wife's new job has Vanguard 401k options, but fees seem excessive.

[Late_Bloomer]

Wife just started a new job and has a 401k to be rolled over. We are deciding whether to roll over her old 401k to her new company, or just go with vanguard outright and roll over her 401k with them.

First off, the investment vehicle for her new company is called "Standard Retirement Services, inc." Her employer provides a 6% match after 3 years. I'm concerned with the fees this company is charging for services. I'll list them below. They are on top of what is charged for the vanguard portions.

large cap:
vanguard Winsor II admmiral VWNAX. Mutual fund expense: 0.28% / Standard asset based fee: 0.94%/ total operating expenses: 1.22%
Vanguard 500 Index Admiral VFIAX.                                       0.05%                                             0.94%                                           0.99%

Mid/small cap:
Vanguard extended market. VEXAX.                                        0.10%                                             0.94%                                           1.04%
Vanguard small cap index adm. VSMAX                                   0.09%                                             0.94%                                           1.03%

There doesn't seem to be an international option for vanguard. But there is one with Oppenheimer.
The total operation expenses includes Standards record keeping, compliance, consulting, and accounting fees.

Do these fees charged by Standard sound reasonable? Aside from the company match, I don't see any reason to pay a middle man fees when I can just go to Vanguard and eliminate those fees altogether. I would just put enough in the 401k to get the match.

What do those with more experience in 401k options think?

[Rocket]

Fidelity manages my companies 401k plan and we pay less than the left hand column for institutional shares.  I think those additional fees are a total ripoff.

[Frankies Girl]

Do NOT roll the old/existing 401k there. Take that sucker to Vanguard now.

My personal opinion is that it is a shit financial company, but I'd hold my nose and invest in their 401k for as long as she's employed at that place, then do a rollover IRA to Vanguard on the SRS 401k as soon as she leaves that job for a new one to get the funds out of there and stop the stupid fees.

Short term, you get the advantage of reducing your taxable income, you get the company match, and you get the tax deferred growth bucket of up to 18K per year to sock away. So even if it has a really shitty expense ratio imposed by the stupid financial group her company is using, you're still going to come out ahead since you can't invest 18K a year anywhere else tax deferred like that.

So my suggestion (it's been discussed around here before but this is the basic order):

1. Existing 401k from previous job - move to Vanguard

2. Current 401k at new company - invest to max match level (6% is given only after 3 years? Or is she vested fully after 3 years? Kind of confused as I've never heard of a company that won't provide the match each year as soon as you're allowed to invest)

3. Max out HSAs if available.

4. Max out traditional/Roth IRA (will need to figure out which one works best for your income levels and if you're eligible too) - 5,500K for you and spouse for a total of 11K

5. Max out shitty SRS 401k - 18K

6. Taxable account to invest any excess

[pbkmaine]

These fees ARE excessive.

[seattlecyclone]

I agree with Frankies Girl. Roll the old 401(k) to a Vanguard IRA. After getting the full match, further investments in the new 401(k) should be just higher in priority than a taxable investment account. Max out your own 401(k) (assuming it has better fees) plus your IRAs first, then hold your nose to fill up the new 401(k).

The less time she plans to be in that job, the less bad those high fees will be, as you can always roll the money over to a different account when she changes jobs next.

[JR]

Fidelity manages my companies 401k plan and we pay less than the left hand column for institutional shares.  I think those additional fees are a total ripoff.

That is because your employer, like mine, likely pays all of the administrative fees related to operating the 401k plan. My wife's employer pays nothing and it is spread among the employees through higher fees.

[rpr]

Are you planning to make Back door Roth IRA contributions? If so, then think a little more before rolling it to an IRA.

What are the fees in the old 401k plan? If the fees are low, can you continue to keep it there?

[acanthurus]

You can't directly compare the expense ratios in a 401k to the expense ratios in an IRA. The regulatory compliance costs of the 401k plan are being borne by the participants through these fees. If the number of plan participants is fewer than 50-100 people these fees are probably in line with the rest of the industry. This is unfortunately the price you have to pay if you work at a smaller employer (fewer employees to spread administrative costs among) and want to contribute more than the $5500 IRA limit.

I wouldn't roll any money into this plan, but the 1% fees wouldn't stop me from maxing it out either, especially if this is a <10 year job or if you have a provision for in-service rollovers.

[Indexer]

I use to handle plan rollovers for a fairly large investment firm so I got to see what everyone was doing.

