Move 401K from Company to Vanguard

[Willers]

I think that 401k's have, in many cases, been demonized unfairly. My first employer's 401 was with an insurance company and the choices were VA derivatives. High fees, terrible returns, etc. Couldn't wait to roll it out.

My last two employer plans have been as good or better than most discount broker platforms, with no-load access to low expense load funds, institutional class shares, etc. DW's plan is actually the best I've ever seen even though she works for a small company (the husband of the controller is our 401k contact so he makes sure we (they!) have great options.

Back to the OP's question though, if flexibility and fund choices are the primary driver then it seems that a rollover is the way to get it. I also have a substantial umbrella to cover any liability concerns and recommend that to anyone with the kinds of NW's on this board.

Also, keep in mind that if the 401k is just a portion of your assets you may only need to find one or two funds in that plan that you like. Others would be available in your taxable and other deferred/Roth accounts. That has been helpful for me in one of our plans. I just use it to fill a specific sector in our portfolio.

 

[stephenson]

Thanks much for all the great responses ...am evaluating the specific costs of 401 vs the Admiral funds at Vanguard!


Sent from my iPad using Early Retirement Forum

 

[target2019]

In my plan with a major aerospace company, I have a small/midcap indexed equity fund that benchmarks to the Russell Small Cap Completeness Index. The expense ratio is ranging from .05 to .10% per the most recent plan document. The last yearly was .07. Vanguard's Extended Market Admiral shares is .10%. That is one of the factors I considered. Other factors were discussed in this thread.

However, I was severed a few months ago, and know I can rollover. Is that possible with your plan while you are still employed? Or are you just thinking ahead?

 

[KingB]

With the terrible investment options, high expenses, and inflexible withdrawal rules of many (not all) 401Ks, it clearly makes a lot of sense to jump out of them and into an IRA at the earliest convenient opportunity.

My 401K has good investment options and low expenses. But the withdrawal option is not flexible. For that reason, I am keeping my 401K until RMD time - then I will rollover the 401K to IRA.

 

[athena53]

Also, keep in mind that if the 401k is just a portion of your assets you may only need to find one or two funds in that plan that you like. Others would be available in your taxable and other deferred/Roth accounts. That has been helpful for me in one of our plans. I just use it to fill a specific sector in our portfolio.

I've used this tactic in a couple of crappy employer plans. I've chosen something they can't mess up too badly (used to be the equivalent of a short-term bond or a money market fund) and invest my other funds more aggressively.

While I agree that most megacorps have decent 401(k)s and the small plans tend to be worse, one of my employers was acquired by a megacorp I'll call Giant Enterprise and the selections went from pretty much any Fidelity Fund you wanted, to a weird selection of funds, mostly proprietary so they weren't listed or tracked anywhere, plus company stock. It was awful. I was SO happy when Giant Enterprise sold us to a company with a much better plan, but immediately yanked my 401(k) into a rollover IRA, which was permissible because of the sale.

 

[teejayevans]

The flexibility of doing 72t withdrawals and the fact my former 401K plan withdrawals could only be done by paper check and only 4 times a year.

 

[stephenson]

Did a quick fee comparison between VG (all Admiral funds) and my megacorp funds - type for type (apples to apples, I think) - megacorp doesnt have a REIT fund.

Vanguard
1. VFIRX (ST Treasuries (ave 2.3 yrs) – 0.10% (0.32% LOWER than mega)
2. VICSX (5-10 yr Bonds) - 0.12% (0.04% HIGHER than mega)
3. VTSAX (Total Stock Market) – 0.05% (0.03% LOWER than mega)
4. VSMAX (Small cap) – 0.09% (SAME)
5. VGSLX (REIT) – 0.10% (not available mega)
6. VEMAX (Emerging markets) – 0.15% (0.47 LOWER than mega)

Megacorp
1. Stable Value – 1-3 yr Treasuries (benchmark Merrill Lynch 1-3 Yr Treasuries) – 0.42%
2. Fixed Income – High Quality Bonds (benchmark Barclays Aggregate index) – 0.08%
3. US Equity – Large and medium size companies (benchmark S&P 500) – 0.08%
4. US Small Cap – (benchmark Russell 2000) – 0.09%
5. No REIT available at Megacorp
6. Emerging Marketing – (benchmark Morgan Stanley Capital Emerging Markets NDR Index) – 0.62%

Even though there is some difference in the above comparo, most of the differences are not very large ... so, if the "cost/fee competition" is between a (1) low cost megacorp 401K and a (2) low cost VG (Admiral or ETF) fund, other differences may rise to the fore, like: (a) ease of trading, (b) ease of understanding the data (I would think VG and other like fund families have better website information capabilities), (c) FAR wider variety of funds, and (d) suitable/qualified advice and assistance.

 

[2B]

There's a lot to be said for having everything in one place. It's one thing when you're still working and up on all your financial homes. It's quite different if you "lose a little off your fast ball" or expect your non-financially inclined spouse or children to take over someday.

The first thing I did when DW executed her POA for her parents was to get her to consolidate everything at Vanguard. My FIL had little accounts spread out all over the place. I think we found everything but I have been reguarly checking the "lost money" website.

 

[stephenson]

Just checked with Megacorp - they are very familiar with 59 1/2 rollovers to IRAs ... they do track before and after tax contributions separately - but, the entire balance of my 401K can be transferred ...if I do this, as my current contributions are deposited, I can figure out some way to continue to, at some interval, transfer those amounts, as well.

 

[stephenson]

And, after checking with Vanguard, it gets even more interesting ...my 401K from Megacorp has both before tax and after tax dollars comingled - but, tracked by Megacorp. Vanguard says there are three options - actually, two categories with one category having two sub options.

