Should I roll over?

[mysticpoet]

Hi !

This looks like a great forum! I've been lurking here for several weeks and learned so much already!

I'm 31 and my husband is 37. We figured out that we can retire early in 70 months. The mortgage will be paid in 22 months. We live a simple life without a car and don't accumulate a lot of material things. No kids. We didn't even imagine early retirement was possible until we read 'Your Money or Your Life' a couple years ago.

Here's my issue: I have several thousand in a 401k with my previous employer. It's with Prudential. At my new employer I've started a new 401k which is being managed (?) by Hewitt, which only offers five Vanguard funds. Here are the funds and the percentages I'm contributing:

Prime Money Market = 10%

Inter-Term Bond Index = 5%

Institutional Index = 15%

Mid-Cap Index = 35%

Small-Cap Index = 35%

Here's my question- I've read about the 'tyranny of compounding costs' and how great Vanguard is. Should I roll over the money I have with Prudential over to my new 401k? I've tried to figure out what fees I'm paying for Prudential and still haven't been able to find where they're hidden, but I'm guessing that I would have a better deal if everything were put into the Vanguard funds?

I must admit I'm no expert in investing (yet)!

Also, when we're talking about fees, are there two sets of fees (i.e. fees charged by Prudential/Hewitt AND fees within each respective fund)? I'm sorry if this is a silly or dumb question!

Thanks for any advice you may have. This is a great forum!

Susan

P.S. Do my percentages look OK, too?

 

[nun]

I've changed jobs a couple of times and each time I rolled my 401k into an IRA with Vanguard. This is easy to do, just call Vanguard and they will talk to Prudential and do an institutional transfer. This way you get low costs and can invest in anything you want, but my advice is to KISS and as you are so far from being 59 1/2 just rollover into a couple of stock index funds, I do VGTSX for international and VTSMX for domestic, or Vanguard's Target Retirement 2030 fund (VFIFX)

PS your percentages are ok, you are young so 70% in stock fund is ok, some would even go to a higher percentage,
however I'd get some international exposure and you don't have any large-cap either

 

[mickeyd]

Hey Susan,

Welcome Here.

Should I roll over the money I have with Prudential over to my new 401k?

Your idea about getting your investment away from Pru is right on the money. You will save a lot of money in both hidden fees as well as those right out there in public for all to see. You are fortunate to have access to Vanguard funds in your new 401(k), most companies do not offer their employees this option.

What you might look at, instead of doing a RO to your Vanguard 401(k), is to rollover to an IRA at Vanguard. My thinking is that at Vanguard you will have more choices than your 401(k) provides, there is no assurance that your employer will always have Vanguard investments available (remember the fund selection is all up to the employer's whim), and finally, since you will be eventually rolling over all of your retirement funds to Vanguard (I assume) this part will already be there and you will not have to reinvent the wheel.

Also, the asset allocation that you posted above does not reflect any large cap stocks. Having a good base of large cap US stocks is generally thought to be a solid investment decision.

I have rolled over two 401(k)s to Vanguard. The process was simple and I am extremely pleased with the service I have received and the results of my investments.

 

[nun]

Hey Susan,

Welcome Here.


Your idea about getting your investment away from Pru is right on the money. You will save a lot of money in both hidden fees as well as those right out there in public for all to see. You are fortunate to have access to Vanguard funds in your new 401(k), most companies do not offer their employees this option.

What you might look at, instead of doing a RO to your Vanguard 401(k), is to rollover to an IRA at Vanguard. My thinking is that at Vanguard you will have more choices than your 401(k) provides, there is no assurance that your employer will always have Vanguard investments available (remember the fund selection is all up to the employer's whim), and finally, since you will be eventually rolling over all of your retirement funds to Vanguard (I assume) this part will already be there and you will not have to reinvent the wheel.

Also, the asset allocation that you posted above does not reflect any large cap stocks. Having a good base of large cap US stocks is generally thought to be a solid investment decision.

I have rolled over two 401(k)s to Vanguard. The process was simple and I am extremely pleased with the service I have received and the results of my investments.

Wow, there's an echo in here

 

[mysticpoet]

Thank you both for your helpful and detailed information! I think I will indeed roll the money over to a Vanguard IRA. I assume I won't be taxed or pay any fees for the rollover process? I only pay tax when I start withdrawing the money?

Regarding my 401k asset allocations at my new employer, those five funds are the ONLY funds I have available to me (there is also company stock, but I think it's so crappy it's not worth investing in!). My employer's 401k doesn't offer any international funds or large-cap. I know it is really skimpy! I am investing in other things, too, outside the 401k. Basically I'm just using the 401k to put away pre-tax money and lower my tax bracket. At some point I can put 50% of my salary into the 401k.

I'm so glad I can save my money from the potential black hole at Prudential!

Thanks again for your help!
Susan

 

[Alex]

Susan, I would roll the money over into a SELF DIRECTED IRA at Vanguard. You'll have more fund choices that way.

 

[FIRE'd@51]

Actually, she does have large cap exposure, although IMHO, not enough. The Vanguard Institutional Index (VINIX) is an S&P 500 fund designed for 401k plans. The expense ratio is something like 5 bp. I would suggest reducing the exposure to the Mid-Cap and Small-Cap index funds and increasing exposure to the Institutional Index to gain more large-cap exposure.

 

[nun]

Thank you both for your helpful and detailed information! I think I will indeed roll the money over to a Vanguard IRA. I assume I won't be taxed or pay any fees for the rollover process? I only pay tax when I start withdrawing the money?

Regarding my 401k asset allocations at my new employer, those five funds are the ONLY funds I have available to me (there is also company stock, but I think it's so crappy it's not worth investing in!). My employer's 401k doesn't offer any international funds or large-cap. I know it is really skimpy! I am investing in other things, too, outside the 401k. Basically I'm just using the 401k to put away pre-tax money and lower my tax bracket. At some point I can put 50% of my salary into the 401k.

I'm so glad I can save my money from the potential black hole at Prudential!

Thanks again for your help!
Susan

Right no tax until you are 59 1/2 and start taking the money out. You are doing all the right things. Just call Vanguard and talk to a rep about doing a 401k rollover into an IRA, they will take care of it, the Pru will send the money
directly to Vanguard.

 

[gindie]

Just call Vanguard and talk to a rep about doing a 401k rollover into an IRA, they will take care of it, the Pru will send the money
directly to Vanguard.

To add emphasis to nun's good advice, do not take possession of the money yourself! Have it pass directly between Pru and VG. Otherwise, you get into some messy withholding issues.

 

[mysticpoet]

Thank you all for the extremely helpful advice! I'm in the process of reading everything on the Vanguard website before I do a direct rollover. It sounds like exactly what I was looking for and didn't know it.

Thanks again,
Susan