Here is my rule of thumb in the 401(k) world(occasionally wrong, MetLife proved me wrong once, but right most of the time): 
Best: Vanguard institutional negotiated plans. aka Google's 401(k) plan. ERs as low as 0.01% with other perks like access to a CFP. I am not a programmer, but I so wish I could have my money in Google's 401(k) plan!

Great: Standard Vanguard plans, Schwab, TIAA, low cost Fidelity plans. Costs in the 0.05-0.5% range.

Middle: no one. It goes straight from great to crap.

Crappy: Big banks, big investment firms, active mutual fund companies, and record keeping firms. Wells Fargo, JP Morgan, Merrill Lynch, American Funds, ADP, higher cost Fidelity plans, etc.  Costs in the 0.5-1.5% range.

Terrible: Expensive active mutual fund companies and high cost brokerage firms. Edward Jones, Raymond James, Oppenheimer. Costs 1-2%.

Scum of the Earth:  Mostly insurance companies. These are the only plans I ever saw where the average fund had an ER over 2%, and I only saw one where the ERs were under 1%. That was the time MetLife surprised me.

Standard is an insurance company. There is my opinion.

Follow all of the advice given so far. Get the match, then start maxing out every other tax deferred option before adding another penny to this 401(k). Now I would still contribute to this 401(k) before contributing to a taxable account. Tax deferred is still tax deferred.


Side question, how big is this company? Many companies have been sued the past few years by their own employees for not negotiating 401(k) benefits as well as they could. Those admin fees are extremely high. The Vanguard 500 index fund should not cost 1% under any circumstances. If the 401(k) has more than 2 million in total assets they need to shop around. I know they can do better if they make a few phone calls. Even if they have less than 2 million in assets they should still shop around, but they might not be able to do too much better.

[Late_Bloomer]

Thanks for the input. I just wanted to make sure I wasn't the only one who  thought these fees were ridiculous. Many of you mention rolling wife's former employer 401k into a vanguard IRA. What incentive does this provide (now)? The backdoor Roth? I plan on starting that in about 15 years. I presumed we would roll her 401k into a Vanguard 401k and keep apples with apples. I have TSP and with our incomes, we can afford to max each account per year. We don't have any extra for HSA or IRA's on top of her 401k and my TSP.

Another question I had, if we do this, can we get automatic deductible from her checking each pay period for the Vanguard 401k, or because it's not tied to an employer, do we have to manually contribute biweekly or monthly?

@Frankies Girl: she starts out at 3% match, then 1% additional each year for three years, topping out at 6% match. I should of made that more clear. We don't know if this will be a short or long term job.

[seattlecyclone]

Thanks for the input. I just wanted to make sure I wasn't the only one who  thought these fees were ridiculous. Many of you mention rolling wife's former employer 401k into a vanguard IRA. What incentive does this provide (now)? The backdoor Roth? I plan on starting that in about 15 years.

I think you may have terminology confused. The backdoor Roth is the procedure where you make after-tax traditional IRA contributions and then convert this money to a Roth IRA as a way of circumventing the income limit for Roth IRA contributions. Are you instead thinking about the Roth pipeline, where you make Roth conversions and then withdraw the money five years later as a way of circumventing the 10% early withdrawal tax?

I presumed we would roll her 401k into a Vanguard 401k and keep apples with apples.

401(k)s are employer accounts. You can't roll into a Vanguard 401(k) unless your employer has a Vanguard 401(k). You can roll an old 401(k) into an IRA with any company you want. When you do this, you can invest that money in whatever funds you want, not just the funds that your previous employer lets you buy in their 401(k) plan.

I have TSP and with our incomes, we can afford to max each account per year. We don't have any extra for HSA or IRA's on top of her 401k and my TSP.

This is where we're saying you should prioritize IRA contributions over 401(k) contributions past the match, since the fees will be lower in IRAs. Get the maximum 401(k) match, then contribute to IRAs with any leftover money. If you still have money left to save, then you can put some more in that 401(k).

Another question I had, if we do this, can we get automatic deductible from her checking each pay period for the Vanguard 401k, or because it's not tied to an employer, do we have to manually contribute biweekly or monthly?

Again, 401(k) plans are employer-based. You can open one for yourself if you have some self-employment income, otherwise you're limited to IRAs and whatever your employers offer. To make IRA contributions you'll have to contribute on your own out of your checking account on whatever schedule you like.

