Which IRA should I roll into?
June 8, 2017 3:41 AM Subscribe
I recently moved from a position with a privately held company to a state job. My new retirement-plan reality is pension-based, but I've got a 401(k) with basically a new car's worth of money invested so far. What's my best move?
I know I need to at some point move this money to an IRA--does it matter which one, really? How do I best shop for one? (If it matters, I'm 38 and don't expect to retire early.)
Bonus question: Given the current global situation, Roth or traditional?
I know I need to at some point move this money to an IRA--does it matter which one, really? How do I best shop for one? (If it matters, I'm 38 and don't expect to retire early.)
Bonus question: Given the current global situation, Roth or traditional?
Roll your traditional 401k into a traditional IRA. If you roll it into a Roth you'll have to treat the entire amount as income and pay tax on it this year. If you have a Roth 401k that should be rolled into a Roth IRA.
As for where to roll it, Vanguard is an excellent choice. They have great funds and decent customer service. Fidelity would also be an excellent choice. I have accounts with both and have found my interactions with Fidelity to go more smoothly.
Fund choices between the two are similar. The Bogleheads Three Fund is a good place to start and has instructions on how to replicate it at most of the low cost brokerages.
posted by zrail at 4:22 AM on June 8, 2017 [3 favorites]
As for where to roll it, Vanguard is an excellent choice. They have great funds and decent customer service. Fidelity would also be an excellent choice. I have accounts with both and have found my interactions with Fidelity to go more smoothly.
Fund choices between the two are similar. The Bogleheads Three Fund is a good place to start and has instructions on how to replicate it at most of the low cost brokerages.
posted by zrail at 4:22 AM on June 8, 2017 [3 favorites]
Oh I forgot to add, if you want to contribute to a Roth IRA separately from the rollover you can just create two accounts, one traditional and one Roth.
posted by zrail at 4:23 AM on June 8, 2017
posted by zrail at 4:23 AM on June 8, 2017
The IRA is just a container for your chosen investment.
You can only roll a 401k into a traditional IRA. If you choose so afterwards you can convert the traditional to a Roth by paying the necessary taxes.
In the past I've rolled my 401k into a traditional IRA at Vanguard. Their Target Retirement Funds are good.
posted by LoveHam at 4:25 AM on June 8, 2017 [3 favorites]
You can only roll a 401k into a traditional IRA. If you choose so afterwards you can convert the traditional to a Roth by paying the necessary taxes.
In the past I've rolled my 401k into a traditional IRA at Vanguard. Their Target Retirement Funds are good.
posted by LoveHam at 4:25 AM on June 8, 2017 [3 favorites]
Vanguard funds have the best expense ratios. You should move your money to Vanguard.
Call Vanguard customer service. They'll walk you through opening an account and tell you exactly what you need to do to process the rollover into your new account and send you all the paperwork.
It'll transfer into an IRA money market account (just savings) and from there you use your IRA money to purchase Vanguard funds. Easiest thing to do is to pick from their ready-mixed 20XX Target Retirement funds, but I think throwing in a bit of total stock index fund like VTSMX or VGTSX is good, too.
If you really want to get into this, I really like the website PersonalCapital.com, which is like Mint for folks with an investment bent. They have an investment checkup tool on their site that goes through your investment account blend and retirement goals and tells you if your investments are on track for your needs and your personal risk appetite so you can adjust accordingly.
But yeah, your first stop should be Vanguard.
posted by phunniemee at 4:27 AM on June 8, 2017 [1 favorite]
Call Vanguard customer service. They'll walk you through opening an account and tell you exactly what you need to do to process the rollover into your new account and send you all the paperwork.
It'll transfer into an IRA money market account (just savings) and from there you use your IRA money to purchase Vanguard funds. Easiest thing to do is to pick from their ready-mixed 20XX Target Retirement funds, but I think throwing in a bit of total stock index fund like VTSMX or VGTSX is good, too.
