401k and changing employers

[chiver78]

so happy to have to ask this question.... but what do I need to know about my 401k when I change employers? and....go.

thanks in advance!

[ArchietheDragon]

Contribute 15%

[chiver78]

come again?

I am looking for things I need to do in order to keep what I have in my current 401k as I change jobs. does it transfer with me, do I need to do anything to preserve the account as is, does it have to happen before I leave my current employer? that sort of thing.

and as far as what to contribute for the new place, I'm going to contribute the match of 4% to start. I'm going to max out the ESPP and next-day sale it so I can pay off some debt I have built up since buying this house. I'm getting twitchy there.... once that's all set, I'll bump the 401k contributions back up.

[ken a.k.a OMK]

Contact the new 401k administrator for transfer info. Don't let the money come to you or you may get hit with a withdrawal penalty. Direct transfer from old to new.

[ken a.k.a OMK]

If you want to keep the old 401k you can if you have enough in it. I think it's $4k minimum. Otherwise you must take it, and like I said, direct transfer. Let them handle it.

[saveinla]

If the existing 401K is a good one and they allow you to keep it there, I would leave it for now. You can always evaluate a little later down the road.

For my DH, one of his plans was really awful and so we move it after a year to a fidelity IRA. His 401K plan was at fidelity, so it took like 15 minutes to do and we had a person helping us on the phone. He has 2 other 401K plans that seem to be doing better than his IRA, so we are leaving them as is for now. I log in once every 6 months to see what's happening and then decide.

[chiver78]

is that something I need to ask now? what happens to the account when my tenure with the current place is terminated?

I have zero knowledge about this stuff, so please explain it to me like I'm stupid. I'll own that

[chiver78]

I just looked, there's about $56k in there now. it's currently a T Rowe Price account.

[The Walk of the Penguin Mich]

You have choices, depending upon the amount that is in the account.  You can either leave it where it is (but you may need to pay the administration fees paid by your employer), you can roll it over into an IRA wherever you want (my choice, you have more options), or you can roll it into your new 401K.   Right now, I've not done anything with my 403b and will likely need to make some decisions in the next year.

Rolling it into a new 401K is going to make you subject to the limitations of the 401k.  You are also going to be subject to the limitations that your new employer puts on which investments you can make.  But if you roll it into an IRA, you can either leave it tax free and pay taxes at withdrawal, or you can convert it to a Roth and pay taxes on your contributions now. You also have no limitations as to which investments you can make.

For instance, I could not invest in specific stock accounts in my 403b due to the limitations of the plan.  But I can do so in my IRA.

Rolling an account over is fairly easy.  If you are going with an IRA, call the company you are going to invest in and then it's just a matter of transferring funds.  They'll walk you through it.

[bean29]

Whether or not you have to transfer your existing 401K out is dependent on the plan rules. I have a 401K still in my former employers plan and I have not worked there in about 8 years. If you balance is below a certain threshold they ask you to move it, if it is large enough they will allow you to leave it invested with them.

It was a large employer and the fees are reasonable and the investment options are good. 

If you want to move your $$ from your previous employer, you can open an IRA with Vanguard or someone similar or I guess you can roll it into your current plan.  I would just make sure the new plan has good investment choices and reasonable fees.  If you keep it separate you can move it around as much as you like...if you roll it into the current plan, I don't think you can separate it again from the new plan and you will only be able to reinvest by separating from the company.

[ken a.k.a OMK]

  It is usually better to transfer it to an IRA which gives you many more options then the 401k. Then start building up the new 401k with matching contributions. I have Fidelity and it took me one phone call and a few minutes to move a 401k to an IRA when I left (retired). I had the option of keeping the 401k.

[alinal]

Your current employer should be able to tell you what options you have with your current 401k, wether you can leave it there or have to move it somewhere else.

If moving somewhere else, I'd initiate the transfer with the new provider.

401k plans (even good ones) usually have admin fees and restricted investment options. Because of this, I will probably never roll money INTO a 401k, or leave it sitting in a 401k after I've left the company. I'd rather roll to an IRA at Vanguard for low-cost investing with no fee.

ETA: Basically what everyone else said while I was typing.

[joemilitary]

I would NOT leave it with an old employer. (but that's me....I wouldn't trust it after I left)

I would roll it over to a Vanguard IRA or Roth IRA (whatever is appropriate).  I wouldn't roll it over to a new job's 401K (but that's just me). 

You can do this after you leave your old job.

We did this for my wife.  We called my wife's old HR department & Vanguard.  You will need some info from Vanguard (or whatever company you choose if you go this route).  Wife's old job sent us a check payable to Vanguard in care of my wife's name (or something like that) and then we sent the check to Vanguard to a IRA account. 

Not sure in this day and age why old job can't just transfer the money straight to Vanguard, but it's done and now the money is under our control vice the old job or the new job. 

[The Captain]

www.fidelity.com/viewpoints/retirement/401k-options1. 

This is a pretty good article.  I'm going to assume your balance is over $5K

1.  If you balance is at or over $5K most employer plans allow you to keep it at the old employer.  I think this is actually a legal requirement.

