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Analyzing My Wife’s Old 401(k)
Posted By Jim On 04/09/2009 @ 12:49 pm In Retirement | 16 Comments
My wife has a 401(k) with T. Rowe Price from when she used to work at L’Oreal. She never rolled it over before the economic crisis because it wasn’t a priority and there was never a huge incentive to move. The expense ratios were reasonable, there was no annual fee, and it was more important for her to focus on moving, finding a new job, and devoting her time towards that and not rolling over a 401(k), which she could do anytime.
With the stock market swinging so wildly these days, it’s risky to rollover a 401(k) because you might miss a big jump in the transition time. Since the 401(k) isn’t horrible expense-wise, we can do a little spring cleaning and wait for a better time to rollover.
She has about $7,000 spread out across nine funds, talk about diversification! She has six stock funds, two bond funds, and a target retirement fund that is a mix of both (but mostly stock):
Composite expense ratio: 0.6946%
The first thing I did was rebalance the portfolio so it was 85% in the Equity Index 500 fund and 15% in the PIMCO Total Return Bond fund. Nine funds was simply too many. The expense ratios for those funds weren’t outrageous but why pay 0.89% when you can pay 0.35%? Even the 0.35% isn’t ideal because you can get a Vanguard 500 Index Fund (VFINX ) with an expense ratio of 0.15%, half price!
New composite expense ratio: 0.3755% (-0.3191%)
At first glance 0.3191% may not seem like a lot but it’s $22.33 a year on the $7,000 balance, which is $22.33 not working for you each and every year. Plus, I’d rather have the money in my pocket rather than the pocket of T. Rowe bankers and shareholders if I can manage it.
I haven’t confirmed this but according to the 401(k) literature, there’s a $10 annual administrative fee for each account with a balance under $5,000. Since my wife’s 401(k) has more than $5,000, we aren’t charged the $10 administrative fee. In looking at the transactions over the last 12 months, I don’t see a deduction of $10 anywhere, confirming this.
By simplifying the allocation, it makes it easier to integrate that into our larger retirement portfolio diversification plans. $7,000 only represents a small percentage of our retirement portfolio. When determining your allocation, it’s best to simplify smaller accounts and do the “balancing” in larger accounts. This way you only need to adjust things in one account, not three or four.
Think there’s anything else I should other than wait for volatility to go down? We’re not losing much by staying at T. Rowe, other than paying slightly more for a fund, but I may be missing something you guys see. Please let me know!
(Photo: jbhill )
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