[MustacheAndaHalf]

So even if it has a really shitty expense ratio imposed by the stupid financial group her company is using, you're still going to come out ahead since you can't invest 18K a year anywhere else tax deferred like that.

I ran some numbers at 20 and 40 years, and taxable actually won (barely) when there's no match.  But within those 20-40 years is an assumption that OP's wife will be at the same job.  Realistically, she'll switch jobs before 20 years are up, and that allows a roll over to a lower expense plan.  But this plan's expenses are so bad, that there are situations where taxable is better (even with after-tax money being taxed a second time on growth).

[Frankies Girl]

So even if it has a really shitty expense ratio imposed by the stupid financial group her company is using, you're still going to come out ahead since you can't invest 18K a year anywhere else tax deferred like that.

I ran some numbers at 20 and 40 years, and taxable actually won (barely) when there's no match.  But within those 20-40 years is an assumption that OP's wife will be at the same job.  Realistically, she'll switch jobs before 20 years are up, and that allows a roll over to a lower expense plan.  But this plan's expenses are so bad, that there are situations where taxable is better (even with after-tax money being taxed a second time on growth).

I totally agree that this is a supremely horrible 401k company, but as she will be receiving a 3% match on her investment from the start, I kind of see it as paying back some of the percentage lost to the high fees. So she'll technically be getting a less than 2% match instead of 3% at the outset, if you look at it from that perspective and if she stays more than a few years, they'll increase it up to 6%. Helps lessen the sting a little bit. But definitely roll it to Vanguard the minute she is out of there.

[Late_Bloomer]

Let me summarize what I understand as the best option because it brings up a new consideration that I want to get your opinions on...

From the advice given, the best option would be to:
Roll over wife's former 401K to a Vanguard IRA
Contribute to wife's new 401K up to the match and no more.

Now, I'm thinking in terms of total annual investment amount that we have (irregardless of the investment vehicles we can use). This amount is 36k. It's obvious that we have a lot left over if we rolled her former 401k into a Vanguard IRA because the contribution limits are only 5500 annually, taking into account we would only be contributing a small % to her new company 401K (up to the match @6%). Therefore, in order to continue saving as much as we are allowed, I would have to open my own IRA with Vanguard and max that annually. Even doing that, we would have a few thousand left over so we could put that into the new 401k to reach our 36k allotment.

that means we would have 4 investment vehicles going at the same time. My TSP, her new company's 401K, and an IRA with Vanguard in her name, and one in my name. Isn't this counterproductive in terms of compounding? I mean, compounding power hinges on how much total you have in an account. If we have to split it up 4 ways, it cuts the significance of compounding greatly. Now, I could just roll her 401K over to the new company, continue to contribute max annually (18k), and continue with my TSP (18k) annually, thus allowing a much larger stash in 2 accounts to compound vs. 4 accounts because IRA's have such low annual contribution rates.

Is my thinking too far out in left field? I'm not trying to defend any particular option over another, I just want to make sure I'm doing a positive thing to avoid this companies raping fees as well as not jeopardizing my overall reason for investing in the first place, the compounding effect of the markets.

[Phenix]

Isn't this counterproductive in terms of compounding? I mean, compounding power hinges on how much total you have in an account. If we have to split it up 4 ways, it cuts the significance of compounding greatly. Now, I could just roll her 401K over to the new company, continue to contribute max annually (18k), and continue with my TSP (18k) annually, thus allowing a much larger stash in 2 accounts to compound vs. 4 accounts because IRA's have such low annual contribution rates.

4 accounts with $25k each earning 7% will have the same exact ending balance as 2 accounts with $50k each earning 7%.  In your situation though, your 4 accounts will actually do better given that the fees on your Vanguard IRAs will be much lower than your wife's 401k.

[rpr]

Everybody seems to be clamoring to rollover the old 401k to Vanguard. Before you do that, it might be worthwhile investigating what the fees are in the old 401k and if you are allowed to leave it there even after leaving the employer.

[frugalnacho]

Everybody seems to be clamoring to rollover the old 401k to Vanguard. Before you do that, it might be worthwhile investigating what the fees are in the old 401k and if you are allowed to leave it there even after leaving the employer.

Vanguard IRA will almost certainly be less than whatever the 401k she is currently in.  VTSAX ER is only 0.05%, it's hard to beat that.

