Convert 401k to IRA?

[spudowns]

My instinct was to convert my 401K to an IRA for two reasons : Separate from the Company and Have unlimited investment choices. I converted to IRA when I retired. Now I find the (basically same) funds have significantly larger fees for managing the funds. Since I don't trust my knowledge to invest in individual stocks or bonds globally, I rely on funds. Now I regret not having the reduced fees associated with employer sponsored 401K funds. You can't go back to 401K once you switch... so do the research!

 

[MRG]

Who is the IRA with? Is there a FA, or managed accounts or...... someone that has been inserted in the process?

 

[spudowns]

Fidelity managed the 401K and now the IRA. There is a managed account fee of 1%. All trades are free to me and fund management fees are included in my 1% annual fee. What do you think?

 

[growing_older]

Management fees of 1% are too high for a bunch of funds. Drop the "managed" part and you can save a lot with low cost funds you manage yourself.

 

[Htown Harry]

I think the fees would drop to less than 0.5% if you went to a DIY selection of mutual funds and ETFs. Easy and no riskier than letting an advisor select your investments if you can do enough study to confidently answer "What's my target asset allocation?"

 

[Animorph]

I put my mom into these Fidelity low-cost index funds. She only withdraws every few years, so it's fairly aggressive.


25% FUSVX - S&P 500
25% FSEVX - Total U.S. ex S&P 500
25% FSGDX - Total world ex U.S.
25% FSITX - Total bond


Funds are fine, but managed accounts are too costly.

 

[pb4uski]

I think the fees would drop to less than 0.5% if you went to a DIY selection of mutual funds and ETFs. Easy and no riskier than letting an advisor select your investments if you can do enough study to confidently answer "What's my target asset allocation?"

+1 in fact, probably less than 0.25%. Mine are.

 

[Cat-tirement]

My instinct was to convert my 401K to an IRA for two reasons : Separate from the Company and Have unlimited investment choices. I converted to IRA when I retired. Now I find the (basically same) funds have significantly larger fees for managing the funds. Since I don't trust my knowledge to invest in individual stocks or bonds globally, I rely on funds. Now I regret not having the reduced fees associated with employer sponsored 401K funds. You can't go back to 401K once you switch... so do the research!

About fifteen years ago when my company was bought out, I had the option of rolling my 401k into the new company plan, or out into an IRA. Not knowing any better at the time, I also followed my instinct and did the latter. Fortunately when I ER'd last fall, I had learned enough (mostly from this forum) to not automatically rollover the current 401k funds to IRA.

About 30% of our entire portfolio is still in that 401k. It has a good range of fund choices, including a few Vanguard institutional funds with extra low expenses. The company will soon start charging me a small management fee since I am no longer employed, but it is only about 0.001%, which is well worth it for that institutional access.

At some point I am also likely to take advantage of the age 55 exception to early withdrawals, something else I learned about here.

 

[Which Roger]

I haven't rolled over my 401k; no hurry since I have very low fees for the index funds that are available to me, but I can easily match these low fees by rolling over to a Vanguard or Fido IRA using with similar index funds. The problem isn't that you rolled over; it's that you rolled over into some expensive funds.

 

[papadad111]

Keeping the company 401k can provide asset (lawsuit ) protection that an IRA may not ... Especially good to consider if fund costs and fees are otherwise equal

 

[2B]

The only reasons I can see to keep your money in a 401k are if you are planning to take advantage of the age 55 withdrawal or you are in the TSP. I'll also add that some very large companies have 401ks that resemble the TSP so these can be considered equivalent on a case by case basis.

Legally, I don't know what protection a 401k has over an IRA. It's best to have an umbrella for liability issues anyway.

Paying a 1% fee to Fidelity is crazy. I recommend you read Millionaire Investor by Andrew Hallam and become a DIY-er.

I have my IRA at Vanguard so I'm not up on Fidelity. With Vanguard, you can get Admiral shares for most index funds and pay less than 0.1%. Some are down at 0.05%.

