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YoungSaver · 10-17-2019, 02:39 PM

My company is changing 401(k) providers and we are being forced to move our money to the new provider. My benefits team tells me we are allowed to do in-service rollovers with no age requirement. I'm thinking about rolling my 401(k) over to an IRA with Fidelity.

I see that I will lose protections to the money if I am sued.

Another thread in here states that the fees may be lower in a 401(k) account as opposed to a retail account. But Fidelity does not charge fees, right?

This seems like a no-brainer to me, get out of my sub-par 401(k) and into an IRA that I can control. What am I missing here?

I'm 39 years old and my 401(k) balance is 350k which is about 60% of my net worth.

brokrken · 10-17-2019, 03:04 PM

You can manage fees in an IRA by investing in low cost funds, etc. Also, everyone has gone to $0 trades recently. So, the fee argument doesn't hold water. I actually can't think of any good reason not to roll it over to an IRA, where your investment options are limitless.

Red Badger · 10-17-2019, 03:07 PM

I rolled from a decent Fido 401K to a Fido IRA. Was very happy for the much, much better choices. The fees were lower in the IRA.

Fido has a FEW index funds as with zero fees. As an index investor, I'm happy as a clam.

IIRC, the extra "insulation" of a 401K varies by state.

gwraigty · 10-17-2019, 03:22 PM

Quote:

Originally Posted by YoungSaver

I see that I will lose protections to the money if I am sued.

Quote:

Originally Posted by Red Badger

IIRC, the extra "insulation" of a 401K varies by state.

IRA Creditor Protection by State

OldShooter · 10-17-2019, 04:01 PM

Quote:

Originally Posted by YoungSaver

... Another thread in here states that the fees may be lower in a 401(k) account as opposed to a retail account. But Fidelity does not charge fees, right? ...

Wrong. You have to look at two things.

First, the 404a-5 Participant Fee Disclosure that you can get from your HR department. It is not at all uncommon for 401K custodians to charge annual fees to participants. I have seen them as high as 1.5% but have not done anything like a comprehensive search, so there may be some that are higher. These are like an FA's AUM "wrap" fee and are on top of any management fees charged within the investments.

Second, look at the fees disclosed for the investments themselves. Fidelity does have a couple of no-fee mutual funds but I would be very surprised to find them offered by their 401K plan administrators. odds are strong that all the funds offered have fees.

If the 401K fees are obnoxious, you should get your money out of the plan and rolled into an IRA. IMO the risk of getting sued is so small that it can be ignored. Carry an umbrella insurance policy and you are good.

Going forward, if the fees are obnoxious, limit your 401K deductions to the amount necessary to get a full employer match and make separate payments to your independent IRA account.

Dtail · 10-17-2019, 04:56 PM

Do you have a Stable Value fund in your 401k which pays a decent yield and effectively can be a bond substitute for some of your fixed income portfolio?
No IRA choices will have this type of fund.

brokrken · 10-17-2019, 05:08 PM

Quote:

Originally Posted by Dtail

Do you have a Stable Value fund in your 401k which pays a decent yield and effectively can be a bond substitute for some of your fixed income portfolio?
No IRA choices will have this type of fund.

What? An IRA practically has the whole universe of funds to choose from.

Dtail · 10-17-2019, 05:15 PM

Quote:

Originally Posted by brokrken

What? An IRA practically has the whole universe of funds to choose from.

Not true.
It has been mentioned many times in other posts that IRA's do not have Stable Value type funds. All other funds yes I agree.

Ask @PB4USKI for his opinion.

OldShooter · 10-17-2019, 05:16 PM

Quote:

Originally Posted by Dtail

... a decent yield ...

The first thing the OP needs to do is to understand what fees he is paying for the 401K. There is no such thing as a decent yield if the annual fee is 1 1/2%. Only if the annual fee is zero or close to zero should the OP start looking at investment options.

Edit: And at 39YO he should not have a significant allocation to cash-like investments anyway.

Dtail · 10-17-2019, 05:20 PM

Quote:

Originally Posted by OldShooter

The first thing the OP needs to do is to understand what fees he is paying for the 401K. There is no such thing as a decent yield if the annual fee is 1 1/2%. Only if the annual fee is zero or close to zero should the OP start looking at investment options.