+1 to everything frankiesgirl said, that's exactly how I would recommend to handle it too.

As for taxable beating the 401k - I would like to see the numbers because I highly doubt it.  The tax deferment combined with the company match should provide more than enough to compensate for the egregious fees charged.  She should still come out way ahead utilizing the 401k than a taxable account.  Plus she can roll it over to an IRA once she gets fired or FIRED.

[rpr]

Everybody seems to be clamoring to rollover the old 401k to Vanguard. Before you do that, it might be worthwhile investigating what the fees are in the old 401k and if you are allowed to leave it there even after leaving the employer.

Vanguard IRA will almost certainly be less than whatever the 401k she is currently in.  VTSAX ER is only 0.05%, it's hard to beat that.

+1 to everything frankiesgirl said, that's exactly how I would recommend to handle it too.

As for taxable beating the 401k - I would like to see the numbers because I highly doubt it.  The tax deferment combined with the company match should provide more than enough to compensate for the egregious fees charged.  She should still come out way ahead utilizing the 401k than a taxable account.  Plus she can roll it over to an IRA once she gets fired or FIRED.

While I agree that the IRA is likely to be better, it is worthwhile making sure of it.

Also, one of the side benefits of keeping it in the 401k may be if the OP ever needs to do Backdoor Roth IRA contributions. Having existing money in a traditional IRA will complicate this.

[seattlecyclone]

Now, I'm thinking in terms of total annual investment amount that we have (irregardless of the investment vehicles we can use). This amount is 36k. It's obvious that we have a lot left over if we rolled her former 401k into a Vanguard IRA because the contribution limits are only 5500 annually, taking into account we would only be contributing a small % to her new company 401K (up to the match @6%).

Just to clarify something, the rollover from 401(k) to IRA does not count against her $5,500 IRA contribution limit.

Others are correct when they say that splitting into four separate accounts will not affect the compounding power of your money.

As for taxable beating the 401k - I would like to see the numbers because I highly doubt it.  The tax deferment combined with the company match should provide more than enough to compensate for the egregious fees charged.  She should still come out way ahead utilizing the 401k than a taxable account.  Plus she can roll it over to an IRA once she gets fired or FIRED.

This obviously depends on a lot of factors (current tax rate, retirement tax rate, level of fees in the employer plan, time until retirement, expected time in that job, etc.), but a rule of thumb I've seen is that taxable investing might win out if the expense ratio in the 401(k) times the number of years you expect to be in that job is at least 30.

[MustacheAndaHalf]

... this plan's expenses are so bad, that there are situations where taxable is better (even with after-tax money being taxed a second time on growth).

I totally agree that this is a supremely horrible 401k company, but as she will be receiving a 3% match on her investment from the start, I kind of see it as paying back some of the percentage lost to the high fees.
...

The original post claims there's no match at first - only after several years does it kick in.
"Her employer provides a 6% match after 3 years."

[MustacheAndaHalf]

...
As for taxable beating the 401k - I would like to see the numbers because I highly doubt it.  The tax deferment combined with the company match should provide more than enough to compensate for the egregious fees charged.  She should still come out way ahead utilizing the 401k than a taxable account.  Plus she can roll it over to an IRA once she gets fired or FIRED.

According to OP, the company match starts at 0%.  After 3 years it becomes 6%.  And again, you have to assume the high 0.99% fee remains for the entire 20-40 year period.  I initially typed a post up with the numbers, realized how annoying that is to read, and just typed the summary.  So here's the basic idea with the calculation:

assumes median tax bracket (25% ordinary, 15% qualified dividends / long-term capital gains)
situation is 0% match now, so just following today's money for 40 years.
We can't predict future S&P 500 growth, so arbitrarily picking 6%

taxable) taxed once at 25%, and any long-term growth taxed again at 15%
   Vanguard S&P 500 has 0.05% fee.  It has 2% dividends taxed 15%, so another 0.30% to pay.
401k) taxed 25% upon withdrawal.  Expensive plan with 0.99% fee.

401k) $10,000 * (6% - 0.99%) (for 40 years) (less 25% taxes) = $53,001
taxable) $10,000 * (taxed 25%) * (growth taxed 15%) * (6% - 0.35%) (for 40 years) = $58,571

So taxable grew +10.5% more over 40 years compared to this 401(k), but this assumes a 0.99% expense ratio for 40 years.  Note this is just first year contribution of $10,000 growing - per OP's post, there's no company match yet.  So even with double taxation (15% on growth), the added 0.65% cost per year can catch up eventually.