 

[fritz]

I haven't rolled over my 401k; no hurry since I have very low fees for the index funds that are available to me, but I can easily match these low fees by rolling over to a Vanguard or Fido IRA using with similar index funds. The problem isn't that you rolled over; it's that you rolled over into some expensive funds.

+1

"You" control your IRA (funds/stocks selections, costs, etc.), unlike 401Ks where "your (former) company" controls your retirement funds (and they can easily change offerings when savings to them are attractive).

As for lawsuits, you are protected in most states on IRAs (and ROTHs) - check this link for your state.

IRA Asset Protection | Self Directed IRA | IRA Creditor Protection | IRA Bankruptcy Protection | www.irafinancialgroup.com

 

[karluk]

Fidelity managed the 401K and now the IRA. There is a managed account fee of 1%. All trades are free to me and fund management fees are included in my 1% annual fee. What do you think?

What I think is that you are comparing apples to oranges when comparing 401k expenses to the managed account fees in an IRA. No one forced you to enroll in Fidelity's managed accounts. You could have gotten the same funds with similar costs simply by reestablishing the exact same asset mix in your IRA that you previously had in your 401k, but for some reason you decided that a managed account with a 1% fee was the way to go. If you don't like paying it, it's easy enough to call Fidelity and terminate the managed account.

If you do a true apples to apples comparison there's a good chance that the 401k will still come out ahead, but it should be by an insignificant amount. I did this sort of comparison when I retired and discovered that if I tranferred to an IRA, I would end up with VFIAX instead of VIIIX as my lowest cost S&P 500 index fund. That would have increased my expense ratio from 0.02% to 0.05%. Both expense ratios are ultra low, but I would have more than doubled my expenses by moving to an IRA. That was just one of several reasons that made me decide to leave my account alone instead of moving it into an IRA.

 

[karluk]

For the record, these are the reasons I identified that made it advantageous for me to keep my retirement account with my former employer rather than roll it into an IRA. There may be other reasons as well (such as protection from lawsuits) but these are the ones that factored into my decision.

1. Access to a stable value fund with a higher yield than was available in a fixed income investment in an IRA.
2. Access to a mutual fund that wasn't available in the IRA. For me it was a DFA small cap fund that is normally only sold to investors working with financial advisors who are licensed to sell DFA funds.
3. Access to institutional class shares (VIIIX, mentioned above) that aren't available in an IRA.
4. Access to Vanguard Admiral class shares without needing to maintain minimum account balances. For me that included VWENX and VWETX.

 

[Walt34]

Paying a 1% fee to Fidelity is crazy. I recommend you read Millionaire Investor by Andrew Hallam and become a DIY-er.

+1. Except I think Millionaire Teacher is the book he meant.

It is the reason I rolled over my Fidelity 457 account to an IRA at Vanguard, invested in low cost index funds. As of last week the amount in there has never been higher.

 

[soupcxan]

Another reason not to roll over your Ira is if you plan to do backdoor Roth contributions.

 

[Clone]

To put some actual numbers with this discussion. I lifted the following numbers for expense ratios from my Fidelity 401k left from MegaCorp, an IRA that I also hold at Fidelity, and a 403b at TIAA/CREF.

Inside the Fidelity 401k
S&P 500 Stock Index Class F 0.01%
US TIPS Bond Index Class F 0.05%
US Bond Index Class F 0.05%
Small/Mid Stock Index Class F 0.06%
International Stock Index Class F 0.07%
Fidelity ® Growth Company Commingled Pool 0.43%

Other brands within the Fidelity 401k

Wells Fargo Core Plus Bond Fund 0.33%
Boston Partners Large Cap Value Equity Fund Class D 0.4164%
Loomis Sayles Small/Mid Cap Core Trust 0.70%
Wells Fargo Advantage Emerging Markets Equity Fund Class R6 1.17%

In my own IRA, I priced the following funds which were mentioned in this thread
FUSVX Spartan® 500 Index Fund - Fidelity Advantage Class 0.07%
FSEVX Spartan® Extended Market Index Fund - Fidelity Advantage Class 0.07%
FSGDX Spartan® Global ex U.S. Index Fund - Fidelity Advantage Class 0.28%
FSITX Spartan® U.S. Bond Index Fund - Fidelity Advantage Class 0.17%

In my current 403b (which I can't refuse with a $2 for each $1 match...)

