Everything else is in the S&P 500 Index.

My current employers 401k does have a bunch of the Vanguard funds with .04-.12% expense ratio's.

That is a good Point Johnny, this is a Fortune 500 with 40 years of history so I am not sure how often the fund availability changes.

I checked, I can get the same expense ratio funds in an IRA as the new employers 401k. But I lose the "protection" of the 401k in case of lawsuit, or other financial hardship. Not sure how those laws work exactly.

 

terran

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Re: What to do with Old 401k?
« Reply #4 on: February 16, 2015, 11:22:37 AM »
If the expense ratios in the old 401k are comparable or even slightly worse, I would still leave it in there. The reason I recommend this is that once you roll over that money into your new 401k, there's no takebacks. If at any point in the future your new employer decides to change up the 401k offerings into higher expense ratio funds, then you're just stuck with them.

If you leave a 401k with the old employer is there any time limit to when you can roll it over if you decide to (like if they change the fund offerings)?

johnny847

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Re: What to do with Old 401k?
« Reply #5 on: February 16, 2015, 11:31:37 AM »
Ok I looked a little deeper at the fund offerings. The old employers 401k has 2 funds with good expense ratio's. The Spartan S&P 500 index fund, which I have, and another Mid Cap Spartan Fund which I do not. I have about $8000 in a T. Rowe Price Target Date fund with a .76% Expense Ratio, and $2000 in a Bond Fund with a .68% expense ratio. Everything else is in the S&P 500 Index.
If you decide to hang onto the old 401k, I'd probably try to switch out of the target date fund and bond fund in this old 401k and then increase your bond holding in your IRA, if you can (ie, your IRA may not be big enough to hold all the bonds you want.

That is a good Point Johnny, this is a Fortune 500 with 40 years of history so I am not sure how often the fund availability changes.
Honestly it's probably a very small risk. I just mentioned it so you can make a decision while considering all the variables.

I checked, I can get the same expense ratio funds in an IRA as the new employers 401k. But I lose the "protection" of the 401k in case of lawsuit, or other financial hardship. Not sure how those laws work exactly.
In that case, I'd probably look into understanding the protection of 401k's in lawsuits. I'm not well versed in those, but if we ignore the protection clause for a second, I'd recommend rolling over your old 401k to an IRA because your expense ratio should never get worse there.


If the expense ratios in the old 401k are comparable or even slightly worse, I would still leave it in there. The reason I recommend this is that once you roll over that money into your new 401k, there's no takebacks. If at any point in the future your new employer decides to change up the 401k offerings into higher expense ratio funds, then you're just stuck with them.

If you leave a 401k with the old employer is there any time limit to when you can roll it over if you decide to (like if they change the fund offerings)?
I'm not entirely certain but I believe you can roll it over at any time once you've terminated employment with them.

seattlecyclone

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Re: What to do with Old 401k?
« Reply #6 on: February 16, 2015, 11:57:55 AM »
You can roll money out of an old 401(k) at any time after leaving the company. Some companies restrict rollovers in to the first few months of employment, so you should find out if that's the case for your new employer.

teen persuasion

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Re: What to do with Old 401k?
« Reply #7 on: February 16, 2015, 01:03:02 PM »
Anecdotal, but DH left his 401k in his previous employer's plan rather than roll it into an IRA.  Over the years, that previous employer kept switching service providers, which changed the funds offered.  We finally decided it was time to wrest control away from them and roll it into an IRA, but unfortunately not in time to prevent one more provider switch (and blackout period while the switch was made).  During that last switch, the new service provider got some bad data, which said that DH's funds were not all vested (incorrect), and we couldn't roll the entire amount out.  This employer had now been out of business over 10 years!  DH was extremely lucky that when he contacted the parent firm ( running the 401k) he happened to be talking to someone who had worked with him years ago at the now-defunct employer.  She knew the circumstances, and that they'd all been vested at the end, and could find the right people to fix it from HQ.  The 401k service provider couldn't fix the problem without the intervention of the "employer", they only knew what they'd been told in the transfer.

Just to let you know that things can go wrong leaving it in the old employer's plan.

2Birds1Stone

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Re: What to do with Old 401k?
« Reply #8 on: February 17, 2015, 07:09:20 AM »
Thank you for all the replies guys and gals.

I just spoke with Fidelity after creating the Vanguard IRA and had them cut me a check for the rollover.

It seems there is no real downside to the IRA route, as others mentioned. Being stuck with new employers investment options in the future might have me regretting rolling into it.

Apparently Fidelity has to mail me a check, then I mail it to Vanguard. SO I'll be out of the market for ~2 weeks while everything gets processed and mailed.