[Frankies Girl]

MustacheAndaHalf: You missed this post where he explained the match better. So unfortunately your calculations don't apply to their situation.

@Frankies Girl: she starts out at 3% match, then 1% additional each year for three years, topping out at 6% match. I should of made that more clear. We don't know if this will be a short or long term job.

She gets 3% as soon as she is eligible to join the 401k as per his clarification above. So the 401k, while crappy, is offset by the match that will grow to 6% if she stays for 3 years minimum.

[frugalnacho]

...
As for taxable beating the 401k - I would like to see the numbers because I highly doubt it.  The tax deferment combined with the company match should provide more than enough to compensate for the egregious fees charged.  She should still come out way ahead utilizing the 401k than a taxable account.  Plus she can roll it over to an IRA once she gets fired or FIRED.

According to OP, the company match starts at 0%.  After 3 years it becomes 6%.  And again, you have to assume the high 0.99% fee remains for the entire 20-40 year period.  I initially typed a post up with the numbers, realized how annoying that is to read, and just typed the summary.  So here's the basic idea with the calculation:

assumes median tax bracket (25% ordinary, 15% qualified dividends / long-term capital gains)
situation is 0% match now, so just following today's money for 40 years.
We can't predict future S&P 500 growth, so arbitrarily picking 6%

taxable) taxed once at 25%, and any long-term growth taxed again at 15%
   Vanguard S&P 500 has 0.05% fee.  It has 2% dividends taxed 15%, so another 0.30% to pay.
401k) taxed 25% upon withdrawal.  Expensive plan with 0.99% fee.

401k) $10,000 * (6% - 0.99%) (for 40 years) (less 25% taxes) = $53,001
taxable) $10,000 * (taxed 25%) * (growth taxed 15%) * (6% - 0.35%) (for 40 years) = $58,571

So taxable grew +10.5% more over 40 years compared to this 401(k), but this assumes a 0.99% expense ratio for 40 years.  Note this is just first year contribution of $10,000 growing - per OP's post, there's no company match yet.  So even with double taxation (15% on growth), the added 0.65% cost per year can catch up eventually.

I think there are a few things wrong with this.

1. OP clarified that there is a company match immediately.
2. 401k withdraws taxed at 25% - Unlikely that all of the money in the 401k would enter in the 25% bracket, AND be withdrawn in the 25% bracket.  Technically possible depending on other income sources, but I think it's much more likely that at least a portion of the 401k withdraws will fall in the 0, 10, and 15% brackets
3. I think it's useless to only look at the first year deposit (which ignored company match), while simultaneously assuming 40 years.  Those 37 years (actually 40) of company match will add up quite a bit.
4. The higher up the tax bracket she is the more generous that company match will be.  If you are earning enough to solidly put the entirety of your 401k contributions in the 25% bracket, 3% of your salary will be a huge gain.  If you earn $100k/yr and get 3% matching that would be $3k.  $3k would put your total contributions at $21.5k, which is an automatic and instant 16.2% return on your contribution.  You'd have to have some seriously egregious fees to erode that return away to the point taxable was a better option.

I'm sure there are some scenarios where it is technically possible for taxable to beat 401k w/ a match, but I think those are rare.  The vast majority of cases the 401k will win even with high ER.

[Scandium]

So even if it has a really shitty expense ratio imposed by the stupid financial group her company is using, you're still going to come out ahead since you can't invest 18K a year anywhere else tax deferred like that.

I ran some numbers at 20 and 40 years, and taxable actually won (barely) when there's no match.  But within those 20-40 years is an assumption that OP's wife will be at the same job.  Realistically, she'll switch jobs before 20 years are up, and that allows a roll over to a lower expense plan.  But this plan's expenses are so bad, that there are situations where taxable is better (even with after-tax money being taxed a second time on growth).

I totally agree that this is a supremely horrible 401k company, but as she will be receiving a 3% match on her investment from the start, I kind of see it as paying back some of the percentage lost to the high fees. So she'll technically be getting a less than 2% match instead of 3% at the outset, if you look at it from that perspective and if she stays more than a few years, they'll increase it up to 6%. Helps lessen the sting a little bit. But definitely roll it to Vanguard the minute she is out of there.

