401(k) Rollover or Not?

[edro]

I currently have 10 years worth of 401(k) money in Vanguard.
My new employer uses Merryll Lynch.

Merryll Lynch offers free rollover option and Vanguard will allow me to leave my current 401(k) where it is.

The only difference I see is that rolling over puts it all under 1 account and I have different investment options through ML and Vanguard.

I could also rollover into a Vanguard IRA, which would give me slightly more investment options.

Am I missing something?

I am leaning towards leaving it with Vanguard and starting my new plan with Merryll Lynch.
I already have a Roth IRA through Vanguard as well.
Also, by leaving it with Vanguard, I can invest in the company stock, which is a good investment (dividend generating industrial conglomerate).

Thank you for your opinions.

 

[highland145]

Cash out before your gubment gets a hold of it.
http://www.thenewamerican.com/index...ation-plans-to-seize-401k-retirement-accounts

Sorry, I know that's not very helpful. Had to bitch to someone.D:

 

[Special K]

I say roll the Vanguard 401k into a Vanguard IRA, but also realize that I'm a fan of low expense index funds, which is what Vanguard is best known for. If that's not your thing, then it depends what investment choices are offered at ML.

 

[edro]

I say roll the Vanguard 401k into a Vanguard IRA, but also realize that I'm a fan of low expense index funds, which is what Vanguard is best known for. If that's not your thing, then it depends what investment choices are offered at ML.

How is a Vanguard IRA better than a Vanguard 401(k)?
Do they give you riskier options?

 

[xochi]

I say roll the Vanguard 401k into a Vanguard IRA, but also realize that I'm a fan of low expense index funds, which is what Vanguard is best known for. If that's not your thing, then it depends what investment choices are offered at ML.

Sound advice, i also favor low cost index funds. The Vanguard IRA could offer more flexibility if you wanted to start converting into a Roth.

 

[dullard]

I haven't worked with Merryll yet, but I'm assuming that gives you more choices than what you'd get at Vanguard alone. More choices is certainly a good thing, especially for the more difficult to enter funds. For example, for international small stocks at Vanguard you either need to pay a hefty purchase and sell fee, or you need a minimum of $25000 in that fund. $25,000 isn't bad if you have a lot of money, but if you are only 10 years into investing, that might be too much of a percent of your retirement account. If Merryll has an international small stock fund with less cost/entry minimum, then you would do well to buy it in Merryll. The reverse may be true with something that Vanguard lets you do easier/cheaper than Merryll.

However, choice isn't always worth it. As you get more money in each company, they open more doors. For example, you'll get free/reduced cost investment advice; you'll pay lower fees; you can get into funds that are otherwise closed; you can actually enter funds with large minimums, etc. At Vanguard you get benefits when you hit $50k, $500k, and $1M. I don't know what levels you need at Merryl to get good benefits. If having your money in two companies is preventing you from getting a good benefit, it would be wise to consolidate.

That said, for most of your money, Vanguard is probably quite similar to Merryll, except with lower servicing fees. For the lower fees, I'd keep as much at Vanguard as possible, unless you have a good reason otherwise.

 

[DaveSimmons]

I haven't worked with Merryll yet, but I'm assuming that gives you more choices than what you'd get at Vanguard alone

Possibly if you want actively managed funds. Doubtful if you want index funds with low management fees.

401k choice are usually second-rate funds with higher management fees than what you get in an IRA. I'd much rather have Vanguard index funds than anything I've ever been offered in a 401k.

Vanguard 401k vs. IRA: You might ask them what fees it will cost you to leave funds in the IRA if your employer is no longer paying the fees. Also look at what funds are available in the 401k vs. in an IRA.

 

[thegimp03]

I have a Merrill Lynch 401k with an old employer that I've been considering moving out and into a Roth IRA at my bank.