TIAA-CREF Lifecycle Index 2040 Fund (Institutional) TLZIX Gross/Net Exp Ratio 0.22% / 0.15%
Consists of 63% TINRX, 20% TIERX, 10% TBILX, 6% TEQKX
TIAA-CREF Equity Index Fund TINRX 0.36%
TIAA-CREF International Equity Index Fund TIERX 0.83%
TIAA-CREF Bond Index Fund TBILX 0.49%
TIAA-CREF Emerging Markets Equity Index Fund TEQKX 0.64%

Now I have a question- with the 'lifecycle' fund, which is a blend of other funds, am I paying management fees on top of management fees? Is the true fee load more like .5% to .6%? The balance in that account is finally serious enough that I should probably break it out of the lifecycle fund and just hold the individual index funds that I want.

 

[ownyourfuture]

*I realize this won't be any help to the original poster. But it might help someone pondering a 401k to IRA rollover*

Since I'm retiring June 1st, I've been pondering this exact question/issue.
My 401k is at vanguard.

Initially, I was leaning towards rolling it into an 'existing' IRA @ fidelity for the exact reason the thread originator mentioned.
(unlimited investment choices)
*I'm comfortable investing in individual stocks, as well as etf's reit's & funds*

I also had questions about what investment choices would be available to me if I left it as a 401k @ vanguard ?

The vanguard rep told me that my choices would be exactly the same as an 'active' employee.

My other question involved the *money market* fund that's available to me in the 401k. I wanted to be absolutely certain this one would be available to me for the following reason.

Vanguard Retirement Savings Trust III
SEC yield as of 04/13/2015 2.08%

That's about 4 times the yield of the 'cash reserves' fund @ fidelity. (7 day yield 0.01%)

Even though I've remained 'fully invested' since I started the 401k in 1995 & therefore never had any money in the fund, I may choose to hold more cash as I get older & more conservative with my investments.

So this convinced me to leave it as/is @ vanguard……. at least for now.

I do have one question: Let's say that next June 2016, after being retired for one year, I decide I want to do the rollover.
Are there any stipulations/time limits involved in doing this ?

Thanks in advance!

Steve

 

[explanade]

I kept my 401k, despite something like $25 maintenance fee a quarter (or may be per year) mainly because of the asset protection.

This reference seems to outline the laws in CA, in short 401k accounts are protected, IRAs are not:

Are My Retirement Accounts Protected From Judgment Creditors in California? | Nolo.com

But the other side of the coin is, do you end up paying more taxes by not rolling over the 401k funds to an IRA and doing Roth IRA conversions (though Roth IRAs are also vulnerable to judgement)?

In my case, 401k balance is about 7-8 times as large as my Roth IRA account balance.

But my non-retirement balance is about 7 times as large as the balance of my 401k and Roth IRA accounts.

Guess I need to worry more about umbrella coverage for my non retirement accounts.

 

[SumDay]

Keeping the company 401k can provide asset (lawsuit ) protection that an IRA may not ... Especially good to consider if fund costs and fees are otherwise equal

Having lived through a frivolous lawsuit, I do not ever plan to give up my ERISA protection. Luckily, we both have many low cost funds available, so we'll stay put.

 

[kaneohe]

...........................

This reference seems to outline the laws in CA, in short 401k accounts are protected, IRAs are not:

Are My Retirement Accounts Protected From Judgment Creditors in California? | Nolo.com

........................................................................

Did you notice this? from your link:
"Additional Roll Over Protection
If you roll over funds from an ERISA account or PRP into an IRA, those funds remain 100% exempt. This is the case even though the IRA is not fully exempt in California. As long as you are able to prove that the funds in your IRA originally came from an ERISA account or PRP, then you do not have to go through the “necessary for support” test."