Taking the match is a no-brainer. I think the issue is whether to invest the next $1 after that into the 401k or a taxable account. With a tax deduction, tax-free growth and (likely) a lower tax out I think that's still the better option, even with 1% fees. But I'm open to seeing calculations.. (didn't jcollins or fientist do this?)

Also consider that the plan might change in the future. My employer changed providers and went from 0.75% to 0.05% as the min. Or OP's wife might leave in a few years. Having more money tax-deferred then should come out ahead even with a few years of 1%, rather than in a taxable account that takes 15% of dividends every year.

[Late_Bloomer]

Ha! Well, found out why employees shoulder more of the burden in fees, because she has a Pension plan as a benefit. She neglected to tell me that when I made the OP. She still needs to find out the details on it, but even if it's as crappy as my Federal Pension, It will more than cover those additional fees. So we're dumping her former 401k there and spreading it throughout the Vanguard funds. At least it's Vanguard, heh. Good information though, thanks.

[Greenpez]

 I don't understand what the pension plan has to do with the 401k? I can see why the company would say ok, we arent paying all fees because you ALSO get a pension, but what does that have to do with you rolling the old plan into it?

[frugalnacho]

And why would you roll the old 401k into the new 401k plan and pay higher fees than just rolling it into a vanguard IRA and paying lower fees?  Surely the previous 401k balance has no bearing on the current pension?

[Late_Bloomer]

I went with the "hold your nose" for now approach. The IRA would save more on fees, yes, but we lose some of the tax advantage aspect, as well as not having the higher annual contribution option. Having a pension wasn't a known benefit, but now that it is known, it's a huge boost to our FIRE model. For us, it comes down to simplification. It'll work for us.

[Greenpez]

 Ok, if you want to simplify, but what you do with the old 401k has no impact on future contributions. If you move it to a tIRA it is a nonevent taxwise. You can also still contribute the same to your tax deferred space regardless of where you put the old 401k.

 Finding out she gets a pension is a great surprise, but doesnt change anything about where the 401k should go for the most financial benefit.

[Frankies Girl]

Ok, if you want to simplify, but what you do with the old 401k has no impact on future contributions. If you move it to a tIRA it is a nonevent taxwise. You can also still contribute the same to your tax deferred space regardless of where you put the old 401k.

 Finding out she gets a pension is a great surprise, but doesnt change anything about where the 401k should go for the most financial benefit.

+1

There is absolutely no advantage to put the old 401k into the new one. You actually are causing a worse situation for yourself by locking it into paying high fees with the crappy management company. You can have more than one 401k or IRA per person, and you won't have to manage the old one if you just throw it all in one basic fund.

You lose nothing but doing this. There is no tax costs to doing a rollover to a tIRA, and you will still have the new (crappy) 401k to invest in (18K/year) if needed. I think you're getting confused because what you stated doesn't make sense at all.

Keep it as a separate account, move it as a rollover tIRA to Vanguard, and put it into VTSAX or a target date fund and you'll be MUCH better off.

[Late_Bloomer]

Ok I will tell her about moving it to vanguard and letting it sit. I thought when you move a former 401k to a new one, it combines the two. Her old one dipped down to 50k after this past week. Allocating that to a 40/40/10 split in vanguard funds would not combine with new funds being added bi weekly? The more I discuss it, the more my reasoning is off. Quite embarrassing.

[frugalnacho]

Ok I will tell her about moving it to vanguard and letting it sit. I thought when you move a former 401k to a new one, it combines the two. Her old one dipped down to 50k after this past week. Allocating that to a 40/40/10 split in vanguard funds would not combine with new funds being added bi weekly? The more I discuss it, the more my reasoning is off. Quite embarrassing.

It doesn't matter where that old 401K money goes, it's still her money.  If you roll it into her new 401k then yes it combines with it, but then you have $50k less in an IRA.  If you put it in an IRA instead of the new 401k, then her 401k will be starting from $0, but she'll have $50k in an IRA.  Either way it's the same amount.  Except if you put it into an IRA instead of her 401k she will pay less in fees, which will end up with her keeping more of her own money by using a low cost IRA like vanguard as compared to the high fee 401k.  You don't earn any more by consolidating your account either; 50 accounts with $1 each will have the same growth as 1 account with $50 (assuming they are invested identically).

Her old 401k should have no bearing on the pension either.   It's a totally unrelated matter. 

