Best Time / Worst Time to rollover 401(k)

[Looking4Ward]

At the beginning of this month I initiated a distribution request to my old 401(k) to rollover the funds to my new Vanguard IRA.

I had no idea how long the process would take but thought it would happen in time for me to still be "of record" and receive dividends. Not so - it took almost three weeks for the funds to be settled and a check to Vanguard cut.

By the time Vanguard gets and recognizes the funds sometime late next week or early the week after, I will have missed the quarterly dividend payments. I suppose that could null out if the NAV is still reduced in proportion to the amount of dividends at the time my funds are reinvested; I neither bought the dividend nor lost the dividend since the NAV should be reduced.

Another thing that bothered me was that my funds were settled on a "down" day. Since then, those funds are up a good 1% (amounting to several thousand dollars in my case). Meanwhile, my proceeds are in limbo until they get to Vanguard and are put back into investments - which could be up even higher (no!) or have dropped down lower by that time (yes!).

Just some things I was not prepared for and not sure I could have done anything about. Which led me to wonder - is there a best time or worst time to roll over a 401(k)?

 

[photoguy]

Just some things I was not prepared for and not sure I could have done anything about. Which led me to wonder - is there a best time or worst time to roll over a 401(k)?

This is basically a market timing question so I guess the best time would be when you think the market may decrease anyway.

I lost ~10% in a rollover when the market took off during a move from my old provider to vanguard (rollover took a month). Luckily it was only for about 100k of funds.

Since that experience, I then counterbalanced all roll-overs by moving fixed income in different retirement accounts to cover the sold equities.

 

[rodi]

I had a similar situation to photoguy... Megacorp insisted on cutting a check (vs doing a trustee to trustee electronic transfer... then took weeks to actually cut the check and mail it to me. By the time I had it in schwab I lost more than a percent. It was a decent chunk of change (over $300k) - so it hurt a bit. But the market has more than made up for that loss.

Sometimes it just works out that way.

I have one more 401k to roll over now that I'm retired... and I'm hoping it will go smoother. I didn't consider the divident part of things...

 

[foxfirev5]

A very minor reason why I plan to keep my rollover of my 401k at Fidelity. We have accts at both Vanguard and Fidelity, with the Vanguard funds having a very slight ER advantage over the Fidelity Spartan Advantage class. While it would be nice to have everything under one roof, part of me doesn't like not having all my eggs in one basket.
Besides, when we rolled my wife's acct over to Vanguard I was less than impressed with the confusion and misinformation I received through the transition process.
I put our new money in VG and use Fido for existing accts, better planning tools and expanded offerings.

 

[bUU]

We just did a Fidelity 401k to Vanguard IRA rollover. The liquidation was on August 29. The new purchase was September 8.

 

[scrabbler1]

I did my rollover when the market was crashing so it helped me out a little bit. This was back in November of 2008. The liquidation date was Monday, November 3rd and I completed the rollover on Thursday, November 13th. I was also investing the proceeds from the sale of the company stock (ESOP) I had sold back to the company, so that was a big day in getting my ER life under way.

 

[pb4uski]

....Which led me to wonder - is there a best time or worst time to roll over a 401(k)?

Absolutely. The best time to rollover a 401k is when stocks are declining and the worst time is when stocks are rising.

Seriously though, unless you have other tax-deferred funds that you can swap into stocks during the transition period it is a bit of a crapshoot.

 

[Cobra9777]

I retired last year and rolled my Fidelity 401K to a Fidelity IRA. I just checked the transaction dates... the 401K withdrawal was on Dec 11. The cash was in my IRA brokerage account later that same day. I bought a bunch of ETFs on Dec 12, although I probably could have done it on the 11th. Very smooth process. Both stocks and bonds moved lower on Dec 12, so I made a few bucks.

I thought about rolling it over to Vanguard, but the one phone call I made to them left me completely bewildered as to whether they had ever done this before. They couldn't provide clear answers to any of my questions, particularly about timing. So, I continue to hold my mainly-Vanguard ETF portfolio at Fidelity.

 

[Greencheese]

Other than making sure you catch the fund's dividends I think there's little more you can be sure of when doing a rollover.

 

[RunningBum]

Other than making sure you catch the fund's dividends I think there's little more you can be sure of when doing a rollover.

That should not matter because the share price will drop as the dividend is paid. The OP can check the funds in question and will see this. It may not be precise because of any change to the funds value the day of or after the dividend but you aren't losing out (or benefiting if the price drops) any more than any other day you are out of the market.

 

[karluk]

Other than making sure you catch the fund's dividends I think there's little more you can be sure of when doing a rollover.