2.  Check to investment options for the old plan and the new plan.  You may have better options under the old plan.

3.  Contact HR to see who covers plan expenses at both old and new employer.  If you old employer covers plan expenses make sure to specifically ask if they do so for inactive employees as well as active employees.  How do I know this?  For awhile I left my 401K with a former employer and was surprised to see an administration fee come through.  Sure it was only a few hundred a year, but still. 

4.  Find out how your plan works at the new employer - for example do they allow loans?  Believe it or not some plans allow former employees still with balances to take out a loan (though this is very rare).

5.  Whatever you do, do NOT cash out!!!  All ghosts of YM past, present, and future will haunt you if you do.

All of the above will factor into whether you decide to keep balances at the old employer, roll into the new employer (I'll get more into that in a minute) or roll into a self-directed rollover IRA at a brokerage like Fidelity (there are others, that's just who I like).

Now - when you roll over prior employer plan balances into your current employer you are putting all your eggs in one basket, one that is essentially out of your control.  Your new employer may have good funds available now, and that can possibly change in the future.  Also, the number of investment options are usually limited in an employer sponsored plan and you will have everything in one limited pot of funds to invest in.

Personally, I prefer to roll into a self-directed IRA rollover account.  I can research results online and have found the at my present and former employer none of the offerings ranked in the top quartile. I am increasingly forming the personal opinion that 401(k) plans are becoming the dumping ground for underperforming offerings by brokerages.

Plus 401(k) plans are usually managed by the HR function, and (being brutualy honest here) they are not the best at financial research and analytics. Thus, (IMHO) they often do at best a mediocre job of picking funds. (Sorry any HR folks out there).

The only advantage to contributing at work is the match and tax deferral.  The fund choices are usually not the best.

Just my two cents.  Hope it helps. 

[ken a.k.a OMK]

401k plans have limited funds to chose from and HR is coerced by the mutual fund companies to offer high fee funds. Leaving a job gives you the option to roll it over to a self directed IRA where you can pick from many funds.

[Deleted]

You might not need to do anything. Not mandatory to move it if your current employer has excellent fund selections & it is managed by one of the big firms like Vanguard, Fidelity, TRowe. And you have plenty of time to deal with this. There is nothing immediate to address unless you took a loan from your current employer 401K.

1. Who manages the current employer account? 

2. What are the account/fund expenses with current employer - If you work for a VERY large employer, you may find out that they have advantaged rates with the account manager. I was going to transfer my accounts from very large employer & found out that their fees for fund expenses are 2 points lower than what I would get in my rollover IRA account.

3. Will your new employer allow you to roll your former 401K into theirs (and then same questions about who manages them & costs/fees)


My general rule of thumb, if the employer uses Vanguard I leave it there. If they don't I roll it into my self directed account. I prefer looking at one screen to see all of my accounts, but there isn't anything wrong with having 401Ks at two different places if you are happy with the fund management company. 

If your current employer self-manages the fund (I had one employer that did that) get it the hell out of there! Set up a RollOver IRA with Vanguard or Fidelity or move it into your new employer's 401K if they allow rollovers.

Mostly I prefer having a broad selection of funds, which self directed IRA gives you. Employers usually have 6-10 funds to choose from only. 

Since you are a single, high earner be aware that you probably can't do a back-door Roth if you have a large self directed IRA (tax on transfers work differently when you have rollover accounts). Check this with a tax accountant if you have a concern.

[Lizard Queen]

This probably doesn't apply to you, but I did recently read an article with some good reasons to leave a 401k behind with an old employer or to roll it over into your new employers 401k.
It was sort of like this one, but I don't think it was the same article:

www.marketwatch.com/story/11-reasons-to-leave-your-401k-behind-2012-08-16
--basically, if the old plan was good with good options/fees/advice

Um, here's a different one (I wish I could find the exact one I read recently):

www.forbes.com/sites/financialfinesse/2013/01/24/7-reasons-not-to-roll-your-orphan-401k-to-an-ira/
--mostly, the bankruptcy protection may be iffey on an IRA
--also getting loans and access between 55 & 59.5

[chiver78]

wow, lots of information. thank you. I'm going to make a list of all the questions y'all have in here, and ask the HR guy when I speak to him again on Monday. I didn't realize that leaving it where it is was actually an option.

[alabamagal]

You have plenty of time. With all the other things to take care of at a new job the 401k is probably least urgent.

I transferred mine after 3 months once I got all the new employer benefits set up and house sold house bought and moved.

[Miss Tequila]

Jun 26, 2015 12:09:24 GMT -5 ken a.k.a OMK said:

401k plans have limited funds to chose from and HR is coerced by the mutual fund companies to offer high fee funds. Leaving a job gives you the option to roll it over to a self directed IRA where you can pick from many funds.

I disagree with this statement. I am on my company 401k plan committee and we spent a lot of time going through each investment option we offered. We included risk, performance, turnover, fees and fund manager risk in our analysis.

[The Captain]

chiver78 - I think this has been covered, but you can roll over from an old employer months, years, even decades into the future.