[Late_Bloomer]

Yea, well the pension does have no bearing on the issue. I was just pointing out the fact that it was additional money for retirement I did not know we were now getting, and that in itself was making me feel better about paying those additional 401k admin fees. But you're right, the fees remain the same and I shouldn't use that as a crutch to convince myself the fees are acceptable. Which was what I was doing by bringing it into the discussion.

[MustacheAndaHalf]

MustacheAndaHalf: You missed this post where he explained the match better. So unfortunately your calculations don't apply to their situation.

@Frankies Girl: she starts out at 3% match, then 1% additional each year for three years, topping out at 6% match. I should of made that more clear. We don't know if this will be a short or long term job.

She gets 3% as soon as she is eligible to join the 401k as per his clarification above. So the 401k, while crappy, is offset by the match that will grow to 6% if she stays for 3 years minimum.

I did miss that, thanks for the correction.

frugalnacho - Agreed, match starts at 3% and rises to 6%.

[Wilson Hall]

Ok I will tell her about moving it to vanguard and letting it sit. I thought when you move a former 401k to a new one, it combines the two. Her old one dipped down to 50k after this past week. Allocating that to a 40/40/10 split in vanguard funds would not combine with new funds being added bi weekly? The more I discuss it, the more my reasoning is off. Quite embarrassing.

It doesn't matter where that old 401K money goes, it's still her money.  If you roll it into her new 401k then yes it combines with it, but then you have $50k less in an IRA.  If you put it in an IRA instead of the new 401k, then her 401k will be starting from $0, but she'll have $50k in an IRA.  Either way it's the same amount.  Except if you put it into an IRA instead of her 401k she will pay less in fees, which will end up with her keeping more of her own money by using a low cost IRA like vanguard as compared to the high fee 401k.  You don't earn any more by consolidating your account either; 50 accounts with $1 each will have the same growth as 1 account with $50 (assuming they are invested identically).

Her old 401k should have no bearing on the pension either.   It's a totally unrelated matter.

Bumping this post because I'm about to be in a similar situation.

I will be working for a new employer starting next month. Like the OP's wife, I have a pension and a 403b (no match). My original plan was to roll the 403b into a Vanguard 403b (yay!) with my new employer. However, my understanding now is that because the fees on my current 403b are front-loaded, they have already been paid --at least this is what my broker told me. There is, as far as I can discern, no cost to leave the 403b with my current employer. If I did roll it into a new Vanguard 403b, wouldn't I be paying new fees on this money in addition to the new contributions I would be making?

By the way, I already have a Roth IRA, and if there is any possibility of FIRE for me before age 59.5, I'd prefer not to roll my 403b into a traditional IRA.

[seattlecyclone]

However, my understanding now is that because the fees on my current 403b are front-loaded, they have already been paid --at least this is what my broker told me. There is, as far as I can discern, no cost to leave the 403b with my current employer.

I would check this assumption very carefully. I've seen lots of load funds where you pay several percent up front and then still pay relatively high fees after that every year; I've never seen one where the expense ratio drops to zero after the load has been paid. I would be very surprised if you would not save on ongoing expenses by rolling your old 403(b) over to the Vanguard plan.

[frugalnacho]

Bumping this post because I'm about to be in a similar situation.

I will be working for a new employer starting next month. Like the OP's wife, I have a pension and a 403b (no match). My original plan was to roll the 403b into a Vanguard 403b (yay!) with my new employer. However, my understanding now is that because the fees on my current 403b are front-loaded, they have already been paid --at least this is what my broker told me. There is, as far as I can discern, no cost to leave the 403b with my current employer. If I did roll it into a new Vanguard 403b, wouldn't I be paying new fees on this money in addition to the new contributions I would be making?

By the way, I already have a Roth IRA, and if there is any possibility of FIRE for me before age 59.5, I'd prefer not to roll my 403b into a traditional IRA.

Is this the same broker that sold you a front loaded fund in the first place? Either way I wouldn't trust him.  Like seattlecyclone said, I'd be very surprised if switching to vanguard did not save you money on ongoing expenses.

EDIT:  I also wouldn't worry about my money being locked up in a 401k or tIRA.  There are many resources on this forum that can explain how to access that money, starting with this:

http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[chasesfish]

Frankie's girl nailed this post.  Standard's fee stinks, but there's a real cost to the company/investment firm to administer a 401k plan.  Never, ever, ever roll your existing 401k into your new 401k.   The government requires a pile of administrative reporting as it relates to 401k plans and they will always be more expensive than if we all as individuals were just allowed to invest $18,000/year pre-tax in an individual IRA.

