Financial Advice/Question

Mar 22, 19 13:53

Post #1 of 18 (1519 views)

So I have two 401k accounts. One with my current employer that I contribute to through each paycheck. I have another from a previous employer that I am debating what to do with it.

Background:

Current employer account has pretty solid options for funds (I think). I allocate the funds across the two 401k balances equally across stocks/bonds, domestic/foreign, large cap/mid cap/small cap, etc... The current employer account has a slightly higher return through the first quarter of the year (I re-allocated over the holiday break as my annual effort to align my balances) compared to the previous employer account. The current employer fund has almost three times the value as the previous employer fund currently. Current employer utilizes Transamerica, former employer utilizes Fidelity to manage the 401k accounts. Both accounts have ability to deposit into pre-tax and Roth/post-tax manner.

So, is it better to roll the old employer fund into the current employer fund? Leave the two funds separate as is? Some third option?

I like the idea of having a single 401k fund to pay attention too and maintain. However, I also sort of like the idea of having an account that is separate from my employer also.

Are there any specific things I should be thinking about?

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 22, 19 14:22

Post #2 of 18 (1465 views)

are the total fees comparable ? all the fees to be considered, recordkeeping, advisor compensations, on top of the specific Mutual fund fee.
you mentioned that the actual employer has 3 times the value of the old one. it is not clear to me if you are referring to your fund or the total fund for all employees. Normally a bigger 401k total company fund should have a lower total fee but is not always the case.
If you don't have the total fees split for the 2 plans you can compare the total cost of the same Mutual fund in the 2 plans. If you don't have a same fund then compare 2 very similar funds, like a target fund 2035 for instance, normally every plan now offer a target fund.
In case your actual employer's fund has significant lower fees I would roll-over from the old to the new employer.

Re: Financial Advice/Question [marcori] [ In reply to ]

Mar 22, 19 16:03

Post #3 of 18 (1407 views)

For clarity, when I said my current employer fund has three times the value of the old employer fund I meant that I have three times the money in that account.

And I consider fees inclusive to the overall rate of return for each fund. Both accounts have decent options for investing my money and low fee options are a part of that.

Is there any real benefit to having an account separate from my current employer plan? Sounds like maybe the simplicity angle of a single plan is winning out currently.

Ryan

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 8:24

Post #4 of 18 (1263 views)

I would roll it over for simplicity, but I’m pretty simple.

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 8:43

Post #5 of 18 (1255 views)

I agree with the roll-over suggestions if your new plan offers equal or better options (fund choices and costs). To me, simple is better.

drn92

Re: Financial Advice/Question [drn92] [ In reply to ]

Mar 23, 19 9:29

Post #6 of 18 (1239 views)

I was leaning roll it over for the simplicity concept. Sounds like there really isn't some major benefit to keeping them separate. I figured asking here would uncover any benefits that exist.

Thanks.

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 10:27

Post #7 of 18 (1214 views)

I would look at it a couple different ways.

1. Fees, which one is cheaper. You don't necessarily need to roll into your current employers 401k program if the fees are higher. You may also find that you can find cheaper fees with some other mainstream stock brokers and roll it into that brokerage account. Fees can add up to a substantial amount over the life of the account, so don't over look them.

2. You shouldn't be doing much with a 401K account. Managing two accounts shouldn't be that difficult.

3. If the account was with some random brokerage, I would probably move it.

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 10:58

Post #8 of 18 (1201 views)

there's some tax and legal rules that make a distinction whether the account if from a most recent /current employer or not. but don't listen to me because I'm a CPA.

Personally, I'd roll to a Vanguard IRA and buy VTSAX with it.

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 11:12

Post #9 of 18 (1189 views)

Surprised no one mentioned moving the old account to a broker (Schwab, fidelity, vanguard, etc) then converting to a Roth IRA

While many 401ks today have “Roth” contributions, few allow for “in plan” conversions. So you need to do Roth conversions in an IRA and not as a 401k

You really need to look at your marginal tax rate and determine if it makes sense

Re: Financial Advice/Question [ChiTownJack] [ In reply to ]

Mar 23, 19 11:27

Post #10 of 18 (1178 views)

Roth conversions seem to make sense for rich people who continue to accumulate huge amounts of money and become ever wealthier. Most "normal" people never quite realize the benefit to the full possible extent because their final balances are so stupidly small that any distributions usually fall into relatively low marginal brackets.

