Deliberating 401(k)>IRA transfer

[pb4uski]

I ER'd recently and am deliberating whether to transfer my 401k to my IRA at some point in the near future. I just turned 56.

I have about 10 years of expenses in taxable accounts and plan to use these for living expenses so being able to withdraw funds from my 401k penalty free from now until I'm 59 1/2 isn't a benefit that I would use in my case.

The expense ratio of the Harbor Bond fund I invest my 401k in is .55% vs .11% for Vanguard Total Bond Admiral shares, which is what I would likely invest the proceeds in, so that favors doing a transfer. Also, if I stay in the 401(k) there is a small $55 annual account maintenance charge that I will be responsible for as a non-employee participant.

While I understand that a 401k is more secure than the IRA if I were to get sued, but I have never been sued, don't anticipate being sued, and have $2.3m of liability coverage between my auto/homeowners policy and umbrella.

The advantage of doing a transfer is that I would have a wider choice of funds, but my nest egg at this point is a couch potato portfolio of only Vanguard Total Stock, International Total Stock and Total Bond.

Is there anything else that I should be considering in making this decision?

 

[justplainbll]

Have you considered moving some of your 401k funds into a ROTH?

 

[golfnut]

The expense ratio of the Harbor Bond fund I invest my 401k in is .55% vs .11% for Vanguard Total Bond Admiral shares, which is what I would likely invest the proceeds in, so that favors doing a transfer. Also, if I stay in the 401(k) there is a small $55 annual account maintenance charge that I will be responsible for as a non-employee participant.



The advantage of doing a transfer is that I would have a wider choice of funds, but my nest egg at this point is a couch potato portfolio of only Vanguard Total Stock, International Total Stock and Total Bond.

Based on the above plus the fact you have enough assets for 10 years, I would transfer to the IRA. IMHO, A couch potato portfolio is the way to go iro of performance and costs. For another opinion, you might want to call Vanguard and discuss with one of their certified planners.

Golfnut

 

[Independent]

I was similar to you. I did the 401k>IRA transfer to get Vanguard's lower fees, and more choices if I ever want them.

 

[pb4uski]

Have you considered moving some of your 401k funds into a ROTH?

Yes. For the next number of years that my plan is to convert 401k/IRA money to Roths as possible to the top of the 15% tax bracket so I will minimize RMDs later on.

 

[justplainbll]

Yes. For the next number of years that my plan is to convert 401k/IRA money to Roths as possible to the top of the 15% tax bracket so I will minimize RMDs later on.

Sounds like a plan. Hope the rules are not changed before you can execute it.

 

[Alan]

I was similar to you. I did the 401k>IRA transfer to get Vanguard's lower fees, and more choices if I ever want them.

+1

It also bumped me up in VG funds so that I get TT Deluxe desktop for free. The VG costs were also much lower than my 401k so not a difficult choice for me.

 

[eytonxav]

I believe there can be other hidden fees in a 401K that may warrant conversion to an IRA and/or to get access to other investment vehicles.

 

[brewer12345]

Before you conclude that the rollover is a go, take a moment tobriefly consider whether there are any special features of your current 401k that might be worth keeping. For example, in my current plan I have the option of using 401k balances to purchase incremental pension benefits (i.e. buy a SPIA). If this does not apply, the rollover looks like a no-brainer.

 

[Onward]

but I have never been sued, don't anticipate being sued

So you live overseas?

 

[MBAustin]

I finally got around to moving our 401Ks over to Vanguard in the past month. They made the whole process very easy, as was the partial Roth conversion I did. If this bumps you up to Flagship status then as Alan pointed out you get extra benefits including TT for free and a real person to call whenever you have a question. Vanguard's low fees and variety of funds as well as their good advice (webinars and articles) I think make it a very good one-stop-shop.

 

[pb4uski]

Before you conclude that the rollover is a go, take a moment tobriefly consider whether there are any special features of your current 401k that might be worth keeping. For example, in my current plan I have the option of using 401k balances to purchase incremental pension benefits (i.e. buy a SPIA). If this does not apply, the rollover looks like a no-brainer.

Good point, but nothing like this in my 401k. However, one of mega's DC plans that I was a participant in does have an annuitization option that I was unaware of and have just today asked for numbers on.

 

[pb4uski]

I finally got around to moving our 401Ks over to Vanguard in the past month. They made the whole process very easy, as was the partial Roth conversion I did. If this bumps you up to Flagship status then as Alan pointed out you get extra benefits including TT for free and a real person to call whenever you have a question. Vanguard's low fees and variety of funds as well as their good advice (webinars and articles) I think make it a very good one-stop-shop.

I use VG and think they are great. While I knew they provided TT I didn't realize it was the download version, I thought it was the online version. Unfortunately I just bot the download version because I do a number of returns (mom, aunt, friend, etc) but I'll definitely take advantage of the download version through VG next year.

 

[RetireBy90]

pb - from the posts, my only question is what potential down side to the transfer?
Looks like you have identified the plus side, I don't see a downside to the transfer. IMHO a good question for you and I would be interested in any downside you find as I'll be in a similiar situation in 3-4 years.

 

[Lsbcal]

...(snip)...
The expense ratio of the Harbor Bond fund I invest my 401k in is .55% vs .11% for Vanguard Total Bond Admiral shares, which is what I would likely invest the proceeds in, so that favors doing a transfer. ...