Hold your nose on the fees and take the tax deduction, then be sure to write your congressman/senator and ask they consider pushing to make the contribution limits equal due to excessive fees inside 401k plans.

[chasesfish]

Ok I will tell her about moving it to vanguard and letting it sit. I thought when you move a former 401k to a new one, it combines the two. Her old one dipped down to 50k after this past week. Allocating that to a 40/40/10 split in vanguard funds would not combine with new funds being added bi weekly? The more I discuss it, the more my reasoning is off. Quite embarrassing.

It doesn't matter where that old 401K money goes, it's still her money.  If you roll it into her new 401k then yes it combines with it, but then you have $50k less in an IRA.  If you put it in an IRA instead of the new 401k, then her 401k will be starting from $0, but she'll have $50k in an IRA.  Either way it's the same amount.  Except if you put it into an IRA instead of her 401k she will pay less in fees, which will end up with her keeping more of her own money by using a low cost IRA like vanguard as compared to the high fee 401k.  You don't earn any more by consolidating your account either; 50 accounts with $1 each will have the same growth as 1 account with $50 (assuming they are invested identically).

Her old 401k should have no bearing on the pension either.   It's a totally unrelated matter.

Bumping this post because I'm about to be in a similar situation.

I will be working for a new employer starting next month. Like the OP's wife, I have a pension and a 403b (no match). My original plan was to roll the 403b into a Vanguard 403b (yay!) with my new employer. However, my understanding now is that because the fees on my current 403b are front-loaded, they have already been paid --at least this is what my broker told me. There is, as far as I can discern, no cost to leave the 403b with my current employer. If I did roll it into a new Vanguard 403b, wouldn't I be paying new fees on this money in addition to the new contributions I would be making?

By the way, I already have a Roth IRA, and if there is any possibility of FIRE for me before age 59.5, I'd prefer not to roll my 403b into a traditional IRA.

Wilson - You should roll your 403b into an IRA with Vanguard or one of the other discount brokers.  The "front loaded" fee he's talking about is a sunk cost you can't control.  I guarantee the expense ratios on the investments are still higher than Vanguard's.  Your broker is likely personally being paid 0.25% of your assets every year as a trailing commission if you keep it with him.  That's money directly out of your pocket. 

I don't understand why you'd prefer NOT to roll it over, I don't believe the rules are different

[seattlecyclone]

Frankie's girl nailed this post.  Standard's fee stinks, but there's a real cost to the company/investment firm to administer a 401k plan.  Never, ever, ever roll your existing 401k into your new 401k.   The government requires a pile of administrative reporting as it relates to 401k plans and they will always be more expensive than if we all as individuals were just allowed to invest $18,000/year pre-tax in an individual IRA.

Hold your nose on the fees and take the tax deduction, then be sure to write your congressman/senator and ask they consider pushing to make the contribution limits equal due to excessive fees inside 401k plans.

Your statements are too absolute. There are circumstances where rolling an old 401(k) into a new 401(k) is the best move.

First of all, some 401(k) plans (generally at giant megacorps) have institutional class index funds with lower expense ratios than anyone can get in an IRA. This is the case for my current employer. They do have a nominal flat annual fee to cover plan administration expenses. I'll be paying that anyway as long as I work there, so I might as well roll my old 401(k) and IRA into there to get as much of my money as possible invested into those institutional funds. I did the math comparing my 401(k) to Vanguard Admiral funds for after I quit and have the option of rolling into an IRA. The total expenses will be lower if my balance is over ~$200k when I leave. That's the point where the annual fee is outweighed by the lower expense ratios. I might as well leave the money there indefinitely if that's the case.

Secondly, people with incomes high enough where they need to make Roth IRA contributions through the backdoor should consider leaving all their pre-tax retirement money in an employer plan. This might not be a great deal if you have a really crappy plan and a high balance. For example if your best 401(k) funds have a 1% expense ratio and you have $250k invested, you're paying $2,500/year to get an additional $5,500 of Roth contributions...perhaps not the best trade-off. But if the total difference in fees between your IRA and 401(k) is relatively low, it can be worth paying relatively high expense ratios to gain that additional Roth contribution space.

[chasesfish]

Okay, I'll concede to your point.  Unfortunately most company's don't have a low cost option and the on-going fees are expensive.