3 Reasons I Rolled Over My 401(k)

May 12th, 2008  |  Published in 401K  |  2 Comments

I’ve left two jobs in the last five years and each time I rolled over my 401(k) into a Rollover IRA held at Vanguard. In both cases, I rolled over the IRA within a few months of departing my job and I did so for a small handful of reasons.  I know now that I was right as projections in Australia show savings over $30,000 by retirement from rollover into one account.

The number one reason for rolling over my 401(k) into a Vanguard Rollover IRA was simplicity. Why deal with yet another account accessed through yet another website, when I could integrate everything and deal with that account through a great brokerage such as Vanguard? I don’t need more fund balance mailings and fund performance reports, I need my life to be simpler so I can focus on the other things that matter. The end result was that I rolled both of my 401(k)’s into a single Vanguard account (and then I turned on electronic delivery of statements!).

The second reason was for diversification, which is related to simplicity. If I have to access two 401(k)’s in two accounts, it’s much harder for me to control the asset diversification because I couldn’t feasibly see two accounts at once and tweak them concurrently to get the right diversification. One of the 401(k) had some home-brew funds (not created by a major brokerage like Vanguard or Fidelity), so I couldn’t even be certain what the asset allocation within the fund itself was like. It was far easier to pull them all into Vanguard and break them up into Vanguard funds, though any major brokerage like T. Rowe or Fidelity would’ve sufficed as well (I chose Vanguard because I’ve had a long history with them and never been disappointed).

The third reason was cost. At Vanguard, I pay no account maintenance fees whatsoever. If you turn on electronic delivery, the administrative costs go down to $0 and are integrated into the expense ratios of each fund. The funds at Vanguard are much cheaper than the ones at either of my 401(k) plans, though some were pegged to the same benchmarks. Cheaper isn’t necessarily better, much like expensive isn’t necessarily better, but Vanguard has a solid performance record and cost is something I can control.

One account instead of three, an accurate picture of diversification, and controlling the one aspect of mutual fund investing I can control (cost), were the reasons I rolled over my 401(k)’s to a Rollover IRA.

What Is The Roth 401(k)?

May 8th, 2008  |  Published in 401K  |  1 Comment

You may have heard about the Roth 401(k) and the Roth IRA and wondered, what is the difference and why is this guy Roth putting his name on everything? To be fair, the guy Roth was Former Sen. William V. Roth Jr. (he passed away in late 2007) and he was the man most responsible for the original Roth IRA. The Roth 401(k) was merely taking the Roth IRA and applying it to the 401(k), thus creating a regular/traditional 401(k) and a new Roth 401(k).

The Roth 401(k) works like the Roth IRA, your contributions are post-tax and your disbursements are tax free. You can take early payments but you pay taxes on the proportion of the withdrawal that is “appreciation” equal to 10% plus your marginal tax rate.

Contribution Limits

The contribution limit is $15,500 for those under 50, with an additional $5,000 catch-up addition for those over 50, in 2008. This contribution limit is shared between the regular 401(k) and the Roth 401(k), which means the sum total of contributions to both plans cannot exceed the annual limit of $15,500 or $20,500. Another wrinkle to the rule, that is often never an issue, is that the sum of employee and employer contributions have to be less than the employee’s total salary or $46,000, which ever is smaller. (another wrinkle is that employer contributions are pre-tax, so they sit in the traditional 401(k))

Rolling Over

When you leave your employer, you can roll over your Roth 401(k) into a Roth IRA just as you would a 401(k) into a Traditional IRA.

Of my two former employers, only one had instituted the Roth 401(k) so adoption has been slow. Most employers don’t want the added administrative burden of operating yet another defined contribution plan.

Rolling Over Your 401(k) To Vanguard

April 30th, 2008  |  Published in 401K, IRA  |  Comments Off on Rolling Over Your 401(k) To Vanguard

I’ve rolled over two 401(k)’s into a Rollover IRA at Vanguard and both times the process was absolutely painless. If you’re thinking about taking advantage of Vanguard’s low fee index funds, and other mutual funds, then I think that rolling over a 401(k) is a great way to do it. The process is pretty easy and similar to rolling over to anywhere else.

First, you’ll need to open an account at Vanguard.com, specifically you’ll want this page because it focuses on moving money to Vanguard. If you run into any trouble, you can always call up their retirement specialists at 800-414-1742 and get to a human being in a few minutes. After you follow those instructions, you’ll need to contact your current 401(k) custodian (brokerage firm) to let them know you intend to perform a trustee-to-trustee rollover.

The name you want the check made out to is Vanguard FTC and then have the check mailed either to you, where you will forward it to Vanguard, or directly to Vanguard. The information that is provided to you from Vanguard’s online form should tell you where everything should be sent.

If you already have a Rollover IRA at Vanguard, simply do everything as you did before and include a letter that instructs them on how to divide up the funds. The letter is simple, just write that you want a certain dollar amount or percentage in which funds and you’re all done.

As easy as it should always be. (I don’t know if any other brokerage is easier or harder, I just know that Vanguard’s never been a problem)

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