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Four Good Reasons You Should Rollover Your 401(k)
Posted By Jim On 02/27/2013 @ 7:03 am In Retirement | 9 Comments
When I was in my mid-twenties, I switched jobs moving from one defense contractor to another. My former employer, Northrop Grumman, offered a dozen or so investment options in the 401(k) and, all things considered, it was a pretty good plan. The fees were a little high but not so much so that you felt ripped off and the options were fair – not too many funds and not too few.
That said, I stilled rolled them over to a Rollover IRA at a brokerage firm and I’ll explain you why.
My former employer was large enough that they could have their own funds, rather than simply lean on the administrator and mark up a bunch of outside funds. That said, it still doesn’t compare to any major brokerage firm. Fidelity and Vanguard funds are so enormous that the fees have to be low.
Vanguard 500 Index Fund Investor Shares (VFINX) have an expense ratio of 0.17% (Admiral Shares are just 0.05%) and the fund total net assets is $118.5 billion. The fees are so low because 1) it’s Vanguard and they’re frugal; 2) it’s $118.5 billion in assets (the share class total net assets is $24.8 billion, which is still enormous). Very few funds can compete with that.
Plus, and this is huge especially when you’re young, there are no annual administrative fees if you opt for electronic statements. $50 doesn’t seem like a lot but when you’re putting a few thousand away each year, losing a percent to a fee is brutal. You’d rather than money go to your retirement.
I like having many of my investment accounts in one place. I log in to one account with one brokerage and I can see the vast majority of my investments in one place. It just makes management so much easier. I make sure I’m invested in bonds in my tax deferred accounts, more equities in my taxable, and everything is visible in a straightforward manner. It took quite some time to move everything into place but now that most of it is done, I’m more organized and better for it.
Consolidation also offers another benefit – higher classes of personal service because of balance. If you have between $50,000 and half a million in assets, you qualify for Voyager services. If you have between half a million and a million, you qualify for Voyager Select. Break a million and you get Flagship services. It’s no secret that wherever you go, you get more if you have more. The easiest, and sometimes only, way to get there is to pool your resources.
It’s always good to have fund options and a company 401(k), even administered through a large brokerage, will still not be as diverse as getting a regular account at a large brokerage. While you really don’t need more than a few options, it’s nice to pick those options yourself rather than be at the whim of someone in human resources.
When you leave a company, it’s hard to remain updated on the changes they make to your 401(k). This is especially difficult if you stick with your old 401(k) and open a new one or switch multiple jobs, it’s just a pain to manage everything and make sure you are updated on the changes to the plan. By rolling over to your current job or to a brokerage, it’s much easier to stay in the loop. You won’t discover a big change years later simply because they were emailing an old email account.
These are just four reasons, albeit the four that convinced me to always rollover (again, my former employer 401k plans were never bad – they were affordable with good options) my 401k.
Do you have a good reason to rollover your 401(k) that I missed?
(Photo Credit: Mr. T in DC )
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