I kinda feel like an idiot asking this question, but here goes:
Even though we don't change jobs a lot (well it doesn't seem like a lot to me), my wife and I find ourselves with a number of different 401k and 403b accounts from previous employers.
When I read financial advice columns, there is frequently a suggestion to roll these over into an account not associated with the previous employer. They say that there will be lower fees if I make such a move, and more investment options. The investment options part is true, but for many of the things I'm invested in the fees don't seem to be different.
Does this really matter for most people? Do other folks find that they can markedly reduce their fee structure be rolling over? Am I misunderstanding something about the fees?
Does rolling over 401k, 403b, etc... matter?
@Mo
There are pros and cons to the rollover. The biggest pro (and the one I focus on) is that you can direct the investments of an IRA with far more choices than in the 401(k). But you lose some asset protections and 401(k) makes emergency withdrawals easier in a broader class of cases.
Here's a Wall Street Journal article on point:
http://online.wsj.com/article/SB122764979031057641.html
Good luck with your decision.
There are pros and cons to the rollover. The biggest pro (and the one I focus on) is that you can direct the investments of an IRA with far more choices than in the 401(k). But you lose some asset protections and 401(k) makes emergency withdrawals easier in a broader class of cases.
Here's a Wall Street Journal article on point:
http://online.wsj.com/article/SB122764979031057641.html
Good luck with your decision.
Maus, Thanks for the help. I hadn't considered the asset protection angle, which is usually the first thing to come to mind.
The investment options side of thing hasn't been a pressing issue for me, but it is worth exploring. The 401ks have been the place for funds, whereas my post-tax brokerage account (not IRA or otherwise designated) has been the place for other forms of investment.
What prompted the post was that I recently started using mint.com in an attempt to make current numbers available at any time to me and the wife. Mint suggested I could save over $100k by rolling over, and suddenly I wondered if there was something fundamental that I just don't understand.
The investment options side of thing hasn't been a pressing issue for me, but it is worth exploring. The 401ks have been the place for funds, whereas my post-tax brokerage account (not IRA or otherwise designated) has been the place for other forms of investment.
What prompted the post was that I recently started using mint.com in an attempt to make current numbers available at any time to me and the wife. Mint suggested I could save over $100k by rolling over, and suddenly I wondered if there was something fundamental that I just don't understand.
-
jennypenny
- Posts: 6861
- Joined: Sun Jul 03, 2011 2:20 pm
Mo, if you have similar accounts (under $100K) you might be paying annual fees on all of them. You might also get access to better services if you have all of your money in one place. (For example, once you get to $500K at Vanguard you get discounted trades, low or no fees, financial planning services, and access to closed funds--nice perks)
I was surprised you didn't know about the asset protection part since that's so important to you. When I had to rollover funds recently I looked into it and it seemed to vary by state. Maybe Florida doesn't treat 401Ks differently than IRAs? Someone here mentioned that it may not have been tested though--if Maus didn't mention it then maybe it was dragoncar.
I was surprised you didn't know about the asset protection part since that's so important to you. When I had to rollover funds recently I looked into it and it seemed to vary by state. Maybe Florida doesn't treat 401Ks differently than IRAs? Someone here mentioned that it may not have been tested though--if Maus didn't mention it then maybe it was dragoncar.
Jennypenny, I hadn't looked at the asset protection side of things for those assets because ERISA accounts are fully protected. I think the protection from creditors is the same for 403b, 401k, and IRA, but the difference is in issues of spouse and inheritance. Perhaps I'm wrong about this. As I have only ever had one spouse, am still married to her, and have one very young child by my current spouse, it doesn't seem to matter much presently.
I worry far less about my wife and child arguing about what was once "my" money, than I worry about the idea of a creditor seizing my assets. I acknowledge that in terms of probability it is probably more likely that my heirs will argue over my estate than it is that someone will seize my assets, but the difference in the scenarios is pretty self evident.
As for the annual fees, so much as I can figure out from my cursory investigation of the fee structure, the fees seem to be a percentage, and the fees are relatively low all around. I chose the funds with an eye on the fees to begin with though.
I worry far less about my wife and child arguing about what was once "my" money, than I worry about the idea of a creditor seizing my assets. I acknowledge that in terms of probability it is probably more likely that my heirs will argue over my estate than it is that someone will seize my assets, but the difference in the scenarios is pretty self evident.
As for the annual fees, so much as I can figure out from my cursory investigation of the fee structure, the fees seem to be a percentage, and the fees are relatively low all around. I chose the funds with an eye on the fees to begin with though.
-
Obadobadope
- Posts: 47
- Joined: Mon Dec 26, 2011 11:18 pm
Mo,
I cashed out a 403b from a previous employer and took the penalty. My employer had the plan set up so I only had the option of 50 or so mutual funds as investments. The ability to choose my own investments, and to access my money before I'm 60 has made it worth every penny of the penalty. It also helped that I got my money in February 2009. But if I had any money sitting around in mutual funds today, I'd do the same thing. I suppose it depends how many years are between you and 60, and how much it's worth to you to manage your own investments.