If you really want to get into this, I really like the website PersonalCapital.com, which is like Mint for folks with an investment bent. They have an investment checkup tool on their site that goes through your investment account blend and retirement goals and tells you if your investments are on track for your needs and your personal risk appetite so you can adjust accordingly.
But yeah, your first stop should be Vanguard.
posted by phunniemee at 4:27 AM on June 8, 2017 [1 favorite]
Nothing against Vanguard - which is a fine choice - but over the last few years, competition has driven fees basically down to zero in many of the discount firms; Schwab is another great option. You can take a few minutes here to make your choice, but it also depends on whether you'd like to be close to a physical branch or if you have an account. Once you choose a broker, you can get more guidance directly from the firm.
posted by Mr.Know-it-some at 5:20 AM on June 8, 2017 [3 favorites]
posted by Mr.Know-it-some at 5:20 AM on June 8, 2017 [3 favorites]
You may not have to move the 401k. You might want to, depending on the fees and costs of the investment options, but in many cases you can leave it where it is.
posted by Dashy at 5:40 AM on June 8, 2017 [1 favorite]
posted by Dashy at 5:40 AM on June 8, 2017 [1 favorite]
I rolled my 6 figure 401k into a traditional IRA at Ameritrade and I can trade in many many different stocks and mutual funds, including vanguard funds. If you roll over enough $$$ Ameritrade will often give you a cash bonus or x number of free trades. Then just make sure you purchase funds with low expense ratios or ETFs with no fees (they're traded like stocks).
posted by TestamentToGrace at 7:07 AM on June 8, 2017
posted by TestamentToGrace at 7:07 AM on June 8, 2017
Why are you deciding to move the 401k? There's nothing wrong with just ignoring it as-is.
I had a similar situation when I left my first job, in that I had a few tens of $k in a CompanyA 401k, and then started at a new job, and began a CompanyB 401k. So the CompanyB account was growing, the CompanyA account was just sitting there; coincidentally they worked through the same investment house (Fidelity) and I had the same fund selection ("retirement 2040"). Because I had been in a position to start a Roth IRA in grad school, I also had that account (which includes several different mutual funds within one IRA account at Vanguard) which I still contribute to occasionally. And Company B has a small pension program what's mostly supplanted by their 401k program but still exists. I just left the situation like that for about 3 years, but eventually got annoyed with receiving 4 different statements, and decided to roll my CompanyA 401k money into my CompanyB 401k account. The primary tangible benefit was not seeing the quarterly maintenence fees ticking away the CompA balance; in fact, because I was combining accounts, that got rid of one whole set of fees.
In your case, unless you already have an existing account to move that old 401k into, there's not much benefit of moving it, you're not simplifying anything or reducing your total number of accounts, and you'll only be reducing the fees if the management bank of the 401k happens to charge a lot and you select an IRA bank (such as Vanguard) which charges very little.
posted by aimedwander at 7:45 AM on June 8, 2017
I had a similar situation when I left my first job, in that I had a few tens of $k in a CompanyA 401k, and then started at a new job, and began a CompanyB 401k. So the CompanyB account was growing, the CompanyA account was just sitting there; coincidentally they worked through the same investment house (Fidelity) and I had the same fund selection ("retirement 2040"). Because I had been in a position to start a Roth IRA in grad school, I also had that account (which includes several different mutual funds within one IRA account at Vanguard) which I still contribute to occasionally. And Company B has a small pension program what's mostly supplanted by their 401k program but still exists. I just left the situation like that for about 3 years, but eventually got annoyed with receiving 4 different statements, and decided to roll my CompanyA 401k money into my CompanyB 401k account. The primary tangible benefit was not seeing the quarterly maintenence fees ticking away the CompA balance; in fact, because I was combining accounts, that got rid of one whole set of fees.