I would consider rolling it over into a Roth IRA - as this is the year there aren't any income levels to prevent you from doing so. Yes, you will take a tax hit, but you can choose to not pay the taxes out of the account (i.e. so the account value isn't lowered) and you can spread it over 2 years I believe. I'd read up on Roth IRAs - they offer some nice benefits like tax-exempt growth and you don't have to take a required minimum distribution once you hit a certain age unless you're ready to.

 

[Special K]

How is a Vanguard IRA better than a Vanguard 401(k)?
Do they give you riskier options?

A Vanguard IRA will give you access to all of Vanguard's mutual funds. Your Vanguard 401k most likely only gives you access to whatever Vanguard funds your former employer had included in their particular plan.

 

[JS80]

Do the IRA rollover. By converting to Roth IRA you are gambling that future politicians will not try to get their hands on the money. Personally I'm not a fan of converting to Roth.

 

[edro]

If I go the IRA route, I would want to do a Traditional IRA, not a Roth.
I already have a Roth account and I am gambling that my tax rate will be lower in retirement. (probably bad gamble)

 

[DesiPower]

http://www.thenewamerican.com/index...ation-plans-to-seize-401k-retirement-accounts

Son of a.... die mofo

 

[edro]

I talked with a Merryll Lynch guy and he highly recommended that I roll it over into a Traditional IRA. He said that 401(k)s limit you to only ~10-12 investments whereas most IRA accounts allow you access to thousands of investments. He said that IRAs have higher trading fees though, so I shouldn't move my money around much.

I also received a letter in the mail saying that I cannot keep my company stock funds in the 401k, so I have to move them out anyway.

Now I just need to decide whether or not to convert it to a Vanguard IRA or a Merryll Lynch IRA.
I wonder if ML will give me lower fees or better benefits having my IRA there as well as my new 401k?

I always heard that Vanguard has lower fees than anyone, but is that just marketing or are their funds managed more poorly?

 

[HardcoreRobot]

Ira

 

[Special K]

I talked with a Merryll Lynch guy and he highly recommended that I roll it over into a Traditional IRA. He said that 401(k)s limit you to only ~10-12 investments whereas most IRA accounts allow you access to thousands of investments. He said that IRAs have higher trading fees though, so I shouldn't move my money around much.

I also received a letter in the mail saying that I cannot keep my company stock funds in the 401k, so I have to move them out anyway.

Now I just need to decide whether or not to convert it to a Vanguard IRA or a Merryll Lynch IRA.
I wonder if ML will give me lower fees or better benefits having my IRA there as well as my new 401k?

I always heard that Vanguard has lower fees than anyone, but is that just marketing or are their funds managed more poorly?

I doubt you will get a better deal by having an IRA there just because your 401k also happens to be there, but that would be a question for ML.

The short answer to your second question is that Vanguard's most popular funds are its index funds. Because these funds simply mirror a major index and don't require active research, trading, etc., the expenses are very low. A typical index fund might have expenses in the 0.1%-0.2% range, whereas many actively managed funds are in the 1-2% range (some are even higher). You could also have front and back end load fees, 12b-1 fees, and probably others that I'm not thinking of.

There is an overwhelming amount of academic evidence suggesting that ~80% of actively managed mutual funds fail to beat their benchmark index after expenses in the long run. If you want more information, I would suggest visiting the Bogleheads' Forum:

www.bogleheads.org

 

[BlahBlahYouToo]

I haven't worked with Merryll yet, but I'm assuming that gives you more choices than what you'd get at Vanguard alone. More choices is certainly a good thing, especially for the more difficult to enter funds. For example, for international small stocks at Vanguard you either need to pay a hefty purchase and sell fee, or you need a minimum of $25000 in that fund. $25,000 isn't bad if you have a lot of money, but if you are only 10 years into investing, that might be too much of a percent of your retirement account. If Merryll has an international small stock fund with less cost/entry minimum, then you would do well to buy it in Merryll. The reverse may be true with something that Vanguard lets you do easier/cheaper than Merryll.

is $25k after 10 years considered a good amount?
honest question because $2500 a year seems like a rather low savings/return rate to me, but you make it sound like a lot.