Transfer before and after tax 401K funds either (1) together (comingled), or, (2) separately, into a Rollover IRA account. Or, transfer the after tax funds into a Roth IRA - this category/option is still legally fuzzy in that the IRS has not specifically ruled this is allowable. My sense is that they could rule one way or the other, but it could be some time in the future - and would not be retroactive.

I am leaning towards the Roth approach - only reason I could see to not do this is if I was planning to retire soon and planned on spending these funds immediately.

This is getting more interesting!

Would love to hear comments ...

 

[2B]

I am leaning towards the Roth approach - only reason I could see to not do this is if I was planning to retire soon and planned on spending these funds immediately.

This is getting more interesting!

Would love to hear comments ...

It's a no brainer to me to split them into a pre-tax and Roth IRAs. Having a comingled IRA is a hassle for tax purposes. The mix confounds your methodolgy of making withdrawls if you don't separate now.

 

[travelover]

And, after checking with Vanguard, it gets even more interesting ...my 401K from Megacorp has both before tax and after tax dollars comingled - but, tracked by Megacorp. Vanguard says there are three options - actually, two categories with one category having two sub options.

Transfer before and after tax 401K funds either (1) together (comingled), or, (2) separately, into a Rollover IRA account. Or, transfer the after tax funds into a Roth IRA - this category/option is still legally fuzzy in that the IRS has not specifically ruled this is allowable. My sense is that they could rule one way or the other, but it could be some time in the future - and would not be retroactive.

I am leaning towards the Roth approach - only reason I could see to not do this is if I was planning to retire soon and planned on spending these funds immediately.

This is getting more interesting!

Would love to hear comments ...

I did a similar TIRA and Roth rollover, only at Fidelity. They were very helpful and with no hesitation. To learn more go to Fairmark forum and ask Alan S. I think he knows more about it than anyone I've encountered.

 

[Rustward]

I had one -- no two -- of those over the years. I would suggest separating the after-tax money from the retirement money then do whatever you would do with an after-tax "windfall". Put the retirement money into an IRA.

The ROTH part does sound strange. For what year(s) would that money be considered ROTH contributions?

 

[DTCS]

I recently rolled over my Merrill Lynch 401K to a Vanguard IRA ( I'm 51). The process took a month. The surprise to me was that I had to liquidate some Vanguard funds since they were institutional shares. This resulted in me having to be out of the market for about 2 weeks and then buy back in. This worked OK but was stressful seeing the market going up and me sitting in cash. Was lucky to be able to buy back in during a down week. So you may wish to see if you would have to liquidate. This might influence your decision. I would do it again but in hindsight I would research which funds I would have to sell and try to buy funds in the 401K that could be transferred in kind. Also check on any after tax money you might have in your 401K. I decided to take this out as it complicates tax reporting if you roll it into an IRA. Best of luck.


DTCS

 

[travelover]

I had one -- no two -- of those over the years. I would suggest separating the after-tax money from the retirement money then do whatever you would do with an after-tax "windfall". Put the retirement money into an IRA.

The ROTH part does sound strange. For what year(s) would that money be considered ROTH contributions?

It is a great opportunity to move the after tax $ into a Roth. Like I said, Fairmark has the technique laid out.

 

[stephenson]

Hmmm ... went to Fairmark - great information and well presented.

So, general process if I can very roughly state it, is to:
1. Roll combined 401K (including both pre-tax contributions and earnings, and after-tax contributions and earnings) into a Vanguard IRA
2. Roll the pre-tax contributions and their earnings, plus the earnings from the after-tax contributions BACK to the employer 401K (leaving ONLY the after-tax contributions (BASIS) - assuming the employer 401K will accept them
3. In my case, since original intent was to get all funds out of megacorp 401K and into an easier to manage and lower expense structure, I would then transfer the 401K BACK to Vanguard into a new rollover IRA - this is the end of my process to establish basis and separate tracking.

Does this sound about right?

 

[travelover]

Hmmm ... went to Fairmark - great information and well presented.

So, general process if I can very roughly state it, is to:
1. Roll combined 401K (including both pre-tax contributions and earnings, and after-tax contributions and earnings) into a Vanguard IRA
2. Roll the pre-tax contributions and their earnings, plus the earnings from the after-tax contributions BACK to the employer 401K (leaving ONLY the after-tax contributions (BASIS) - assuming the employer 401K will accept them
3. In my case, since original intent was to get all funds out of megacorp 401K and into an easier to manage and lower expense structure, I would then transfer the 401K BACK to Vanguard into a new rollover IRA - this is the end of my process to establish basis and separate tracking.

Does this sound about right?

Maybe that's the drill now. I had 401(k) cut me two checks and I deposited them into rollover IRA and a Roth. This was a few years ago and the whole procedure was nebulous.

 

[Animorph]

Maybe that's the drill now. I had 401(k) cut me two checks and I deposited them into rollover IRA and a Roth. This was a few years ago and the whole procedure was nebulous.

That's roughly what I did 7 years ago, except I just pocketed the $600 or so after-tax dollars.

 

[scrabbler1]

When I liquidated my 401k back in 2008 upon ERing, I took my after-tax contributions, about $14k, in cash, while rolling anything pretax or earnings into an IRA. Neither was a taxable event, and I used the $14k toward the big tax bill from cashing out the company stock using NUA.

 

[pb4uski]

It's a no brainer to me to split them into a pre-tax and Roth IRAs. Having a comingled IRA is a hassle for tax purposes. The mix confounds your methodolgy of making withdrawls if you don't separate now.

+1 I was unaware of this option and just got a check for the after-tax funds but fortunately it wasn't a lot of money.

 

[travelover]

That's roughly what I did 7 years ago, except I just pocketed the $600 or so after-tax dollars.

In my case, after tax was $125K, so it was worth the hoop jumping to get that into a Roth.