Some years ago I moved my 401k to a Vanguard tIRA.

I understand you want to go with Vanguard Total Bond Admiral (VBTLX). I believe Harbor Bond is "almost" equivalent to PTTRX which has ER=0.46%. Actually PTTRX has outperformed Harbor Bond over the last year (both managed by Bill Gross). So if you want to keep a mix of PTTRX and VBTLX you could do that. I currently have just that mix in our intermediate bonds. To get PTTRX you'd have to open up a brokerage account with Vanguard (VBS account).

 

[Midpack]

I was similar to you. I did the 401k>IRA transfer to get Vanguard's lower fees, and more choices if I ever want them.

+2. DW rolled a 401k into her IRA, and I've rolled two 401k's and a small (old) pension lump sum into my IRA. Was a no-brainer for us, Vanguard choices and expenses are far better than any of the (crummy) 401k's we've had...

 

[pb4uski]

pb - from the posts, my only question is what potential down side to the transfer?
Looks like you have identified the plus side, I don't see a downside to the transfer. IMHO a good question for you and I would be interested in any downside you find as I'll be in a similiar situation in 3-4 years.

Not much from what I see and each downside (penalty free withdrawals not available from an IRA, better insulation of a 401k from litigation) is mitigated by the amount of my taxable nestegg and the umbrella policy.

I just wanted to see if there was anything that I was overlooking.

In any event, I need to wait until I get my final paycheck on 2/29 since it will be going 100% into the 401k before I initiate the transfer. I'll add to my calendar for March 1.

 

[Katsmeow]

Another thing to consider for someone thinking about keeping a 401k after retirement is what withdrawal options exist.

DH retired almost 2 years ago (he was over 59 1/2 when he retired). He has an IRA at Vanguard but had kept some money in a 401k at his former employer. While employed he could do inservice withdrawals (or rollovers).

Anyway, he hadn't touched the 401k in the last couple of years but he asked recently to rollover part of it to an IRA. It turns out that his options for the 401k were to either (1) withdraw (rollover) all of it or (2) begin regular withdrawals of a set amount which would have to continue until it all been withdrawn. He did not want to do the latter so he did the former -- moving everything to Vanguard. It was a very simple process accomplished in only a few days.

 

[ejw93]

I ER'd recently and am deliberating whether to transfer my 401k to my IRA at some point in the near future. I just turned 56.

I have about 10 years of expenses in taxable accounts and plan to use these for living expenses so being able to withdraw funds from my 401k penalty free from now until I'm 59 1/2 isn't a benefit that I would use in my case.

The expense ratio of the Harbor Bond fund I invest my 401k in is .55% vs .11% for Vanguard Total Bond Admiral shares, which is what I would likely invest the proceeds in, so that favors doing a transfer. Also, if I stay in the 401(k) there is a small $55 annual account maintenance charge that I will be responsible for as a non-employee participant.

While I understand that a 401k is more secure than the IRA if I were to get sued, but I have never been sued, don't anticipate being sued, and have $2.3m of liability coverage between my auto/homeowners policy and umbrella.

The advantage of doing a transfer is that I would have a wider choice of funds, but my nest egg at this point is a couch potato portfolio of only Vanguard Total Stock, International Total Stock and Total Bond.

Is there anything else that I should be considering in making this decision?

pb4uski - DON'T TRANSFER ALL YOUR MONEY TO AN IRA!

One of the main advantages of the 401(k) vs Traditional IRA is that the 401(k) allows you to take penalty-free withdrawals (you still pay income taxes) if you leave your employer in the calendar year of attaining your 55th birthday.

You're 56. Unless you are drawing all the retirement money you need elsewhere, I would leave some $$ with the employer's 401k plan... at least 1 or 2 years' worth of expenses.

If you take all the 401k $$ and roll them to an IRA, you won't be able to make penalty-free withdrawals until you are age 59 1/2.

See the irs rules for age 55 401k distributions here:
401(k) Resource Guide - Plan Sponsors - General Distribution Rules

 

[jebmke]

Just make sure there aren't any adverse consequences at the state level if you have state income tax. In my state (MD), qualified pension distributions, which include 401(k) distributions are eligible for a pension exclusion on state income taxes once you turn 65. IRA distributions are not eligible for this exclusion. If you roll money out of a 401(k) or other qualified plan to an IRA you lose the benefit of this exclusion.

 

[pb4uski]

Just make sure there aren't any adverse consequences at the state level if you have state income tax. In my state (MD), qualified pension distributions, which include 401(k) distributions are eligible for a pension exclusion on state income taxes once you turn 65. IRA distributions are not eligible for this exclusion. If you roll money out of a 401(k) or other qualified plan to an IRA you lose the benefit of this exclusion.

Interesting angle, I'll have to check that out.

 

[Sirka]

Before you conclude that the rollover is a go, take a moment tobriefly consider whether there are any special features of your current 401k

+1
I would make sure that 100% is vested before you make the move. I got burned with that.

 

[Sirka]

401k transfer

I just wanted to see if there was anything that I was overlooking.

In any event, I need to wait until I get my final paycheck on 2/29 since it will be going 100% into the 401k before I initiate the transfer.

I would talk with the 401k administrator about the transfer options and pick up the necessary forms they may have. I did that a year later and then I had to email back and forth.