In your case, unless you already have an existing account to move that old 401k into, there's not much benefit of moving it, you're not simplifying anything or reducing your total number of accounts, and you'll only be reducing the fees if the management bank of the 401k happens to charge a lot and you select an IRA bank (such as Vanguard) which charges very little.
posted by aimedwander at 7:45 AM on June 8, 2017
First, check to make sure you have to move it. In many cases your former employer will keep your 401k alive for you. It might depend on how long you worked there, but it's worth checking.
But if you want to move it, roll it into an IRA. It's easy to do. Pick a company (I like Vanguard, but it really doesn't matter all that much) and call them up. They make it easy. You can put it into the same sort of investments that you had for your 401k or you can pick a target date retirement fund (I used the latter, for no particularly good reason), but it doesn't really matter. If you decide to change it later on, you can. If you decide to move it to another company, you can. Nothing is permanent here, so don't get caught up in any sort of analysis paralysis.
posted by It's Never Lurgi at 9:44 AM on June 8, 2017
But if you want to move it, roll it into an IRA. It's easy to do. Pick a company (I like Vanguard, but it really doesn't matter all that much) and call them up. They make it easy. You can put it into the same sort of investments that you had for your 401k or you can pick a target date retirement fund (I used the latter, for no particularly good reason), but it doesn't really matter. If you decide to change it later on, you can. If you decide to move it to another company, you can. Nothing is permanent here, so don't get caught up in any sort of analysis paralysis.
posted by It's Never Lurgi at 9:44 AM on June 8, 2017
I just did this because Personal Capital said my fees on my (former employer's small business) 401(k) were out of control. I went to Vanguard, because I already have accounts there. I have also heard good things about Fidelity.
Most of these places will have a phone number to assist you throughout the process. Let them earn your business!
posted by getawaysticks at 1:02 PM on June 8, 2017
Most of these places will have a phone number to assist you throughout the process. Let them earn your business!
posted by getawaysticks at 1:02 PM on June 8, 2017
BTW, over long periods the fees will substantially eat into the value. If you keep it at your prior employer's 401(k), you (1) have to use their investment options, which may be higher-fee investments; and (2) have to pay the administrative costs of the 401(k) that you can avoid in an IRA.
For those reasons, a low-fee ETF at a Schwab or Fidelity or Vanguard is the way to go.
posted by jpe at 1:36 PM on June 8, 2017
For those reasons, a low-fee ETF at a Schwab or Fidelity or Vanguard is the way to go.
posted by jpe at 1:36 PM on June 8, 2017
You could also look into the robo-advisor options (e.g. Betterment, Wealthfront) to see if any of those look appealing. They have IRAs and I rolled an old 401k into a Betterment IRA and have been happy with it. The fees are super low and they automatically invest your money in a bunch of ETFs (chosen to suit your desired risk level and automatically rebalanced).
posted by snaw at 2:19 PM on June 8, 2017
posted by snaw at 2:19 PM on June 8, 2017
you'll only be reducing the fees if the management bank of the 401k happens to charge a lot and you select an IRA bank (such as Vanguard) which charges very little
You'd be surprised how often this is the case.
posted by praemunire at 2:33 PM on June 8, 2017
You'd be surprised how often this is the case.
posted by praemunire at 2:33 PM on June 8, 2017
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Whether you choose a Roth IRA or Traditional simply requires you to do the analysis of "Do I want to be taxed on this money now or later when I retire?"and has little to do with the current global situation. If you qualify and go for a roth, the money you contribute is after you pay your taxes, but all withdrawals are tax free after retirement age.
Traditional IRA is pre-taxed money, meaning you won't pay taxes on it this year, but you will (along with earnings) on withdrawals in retirement age.
In that context, most financial planners generally, as a rule of thumb, recommend a mix of the two so you have flexibility in what kind of tax situation you want in your old age, with general recommendations that you use a 1) roth when you're younger and 2) can afford the tax now.
posted by Karaage at 4:12 AM on June 8, 2017 [3 favorites]