Missing a dividend payment on a stock fund has no impact whatsoever on your returns. When the stock fund issues the dividend, the NAV of the fund declines by exactly enough to offset the dividend payment. You end up with more shares that are worth less, leaving you with exactly the same amount invested as before the dividend payment. Any net gain or loss on the day the dividend is paid is due strictly to market fluctuations, not the dividend.

Bond funds are different. Investors in bond funds accrue interest daily, but get paid only once per month. You would lose the accrued interest for the days you are out of the fund during the rollover.

 

[karluk]

As an example of why missing a dividend payment from a stock fund doesn't affect performance, consider what happened yesterday with VTIAX, Vanguard's S&P 500 index fund. It lost about 1/2% yesterday, on a day when the S&P 500 was almost flat. Does this mean that VTIAX is doing a poor job of tracking its index? Not at all. The difference was solely due to the fact that VTIAX paid a dividend of $0.883 per share. If you were holding VTIAX yesterday with dividends reinvested, you would now have more shares that are worth about half a percent less. The net result is that you have the same amount invested as if VTIAX hadn't issued the dividend.

 

[MRG]

Looking4Ward,

Don't think there is any way to know the right time.
I am concerned about 3 weeks passing till a check got cut. Is there a window at your sponser for rollovers?

The transfer agent only has 72 business hours(3 working days IIRC) to complete their part. That just means they have to execute transfers in kind or cut a check to be mailed. You might want to look at the actual settlement dates to see who did what when.



Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app

 

[thefinancebuff]

Just some things I was not prepared for and not sure I could have done anything about. Which led me to wonder - is there a best time or worst time to roll over a 401(k)?

Best time is when the market is going down. Worst time is when it's going up. You could've done the rollover in-kind to an in-house IRA. For instance if Fidelity manages the 401k, you can keep the same funds when you roll over to a Fidelity IRA. Once in the IRA, you can sell and buy Vanguard ETFs. If you really want your account at Vanguard, you can roll over the Vanguard ETFs again in-kind.

 

[eta2020]

Best time is any time when you have lousy 401k plan with poor choices and high fees.

Worst time is when your money is in 401k plan which offers (for example) S&P 500 for fees of 1-2 cents on 100 dollars which you will not find on open market.

 

[Looking4Ward]

Looking4Ward,

Don't think there is any way to know the right time.
I am concerned about 3 weeks passing till a check got cut. Is there a window at your sponser for rollovers?

The transfer agent only has 72 business hours(3 working days IIRC) to complete their part. That just means they have to execute transfers in kind or cut a check to be mailed. You might want to look at the actual settlement dates to see who did what when.

Well that's certainly interesting - I emailed the distribution request to them on 9/2, called on 9/3 and confirmed they had received it. I inquired as to the status on 9/16 to which I received this reply on 9/17:

"Your distribution is scheduled to trade today – assuming all goes smoothly the funds will likely be issued on Friday."

I checked the account online Thursday 9/18 and it showed a $0 balance with a distribution trade date of 9/17.

 

[Looking4Ward]

Incidentally, this portfolio consisted of:

40% Wellesley
40% Vanguard Target 2025
20% Primecap Odyssey Aggressive Growth

I'm rolling it over to Vanguard this way for now:

40% Wellesley
40% Vanguard Target 2025
20% Vanguard MM until I decide where to put it because Primecap is currently closed to "new" investors.

 

[Looking4Ward]

Looks like Wellesley paid quarterly dividends yesterday, which means I would have still been "of record" on Wednesday when the accounts were settled.

I'll have to keep an eye out and see if the dividend shows up on the final statement.

 

[scrabbler1]

One thing I forgot to do as I was liquidating my old 401k was to copy down the balances in the two funds (one stock, one bond) on their final day so I would know about how much to invest in the two similar funds I would establish in my IRA. I thought the check they cut me would include 2 amounts from the 2 funds which were added together for the total amount of the check. It did not dawn on me to ask someone at their customer service desk until the morning I went to the Fidelity office. I sorta remembered what the balances were and made a best guess when it came time to split the deposit into the 2 funds. I came pretty close so I was relieved.

 

[pixelville]

I always do the rollovers in-kind. I might have been lucky that our 401ks had fund selections that allowed it to happen. If the particular MF is not available in both accounts, I move it to something comparable first that can then be transferred in kind. Once I had to do a 2-step process i.e. move from Fidelity 401k to Fidelity IRA & then later to New Brokerage IRA (after selling/buying to other funds/ETFs), so as to stay in the market the whole time, minimizing commissions & transaction fees and accomplished the transfers in kind.
The overall process required more planning, but I didn't have to end up being at the mercy of the market and timing it.