You have plenty of time to evaluate things.

[joemilitary]

I still think it's better to roll it over to a brokerage (Vanguard, Fidelity, etc.) IRA......  Then if you ever need to do a transaction with it (re-balance funds or whatever) it will be easier

Also employers can change stuff, and if you are not employed there anymore you might not learn of the changes until its too late...

also I agree with The Captain's point of "you are putting all your eggs in one basket, one that is essentially out of your control. Your new employer may have good funds available now, and that can possibly change in the future. Also, the number of investment options are usually limited in an employer sponsored plan and you will have everything in one limited pot of funds to invest in."   this is true with the old employer and new employer

[Deleted]

Jun 26, 2015 12:37:02 GMT -5 Miss Tequila said:

Jun 26, 2015 12:09:24 GMT -5 ken a.k.a OMK said:

401k plans have limited funds to chose from and HR is coerced by the mutual fund companies to offer high fee funds. Leaving a job gives you the option to roll it over to a self directed IRA where you can pick from many funds.

I disagree with this statement. I am on my company 401k plan committee and we spent a lot of time going through each investment option we offered. We included risk, performance, turnover, fees and fund manager risk in our analysis.

Your particular plan maybe, but a lot of 401Ks do have high fees/limited choices and even if your employer offers decent ones, it doesn't mean that down the line they don't switch and you're kind of stuck until you leave the job. 

I say if you have to opportunity to roll it into an IRA take it.

[ArchietheDragon]

Jun 26, 2015 11:32:49 GMT -5 ArchietheDragon said:

Contribute 15%

It is all you need to know

[ken a.k.a OMK]

Jun 26, 2015 12:37:02 GMT -5 Miss Tequila said:

Jun 26, 2015 12:09:24 GMT -5 ken a.k.a OMK said:

401k plans have limited funds to chose from and HR is coerced by the mutual fund companies to offer high fee funds. Leaving a job gives you the option to roll it over to a self directed IRA where you can pick from many funds.

I disagree with this statement. I am on my company 401k plan committee and we spent a lot of time going through each investment option we offered. We included risk, performance, turnover, fees and fund manager risk in our analysis.

I'm glad you and your company care and do it right. I should have said "some companies, not all."  Fund choices are limited although they try to diversify, hence my rollover to a self directed IRA suggestion. I was surprised that the funds Textron offered us after buying AAI were rated below what we had and had higher fees. They were in the process of automatically transferring our funds when I retired and cashed out.

[joemilitary]

Jun 26, 2015 12:43:48 GMT -5 ArchietheDragon said:

Jun 26, 2015 11:32:49 GMT -5 ArchietheDragon said:

Contribute 15%

It is all you need to know

Is that 15% with or without the employer match?

[ArchietheDragon]

Jun 26, 2015 12:53:26 GMT -5 joemilitary said:

Jun 26, 2015 12:43:48 GMT -5 ArchietheDragon said:

It is all you need to know

Is that 15% with or without the employer match?

Yes

[joemilitary]

Jun 26, 2015 12:55:19 GMT -5 ArchietheDragon said:

Jun 26, 2015 12:53:26 GMT -5 joemilitary said:

Is that 15% with or without the employer match?

Yes

Thanks for the clarification, that's exactly what I thought

[The Walk of the Penguin Mich]

Your new employer may have good funds available now, and that can possibly change in the future.


This is absolutely true, as my employer just did this.  However, they did it for the better and because they did this, it's making me think that I should to leave my 403b exactly where it is vs rolling it over to an IRA.  Because of this, the fees for the funds that they have are LESS than the established fees that I would get in an IRA (for the same funds) and even if they are not longer paying them, I would be paying these fees if I roll the 403bs (I have 2) into an IRA.

This is just something else I'm needing to factor into the equation, and because there are so many variables I am intentionally not moving quickly on this until I can figure out ALL my options.  With this new information, it may just make more sense to leave my funds where they are.....and I've only just gotten this info the last month.

But it can also swing the other way too.

[Deleted]

joemilitary, if you were in the military maybe it is different, but with corporate employers I didn't find these issues:

I still think it's better to roll it over to a brokerage (Vanguard, Fidelity, etc.) IRA...... Then if you ever need to do a transaction with it (re-balance funds or whatever) it will be easier  I have online access to all of my accounts after separation & no issue with transactions at all.

Also employers can change stuff, and if you are not employed there anymore you might not learn of the changes until its too late... They send notices, so unless they are mailing to incorrect address . . . 

also I agree with The Captain's point of "you are putting all your eggs in one basket, one that is essentially out of your control. Your new employer may have good funds available now, and that can possibly change in the future. Also, the number of investment options are usually limited in an employer sponsored plan and you will have everything in one limited pot of funds to invest in." this is true with the old employer and new employer  This I agree with, however if chiver wants to do back door Roth's, having a rollover IRA bugs that up. Maybe not an issue in a year or two as I understand they are working to close this loop-hole; but she may not want to eliminate this option just yet. She's building herself a more sustainable financial position & should get back to saving by end of year so might want to start a Roth.