Wizards of the accounts- moving 401k to IRA- which one?

[Hayabusa Rider]

I know as much about this as most people understand neurosurgery. Suffice it to say that for my purposes moving to a traditional IRA is the best strategy, however just how to select one is something I am not sure of. Google is untrustworthy IMO simply because searching yields more advertisements than what I see as useful information.

How do I proceed with this?

Edit. I see there are many types of IRAs. I want something not taxed up front, and I plan to restart a different 401k in the future so this won't strictly be my sole retirement source.

 

[maddogchen]

there are many investment places that have traditional IRAs. Picking one depends on what you want to invest in. Do you want to buy/sell stocks? Do you want to go into mutual funds and if so there are many mutual fund companies that have traditional IRAs for you.

 

[Drako]

Do you have a broker that you like?

 

[kranky]

My advise is to call Vanguard, tell them you want to transfer a 401k to a new tIRA, and let them do the heavy lifting.

However, if you want to trade stocks like crazy in your IRA, then go to a broker with cheap commissions. I don't recommend doing that, though.

 

[s0me0nesmind1]

Unless you have OUTRAGEOUS fees on that 401k, DO-NOT-ROLL-IT-OVER to an IRA.

Got it?

A 401k has MANY advantages that an IRA does not. These "minor details" won't be mentioned by any banks or brokers looking to convert you to their system and get commission.

 

[Hayabusa Rider]

Trading stocks... That has potential, but I wouldn't want to have everything invested in that. Is there a way to divide money into more than one account where I could have safer investments yet have the ability to invest a relatively small portion where I can have lower transaction fees?

Forgive me for being ignorant, but that is just what I am and it makes no sense to pretend otherwise. At least I know I don't know much

 

[Hayabusa Rider]

Unless you have OUTRAGEOUS fees on that 401k, DO-NOT-ROLL-IT-OVER to an IRA.

Got it?

A 401k has MANY advantages that an IRA does not. These "minor details" won't be mentioned by any banks or brokers looking to convert you to their system and get commission.

I don't want to leave my money in the hands of my former employer. That's a story I won't go into.

 

[minendo]

I second calling Vanguard and letting them help you with it. I rolled over my 401k to a tIRA and the process was easy with them. You can split your funds however you like as long as you meet fund minimums. I put all of mine into VFIAX for the time being.

 

[s0me0nesmind1]

I don't want to leave my money in the hands of my former employer. That's a story I won't go into.

You ARE NOT leaving your money in the hands of your former employer

Your Employer is PAYING someone to manage the funds for them. This is an advantage of 401k accounts over pension funds. When a company falls, they can't say "Well, we need to pay for <x> using the pension funds", because this is YOUR money. Not company money. This is one of the advantages to 401k individual investment accounts over the classic pension accounts of yesteryear.


Employer -> 401k Provider (Finance Company) -> You

 

[edro]

A 401k has MANY advantages that an IRA does not.

Such as? Limited investment options?

 

[CraKaJaX]

I'm kind of in the same boat as the OP. I've basically got money in an old Fidelity NetBenefits 401k that I haven't touched since I left my previous employer. My new 401k with new employer is through Vanguard. I've heard very good things about VG but haven't called to sort out any plans on what I should do with the stagnant money. Also like the op, I don't know a thing about any of this. Any help would certainly be appreciated... I've subscribed to this thread . WWATOTD? (What would ATOT do?)

 

[DaveSimmons]

Two reasons to move to an IRA are:

a) A much better choice of funds. Most 401ks offer weaker funds with higher expense ratios and possibly tacked on "management fees"

b) Consolidation, to deal with fewer companies. Over your lifetime you might have 10+ employers but keep the same brokerage and/or fund company.

The better funds with lower expense ratios is the main point. My two favorite companies for retirement savings are:

Vanguard.com . The best low-expense index funds and ETFs. You can roll over directly with them if you have enough in the 401k account ($5K+? not sure). A safe, simple choice would be their "Target XXX" fund (where XXX is a year like 2050).

