Banking, Investing, Retirement 

Why I’m Rolling Over My 401(k)

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I’ve decided to rollover my 401(k) from my former employer into a Rollover IRA at Vanguard. I started my new job almost six months ago, so you might be asking why I didn’t roll it over immediately? The reason why was because I didn’t want to do it while I was transitioning into a new job and because I wanted some time to evaluate how much I liked the new 401k plan. So far, I’ve surmised that the new 401k plan is nice but not better than Vanguard so I’m going to rollover my funds into the Vanguard. I think that when you’re making a big change in your life, it’s important not to try to juggle too many things at once because you’re liable to miss things and on a relatively time insensitive issue like a 401(k), considering it’s been in the other plan for over three years, it’s better to put it off a few months until everything has settled down. Now… onto why I’m rolling it over.

The web interface sucked, the benefits department sucked
Dealing with the benefits department of my old employer was ridiculously complex and annoying. You had to jump through hoops in their voice menu system to talk to someone and even then that person was usually not educated about the company’s plans and was wholly unqualified to give any advice whatsoever. I’ve had friends try to figure out how the pension worked and each of them received totally different answers! Add to that the fact that the web interface is a mess and it came down to me basically not wanting to deal with them anymore.

To give you an idea of how difficult they’ve been, I was able to log into my account on a Tuesday and then was locked out on Wednesday for three days. I logged in to try to initiate the rollover process but I discovered I was unable to roll over funds in my self-directed account until I pulled them into one of the core funds. So, I liquidated my assets in the self-directed account and was going to login to transfer it back into a core fund … until I was denied access. After an hour on the phone with someone, she told me that they were experiencing problems with the website and that I should try later. My friend (who was still with the company) was able to log on immediately. I’m not saying there’s a conspiracy (I’m not even hinting at it), but it really is a pain to have to deal with that level of incompetency (an hour on the phone and then she tells me there’s a website problem?).

Investment options were limited
I do give them props for offering Lifecycle/Target Retirement type funds recently but the rest of the funds were only so-so. The fees weren’t too high but there wasn’t much transparency in what the fund was doing and who was in charge. I did enjoy the option of having a self-directed component but outside of that the plan had no standout reason for me to stay. The 401k wasn’t bad such that it pushed me out, it just didn’t have a real reason to stay.

Keeping everything in one place
I have my SEP-IRA with Vanguard and so cutting down the number of accounts I would need by one is something that is worth the effort. Additionally, by having my 401K rolled in, I exceed the minimum account requirements and get to waive some $50/mo fee, so rolling it over does have a tangible financial effect.

Why Vanguard?
Many people have asked if I’m secretly on the Vanguard payroll because I write about how much I like Vanguard so much and so often. The reason I do so is because I’ve had good experiences with them and I’ve become very familiar with their interface. They treated me well even back when I had my Roth IRA with them and had an account balance of around $2,000. They’re frequently at the top of the class when mutual funds are rated and so my loyalty, which is hard for a company to earn, is well-founded financially and not based on emotions.

If you recently rolled over an IRA, what were your reasons? Are there reasons why I should stay that I’m missing?

{ 13 comments, please add your thoughts now! }

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13 Responses to “Why I’m Rolling Over My 401(k)”

  1. samerwriter says:

    I’ve not rolled over a 401k to an IRA, but just wanted to echo your comments regarding Vanguard.

    I’ve never understood the appeal of the internet banks that offer temporary teaser interest rates, when people could be putting money into the Vanguard Prime Money Market fund and getting a very competitive return from an established company without the internet bank gimmick rates.

    And to have easy access to what is widely considered the best index mutual funds in the industry is a bonus. Most of us have tax deferred accounts (IRAs or 401ks), but using Vanguard for one’s taxable savings is a nice gentle introduction to the world of taxable savings.

    Sure, Vanguard won’t give you a $5 referral fee or a free iPod when you sign up, but I’m always hesitant to trust my money to people who have to offer such perks to get business.