Sounds good but I suspect the author is mixing up 2 concepts: ERISA is unconditionally protected (except for IRS and QDRO); the unlimited protection for ERISA funds in IRAs is under bankruptcy laws, I believe.......so perhaps not as good as ERISA.

 

[2017ish]

I've looked carefully at this and my interpretation of the statutory framework is in accord with this:

Financial advisors are usually quick to recommend investors rollover their 401k/403b/etc. and consolidate them with an existing IRA. While this is usually a time and paperwork saving best practice, one should think twice if total qualified assets are near the $1 million threshold. If one rolls over a 401k account into a rollover IRA, it retains the unlimited bankruptcy protection afforded by ERISA.

However, if funds are commingled with a contributory IRA, they are more likely to be limited to the $1million protection afforded by BAPCPA. So, if you're a business owner, or in a profession at high risk for lawsuits, make sure you're not unknowingly giving up a valuable form of asset protection.

IRA Bankruptcy Protections | Seeking Alpha Thus, even though DW has way more than 1,000,000 in her Rollover IRA, I am not concerned--and intend to roll over her present 401k as soon as we retire. OTOH, there is a reason that we've segregated our original contributory accounts from the 1980s and will continue to do so.

 

[kaneohe]

I've looked carefully at this and my interpretation of the statutory framework is in accord with this:



IRA Bankruptcy Protections | Seeking Alpha Thus, even though DW has way more than 1,000,000 in her Rollover IRA, I am not concerned--and intend to roll over her present 401k as soon as we retire. OTOH, there is a reason that we've segregated our original contributory accounts from the 1980s and will continue to do so.

It's that reference to bankruptcy that bothers me......my interpretation is that you have to file successfully for bankruptcy to get that protection. ERISA protects you unconditionally (w/ a few exceptions). I don't know if there is a practical effect tho......even if ERISA assets are protected, creditors can go after your non-ERISA assets if you don't file for bankruptcy.

 

[kaneohe]

""CPAs should note the change that has occurred since the advent of the new bankruptcy law. Wealth residing in QUALIFIED RETIREMENT PLANS (pension, profit-sharing and section 401(k) plans) continues to possess the MOST EXTENSIVE DEBTOR PROTECTIONS BOTH IN AND OUTSIDE of a BANKRUPTCY proceeding. A distinct IRA into which qualified retirement plan assets are rolled, an asset frequently attacked under pre-act bankruptcy law, would constitute as strong a protected reservoir of wealth under the new post-act unlimited exclusion for such IRAs IN a federal BANKRUPTCY proceeding.(but note no mention about outside of bankruptcy).
Protect Retirement Assets

 

[2017ish]

It's that reference to bankruptcy that bothers me......my interpretation is that you have to file successfully for bankruptcy to get that protection. ERISA protects you unconditionally (w/ a few exceptions). I don't know if there is a practical effect tho......even if ERISA assets are protected, creditors can go after your non-ERISA assets if you don't file for bankruptcy.

kaneohe,

If I ever get into a situation in which I am liable to someone for more than my non-retirement account assets and they are aggressively undertaking collection efforts, bankruptcy will enter into the picture. First as a negotiating lever, then (if needed) as a fact. {excuse me while I knock on wood and !}

We've had a handful of individual clients who've had to go that route over the years after their businesses imploded in a flood of litigation and/or unpayable loans. (Real estate developers, mainly) Not a fun process; but, as it is designed to do, it permits you to get back on your feet with full possession of the statutorily permitted assets. Thus, at least in my eyes, having the rollover IRAs protected in those proceedings is what counts.

P.S.--As you note with "a few exceptions," even ERISA plans are not ironclad. We managed to get all assets out of both IRAs and a pension and profit sharing plan in one case. That situation, however, involved massive flouting of the self-dealing prohibitions and isn't going to arise in very many cases.