It's a single fund made up of their other low-expense index funds, that gives you stock and bond index funds world-wide, and that slowly shifts the balance from stocks to bonds as you get closer to retirement. This single fund gives you bits of thousands of stocks and bonds.

Schwab.com - this is a general brokerage that also offers its own index funds. If your 401k is under $5K this might be a better choice than Vanguard since I think the minimum to avoid fees is lower, and if you have a regular (non-retirement) brokerage account that helps to avoid fees too.

Edit, I disagree 100% with this:

Your Employer is PAYING someone to manage the funds for them. This is an advantage of 401k accounts over pension funds. When a company falls, they can't say "Well, we need to pay for <x> using the pension funds", because this is YOUR money. Not company money. This is one of the advantages to 401k individual investment accounts over the classic pension accounts of yesteryear.

Your employer is usually paying someone to offer second-rate funds that perform much worse than Vanguard's index funds over time. It's better than an unsafe pension fund that could be raided, but much worse than Vanguard or Schwab. If you want index funds (and you should), the 410k offers nothing of value over an IRA from Vanguard or Schwab.

 

[maddogchen]

Not sure about dividing the account to multiple IRAs. But I would assume that is possible but makes it more complicated.

You could go with something like TDAmeritrade that lets you buy/sell stocks with low commission fees and also allows you to invest in some (you have to research which ones) low expense mutual funds without having to pay commission fees so that you have a safer investing option. You have to do a lot of research into those stocks and mutual funds by yourself.

 

[s0me0nesmind1]

Such as? Limited investment options?

A 401k is only as limited as your company offers - This can vary GREATLY. So this is a YMMV. Most people should have no desire to look past the basics, but that is a different subject altogether. The same goes for fee's. Depending on whom you are with it could be hit or miss.

Probably the most crucial reason is your money is no longer protected in an IRA account. They can come after you for collections, mortgage bankruptcy, etc... That is not the case with a 401k. It is a protected asset and can't be touched.

 

[maddogchen]

I'm kind of in the same boat as the OP. I've basically got money in an old Fidelity NetBenefits 401k that I haven't touched since I left my previous employer. My new 401k with new employer is through Vanguard. I've heard very good things about VG but haven't called to sort out any plans on what I should do with the stagnant money. Also like the op, I don't know a thing about any of this. Any help would certainly be appreciated... I've subscribed to this thread . WWATOTD? (What would ATOT do?)

Well Fidelity has its Spartan class index funds that have low expense fees too. You would have to check if your 401k has it. Its sorta comparable to Vanguard. Fidelity also has a lot more non-index mutual funds than Vanguard if you like investing in those.

But if you want to transfer to really low fee index mutual funds, Vanguard is really good choice. Call them up and they will guide you through the process. As for picking which funds...target funds are easy set and forget things or a good place to park the money until you read and learn more.

 

[edro]

Probably the most crucial reason is your money is no longer protected in an IRA account. They can come after you for collections, mortgage bankruptcy, etc... That is not the case with a 401k. It is a protected asset and can't be touched.

That seems unlikely.

- Employer-sponsored individual retirement accounts (IRAs) are protected without dollar limit in bankruptcy proceedings, but other traditional and Roth IRAs are protected up to an inflation-adjusted $1 million. Owner-only plans may be subject to attachment by creditors outside bankruptcy.

- Eligible rollover distributions from qualified retirement plans retain their protection, but required minimum distributions and hardship distributions may not.

http://www.aicpa.org/Publications/TaxAdviser/2014/January/Pages/naegele_jan2014.aspx

 

[Uppsala9496]

As mentioned, call Vanguard. Just rolled over an old 401k (from a job some 8 years ago). Lots of good, low expense ratio funds to choose from.
If your rollover is large enough, you can select from the Admiral funds which have even lower expense ratios.
VFIAX has an expense ratio of only 0.05% which is pretty damn low.

 

[s0me0nesmind1]

That seems unlikely.



http://www.aicpa.org/Publications/TaxAdviser/2014/January/Pages/naegele_jan2014.aspx

It's hit or miss, depending on local state law statutes. Nevertheless, converting to an IRA LOSES federal protections

Federal law protects the money in 401(k) plans from most law suits, says Slott. But IRAs are protected by state law, "so you have to know what's protected in your state," he says.