    We have two Roth IRAs, a SEP-IRA, an inherited IRA, a taxable account, and a profit sharing account all with Vanguard. Having these accounts at one institution greatly simplifies making sure that the right assets are in the right accounts (tax deferred accounts are bond-weighted, taxable accounts are stock-weighted)

  2. Lynn says:

    I too have accounts with Vanguard but recently closed my Brocker account with them as they charge one of highest trading rates in the industry–even in your retirement account.

  3. jim says:

    Yeah, if you have a stock trading account the fees are much higher than the discount brokerage firms, that’s why I have my Roth at TD Waterhouse, which charges much lower fees (still not the lowest, but those $5 a pop shops came up after I signed up with TD).

  4. Matt says:

    Why _aren’t_ you on the Vanguard payroll, since you’re a PF blogger who likes them so much and spends time talking them up? 🙂

  5. Foobarista says:

    Given the vast number of options available for a self-directed IRA versus an employer-picked menu of 401K investment options, this seems to be a no-brainer: go for the IRA.

    The only reason I can think of for rolling a 401K over to a new 401K is if someone wants to use the 401K for a loan, which can’t be done with an IRA – and is a bad idea in general.

  6. dcpi says:

    Make sure that you roll over into a new IRA (tell Vanguard it is a rollover). Don’t transfer it to the SEP-IRA. If you keep them separate you will be able to move it into a future 401(k) plan. That could be useful down the road with another employer that offers a better plan than your current one.

  7. jim says:

    dcpi: good point, I opened up a separate Rollover IRA (it’s a different radio button) and will supply that account number to my old 401k provider. Thanks!

  8. Jessica says:

    I wonder if lots of companies are adding life cycle funds because of the fed rules change that makes them automatically enroll people in the 401k. Possibly to avoid law suits for putting people in a poor investment for their age bracket or whatever… My company just recently added them as well.

  9. Anonymous says:

    You hit most of the important reasons for rolling over a 401(k). But there is one that you missed that absolutely is worth discussing.

    Most of the “customers” with a 401(k) provider can’t threaten to pull their money out. The money is in the plan as long as they are working for that employer. So customer service on 401(k) plans is bad. If I have a problem with an IRA, I have the option of moving my money elsewhere. And if the problem is bad enough, I can blog about it and other customers may follow my lead.

  10. jim says:

    Anonymous – That is an excellent point! Where else can a “business” treat its customers like crap and get away with it? When the customers can’t leave!

  11. Foobarista says:

    Again, other than laziness, why would anyone roll a 401K over from one employer to the next? No 401K plan, no matter how wonderful, will beat the investment choices you’ve got in the open market. Even if a 401K plan has good choices, all you have to do is find out the ticker symbol of the investment options you like and invest your self-directed rollover IRA in them.

    All you’re doing by rolling a 401K into a new 401K is making your new employer’s plan provider a bunch of money in fees, since they typically charge their fees as a percentage of money in the aggregate 401K plan.

  12. MoneyMan says:

    I’m in the process of doing a direct rollover of a former employer’s 410(k) into my present employer’s 401(k). It has taken me over a month sofar. The two plans do not work together. You have to do all the work for them. I had to fill out two 10 page applications (one for each plan), send all kinds of paperwork, endure the loss of paperwork, etc…

    For tax reasons, I think this is the best way to do a rollover, since you never take control of the money and the old plan pays out 100% to the new plan.

    The logistics of it is a killer, though. You would think you wouldn’t have to jump through hoops to move money from one of your accounts to another… but trust me, you do. Maybe I’ve just had a bad experience, but this is my opinion. I have done a few blog entries on my rollover saga if anyone is interested in more detail as to how it has been going.


  13. Colin says:

    perhaps the services of a qualified investment professional might help….our average time from initiation of rollover paperwork to transfer of assets is three weeks…

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