IMO, the vast majority of mutual funds are set up to deliberately and slowly fritter away the capital of the middle class. The fund managers might not know this, but their bosses do. Think about it. If anybody told you they could get you a tax free investment opportunity to make some money, but you couldn't have the money for decades, and they get to make all the choices about what to do with the money, and there's no guarantee you'll even get the money back - you'd call that person a scammer. Just because it's an employer and the federal government, and a money management firm doesn't make it any more trustworthy. Of course there are some legit funds out there. But they are the minority. There is big money to be made by fleecing people in these funds, and so that's what most of them do.
I cashed out a 403b from a previous employer and took the penalty. My employer had the plan set up so I only had the option of 50 or so mutual funds as investments. The ability to choose my own investments, and to access my money before I'm 60 has made it worth every penny of the penalty. It also helped that I got my money in February 2009. But if I had any money sitting around in mutual funds today, I'd do the same thing. I suppose it depends how many years are between you and 60, and how much it's worth to you to manage your own investments.
IMO, the vast majority of mutual funds are set up to deliberately and slowly fritter away the capital of the middle class. The fund managers might not know this, but their bosses do. Think about it. If anybody told you they could get you a tax free investment opportunity to make some money, but you couldn't have the money for decades, and they get to make all the choices about what to do with the money, and there's no guarantee you'll even get the money back - you'd call that person a scammer. Just because it's an employer and the federal government, and a money management firm doesn't make it any more trustworthy. Of course there are some legit funds out there. But they are the minority. There is big money to be made by fleecing people in these funds, and so that's what most of them do.
I agree 100% w Obadobadope.
If I were to leave my current employer today I would definitely roll my 401k to an IRA. I want access to all of the market and lower fees... my 401k has ~25 fund choices and their fees are on the high side.
In addition, I have a pension which is currently being managed by the same company that brings me my 401k, and I'd really rather those eggs were in 2 different baskets.
You may want to go to Brightscope and see how your retirement plans stack up against others of the same type. You may decide to move your low-ranking plans and leave the better ones alone:
http://www.brightscope.com/
If I were to leave my current employer today I would definitely roll my 401k to an IRA. I want access to all of the market and lower fees... my 401k has ~25 fund choices and their fees are on the high side.
In addition, I have a pension which is currently being managed by the same company that brings me my 401k, and I'd really rather those eggs were in 2 different baskets.
You may want to go to Brightscope and see how your retirement plans stack up against others of the same type. You may decide to move your low-ranking plans and leave the better ones alone:
http://www.brightscope.com/
I would roll it over just so I could swap the mutual funds for ETFs. That alone would probably increase your returns by 1-2% annually. ETFs are much cheaper and there are enough variants out there you can basically mimic any strategy a mutual fund would provide with much less cost. That 1-2% bump would be huge over time.
I'm anxiously awaiting the day I can roll my money from my 401k to my IRA.
I'm anxiously awaiting the day I can roll my money from my 401k to my IRA.
-
jennypenny
- Posts: 6861
- Joined: Sun Jul 03, 2011 2:20 pm
Mo, we'd just been told to lawyer up in a liability case when we had to make a decision about a rollover. It seems a 401K offers more protection against that kind of issue. Otherwise they're all the same. And either one allows you to tap the money for large medical expenses which could be the biggest issue in our cases. (I worry that they'll change that provision if government-run health insurance becomes the norm. I want to be able to pay for treatments even if our health insurance won't pay for them.)
As far as I can tell, the asset protection advantage is theoretical, and only applies in some states. Theoretical meaning I've seen speculation, but most seem to agree that iras are fairly well protected too. When you research, please let us know what you find out.
I prefer to roll over into and Ira and then convert to Roth during lean (low tax rate) years. At some point (5 years after conversion, or maybe immediately -- i can never remember because it's irrelevant to me now) yu can withdraw any funds you've paid taxes on - tax and penalty free. This makes it the most flexible option in my mind. Also, Roth Ira has no minimum distributions.
I prefer to roll over into and Ira and then convert to Roth during lean (low tax rate) years. At some point (5 years after conversion, or maybe immediately -- i can never remember because it's irrelevant to me now) yu can withdraw any funds you've paid taxes on - tax and penalty free. This makes it the most flexible option in my mind. Also, Roth Ira has no minimum distributions.
From an ERE perspective, getting laid off from an employer at 32 was one of the best things to ever happen to me. (In addition to a severance package) I was able to roll over both the 401k and pension lump sum into an IRA account, setting up the investment exactly as I wanted. Then during the low income year that followed, I converted a portion of this traditional IRA to a Roth IRA, paying minimal taxes. The Roth continues to grow tax free and I will be able to access the entire conversion amount in less than 5 years, ERE style.
-
Freedom_2018
- Posts: 482
- Joined: Sat Dec 18, 2010 12:10 am