If law suits, judgments or collections are a concern, a quick phone call to your attorney should let you know if your IRA is shielded from creditors and up to what amount, he says.


Read more: http://www.bankrate.com/finance/retirement/6-reasons-not-to-roll-over-your-401k-1.aspx#ixzz3O4UkD0RR

 

[maddogchen]

Your employer is usually paying someone to offer second-rate funds that perform much worse than Vanguard's index funds over time. It's better than an unsafe pension fund that could be raided, but much worse than Vanguard or Schwab. If you want index funds (and you should), the 410k offers nothing of value over an IRA from Vanguard or Schwab.

On a side note...my former employer's 401k offers me Vanguard Total Stock Market Index Fund Institutional Shares (VITSX) at 0.04% expense ratio vs the admiral fund which is 0.05% expense ratio which is what I would get if I switched it to Vanguard. What do you think...should I eventually switch to Vanguard and take the admiral or just leave it until my former employer changes its 401k lineup?

 

[DaveSimmons]

On a side note...my former employer's 401k offers me Vanguard Total Stock Market Index Fund Institutional Shares (VITSX) at 0.04% expense ratio vs the admiral fund which is 0.05% expense ratio which is what I would get if I switched it to Vanguard. What do you think...should I eventually switch to Vanguard and take the admiral or just leave it until my former employer changes its 401k lineup?

Good question, it's pretty rare to have a 401k with a better class of Vanguard fund than most individuals will get. One thing to check is if there are any other fees being charged to you for the 401k, like an annual management fee. If so, you should move to get rid of those.

 

[CraKaJaX]

Well Fidelity has its Spartan class index funds that have low expense fees too. You would have to check if your 401k has it. Its sorta comparable to Vanguard. Fidelity also has a lot more non-index mutual funds than Vanguard if you like investing in those.

But if you want to transfer to really low fee index mutual funds, Vanguard is really good choice. Call them up and they will guide you through the process. As for picking which funds...target funds are easy set and forget things or a good place to park the money until you read and learn more.

I'm most likely going to roll everything over to VG because it's just easier to have all my money in one place. I DEFINITELY have to do some reading as there are some terms/sentences here that may as well be written in hieroglyphics because they mean nothing to me - and are probably the most important. Since I'm far from retirement (<30) I'm probably going to put everything into a target fund (2050?) and let it sit while I educate myself a little bit more with this. On that note, where could one easily do this? Anyone recommend good (free) websites?

 

[Dirigible]

Trading stocks... That has potential, but I wouldn't want to have everything invested in that. Is there a way to divide money into more than one account where I could have safer investments yet have the ability to invest a relatively small portion where I can have lower transaction fees?

Forgive me for being ignorant, but that is just what I am and it makes no sense to pretend otherwise. At least I know I don't know much

One thing that may be helpful is to split out some concepts. This'll be oversimplified, but whatever:

Think of the IRA as a black box with the label "Traditional IRA" on it. That box limits how much and when you can put money inside the box. It limits what the IRS can get from it. It limits when you can access what's inside without penalty. These are rules you should learn.

Inside the box, you can do all sorts of things. You can buy fifty bajillion different stocks. You can invest in all sorts of mutual funds or whatever. Hell, you can buy a house and have that be part of your IRA (although you can't live there).

Some things are easier to do than others, and some things have lower fees. The Vanguard recommendation is made because it's easy to call them and make various very low fee investments.

 

[Drako]

Such as? Limited investment options?

And higher fees.

 

[TheVrolok]

Backdoor Roth. I said it.

 

[Jeff7]

Rollover reference.
401k pros and cons. I think there are others, like some kind of additional protections of the money against lawsuits or some such thing. I don't know that much of it though.

Feel free to search the forums there too.

Good question, it's pretty rare to have a 401k with a better class of Vanguard fund than most individuals will get. One thing to check is if there are any other fees being charged to you for the 401k, like an annual management fee. If so, you should move to get rid of those.

It can happen though. Even so, you might be talking 0.02% versus 0.06%.
But yes, it's certainly not common.