 

[edro]

I doubt you will get a better deal by having an IRA there just because your 401k also happens to be there, but that would be a question for ML.

The short answer to your second question is that Vanguard's most popular funds are its index funds. Because these funds simply mirror a major index and don't require active research, trading, etc., the expenses are very low. A typical index fund might have expenses in the 0.1%-0.2% range, whereas many actively managed funds are in the 1-2% range (some are even higher). You could also have front and back end load fees, 12b-1 fees, and probably others that I'm not thinking of.

There is an overwhelming amount of academic evidence suggesting that ~80% of actively managed mutual funds fail to beat their benchmark index after expenses in the long run. If you want more information, I would suggest visiting the Bogleheads' Forum:

www.bogleheads.org

Thanks!

I found this link at Vanguard explaining their costs:
https://personal.vanguard.com/us/whatweoffer/ira/costs?Link=facet

I also found a Merrill Lynch pdf showing their fees.
They charge $75/year custodial fee and probably more, but they are vague: http://www.mldirect.ml.com/publish/209468PM.pdf

Brokerage commissions, sales charges, asset-based
fees, and other routine fees will be charged for
transactions relating to your traditional IRA. Merrill
Lynch may also receive compensation from certain
providers of investment alternatives for your traditional
IRA. Fees, commissions and other charges may
change from time to time.

I think I'll stick with Vanguard IRA.

 

[dullard]

is $25k after 10 years considered a good amount?
honest question because $2500 a year seems like a rather low savings/return rate to me, but you make it sound like a lot.

I guess that didn't really describe it very well. I was thinking of a well diversified portfolio.

Suppose you wanted 20% of your money in fund A, B, C, D, and E. If fund E has a $25,000 minimum, then to meet your 20% goal, you'd need at least $125,000 in your retirement account. That may or may not be doable after 10 years depending on your savings rate. But what if you want to diversify more and have 5% to 10% each in 10 to 20 funds? Now to get that $25,000 minimum and to get your 5% to 10%, you now need a quarter million to a half million dollars. Very few people will reach that level after 10 years.

For example, I want a 5% of my retirement in a foreign small company mutual fund. I have two main choices available to me at Vanguard: a $3000 minimum account with massive purchase and sell fees or an account with $25,000 minimum. So I have to either lose a lot of money through transaction fees, or I have to wait until I have $500,000 in my retirement account, or I have to give up on my 5% goal. None of those options are appealing and/or doable. At least not yet, as I've only been saving for retirement for 6 years.

For comparison: Look at the median retirement savings at age 55 to 64. The value? $100k in the year 2007 (I didn't find recent data). A measly $100k after 30 to 40 years of saving. And half the public at that age has less saved. That $125k level for a slightly diversified account is a stretch even at that age.

 

[edro]

For example, I want a 5% of my retirement in a foreign small company mutual fund. I have two main choices available to me at Vanguard: a $3000 minimum account with massive purchase and sell fees or an account with $25,000 minimum. So I have to either lose a lot of money through transaction fees, or I have to wait until I have $500,000 in my retirement account, or I have to give up on my 5% goal. None of those options are appealing or doable. At least not yet, as I've only been saving for retirement for 6 years.

Wow... I had no idea that each individual fund had break points like that.
I guess I really need to investigate the funds I choose or else I could be throwing away a lot of money to fees.

BTW, it looks like Vanguard has 114 IRA funds to choose from.

 

[DaveSimmons]

> Wow... I had no idea that each individual fund had break points like that.

Another approach for Vanguard is the Target (year-number) funds like Target 2040, they are index funds that hold shares in other Vanguard index funds, US and foreign stocks and US bonds.

It's one way to get pieces of a bunch of good index funds with only a single minimum to reach to avoid account management fees.