Agree.
I could restate it as a decent "net" yield.

As an example, my Stable Value Fund currently has a gross yield of 3.97% and a net yield of 3.83%.
We also have many Vanguard Index funds with their low fees as a choice in my 401k.

donheff · 10-18-2019, 05:48 AM

I wouldn't let a stable value fund keep me in the old plan unless the expense ratio and choice of funds was very good and I really wanted to make use of a stable value fund. At his age, he might want to be all equities anyway. Roll over the existing funds to the IRA and put future 401K investments into the stable value fund with the new 401k plan to the extent that you want to build one up.

YoungSaver · 10-18-2019, 10:08 AM

Quote:

Originally Posted by Dtail

Do you have a Stable Value fund in your 401k which pays a decent yield and effectively can be a bond substitute for some of your fixed income portfolio?
No IRA choices will have this type of fund.

OP Here
I'm not sure, but that is not something I would be interested in. We haven't received any information about the new 401(k) but I can't imagine it could be better than rolling into an IRA (except for the legal protection).
So I think I will try to do the in-service rollover (I'm still skeptical that this is even possible for me) and then will continue the new 401(k).

OldShooter · 10-18-2019, 10:11 AM

Quote:

Originally Posted by YoungSaver

... that is not something I would be interested in. ...

At your age most of us (including me) would tell you that is very wise.

N02L84ER · 10-18-2019, 01:14 PM

If you think you will stay at this company until age 55 and the plan allows withdrawals at age 55, you may want to leave the money in the 401k.

CardsFan · 10-18-2019, 03:40 PM

Quote:

Originally Posted by N02L84ER

If you think you will stay at this company until age 55 and the plan allows withdrawals at age 55, you may want to leave the money in the 401k.

Keep in mind the OP will still have a new 401k to invest in. He is 39 with many (several?) more years of investing. Rolling out the current 401k to an IRA can make some sense, providing further flexibility. He can't keep the old account. Just a matter of where to transfer.

FWIW, I did the same thing at 50. Company was sold. I could roll to the new 401k or transfer to an IRA. I went the IRA route.

BigBob · 10-18-2019, 04:35 PM

Quote:

Originally Posted by N02L84ER

If you think you will stay at this company until age 55 and the plan allows withdrawals at age 55, you may want to leave the money in the 401k.

This is what I did, and am withdrawing till 59.5 to tame my RMDs.

Onward · 10-18-2019, 05:29 PM

Quote:

Originally Posted by YoungSaver

I see that I will lose protections to the money if I am sued.

As long as you don't co-mingle the rolled-over funds with other funds, a rollover IRA has the same ERISA legal protections as a 401k.

skipro33 · 10-18-2019, 11:39 PM

My 401K is what I used from retirement until age 59 1/2 as the 401K wasn't subject to early withdraw penalties that an IRA would have. Once I turned 59 1/2, I rolled both the 401K and the IRA into a new IRA at a new investment house.
Also, you can bank $19,000 a year into a 401K and only $6,000 into an IRA. If you have both, even better. If you are able to continue investing into the new 401K after rolling your old 401K to an IRA, that would work as long as you think you will have built enough in your 401K to carry you from retirement to 59 1/2 if you retire early.

gauss · 10-19-2019, 05:26 AM

Quote:

Originally Posted by Onward

As long as you don't co-mingle the rolled-over funds with other funds, a rollover IRA has the same ERISA legal protections as a 401k.

Isn't this regulated differently on a state by state basis? Maybe not the ERISA provisions, but the other non-ERISA things that would apply to an IRA vs 401k?

-gauss
p.s. before I would recommend that someone roll from a 401k to an IRA who plans to access the funds prior to age 59 1/2, I would require them to complete a provisional tax return by hand using from 8606. They would then have a better understanding of the recordkeeping requirements for IRAs vs 401ks. I was really caught off guard on this especially with respect to the Roth IRA portions where you basically need to have lifetime IRA records available. Note that a tax accountant or tax software will not help you in this case if you don't have the records.