The benefit of the current deduction off the top at your current top marginal bracket trumps the taxes you end up paying at the bottom. Maybe if you all intend to work until late 60s and end up with taxable SS benefits, pensions and shit. Not my plan though...::)

Re: Financial Advice/Question [ChiTownJack] [ In reply to ]

Mar 23, 19 11:33

Post #11 of 18 (1175 views)

So move it to a standard IRA and convert to Roth? I hadn't thought of that. Well, did not know it was allowed. The vast majority of my retirement funds are held as pre-tax currently. It might be a good idea to get a nice lump of funds transitioned. Thanks for the idea. I will look into it.

Ryan

Re: Financial Advice/Question [SailorSam] [ In reply to ]

Mar 23, 19 11:39

Post #12 of 18 (1172 views)

Definitely not rich. No plans to work too long. Probably 60-62 where I should be able to bail out with a comfy retirement. No pension coming either. Only my 401k.

Ryan

Re: Financial Advice/Question [SailorSam] [ In reply to ]

Mar 23, 19 11:44

Post #13 of 18 (1168 views)

So these tax and legal rules? How do they incentivize or dis incentivize a recent employer account?

Ryan

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 12:39

Post #14 of 18 (1146 views)

I would roll it over to an IRA independent of an employer .
It's not hard to manage and I like to keep retirement accounts separate but that is just a personal preference.

Re: Financial Advice/Question [SailorSam] [ In reply to ]

Mar 23, 19 13:05

Post #15 of 18 (1133 views)

SailorSam wrote:

Roth conversions seem to make sense for rich people who continue to accumulate huge amounts of money and become ever wealthier. Most "normal" people never quite realize the benefit to the full possible extent because their final balances are so stupidly small that any distributions usually fall into relatively low marginal brackets.

The benefit of the current deduction off the top at your current top marginal bracket trumps the taxes you end up paying at the bottom. Maybe if you all intend to work until late 60s and end up with taxable SS benefits, pensions and shit. Not my plan though...::)

You’re missing one important point. For a Roth IRA there is no RMD. If you don’t think you’ll need money from it right away growing it from 70.5 to 80 could be a huge benefit.

Also you’re hedging against higher tax rates than now.

Re: Financial Advice/Question [SailorSam] [ In reply to ]

Mar 23, 19 17:57

Post #16 of 18 (1069 views)

SailorSam wrote:

Roth conversions seem to make sense for rich people who continue to accumulate huge amounts of money and become ever wealthier. Most "normal" people never quite realize the benefit to the full possible extent because their final balances are so stupidly small that any distributions usually fall into relatively low marginal brackets.

The benefit of the current deduction off the top at your current top marginal bracket trumps the taxes you end up paying at the bottom. Maybe if you all intend to work until late 60s and end up with taxable SS benefits, pensions and shit. Not my plan though...::)

uh, not quite on the first part.

Roth makes sense, and is designed precisely if you are not "wealthy" now, but expect to be wealthier later. Or at least at a higher tax bracket later. When you tap into a Roth retirement fund later in life (presumably when wealthier), the tax situation is favorable since you've already paid the retirement fund taxes when you contributed into the accounts along the way -- at a tax rate based on your lower income bracket when you were less wealthy.

Roth vs. non-Roth comparison of numbers can work favorably even for an early retirement well before 60s, if you've started contributions in your 20s, with your income rising over that time.

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 23, 19 18:17

Post #17 of 18 (1059 views)

ryans wrote:

For clarity, when I said my current employer fund has three times the value of the old employer fund I meant that I have three times the money in that account.

And I consider fees inclusive to the overall rate of return for each fund. Both accounts have decent options for investing my money and low fee options are a part of that.

Is there any real benefit to having an account separate from my current employer plan? Sounds like maybe the simplicity angle of a single plan is winning out currently.

So, your current employer's fund has 3x the value (balance), and has better performance (growth) than the other fund, and you're contributing into this and not the other fund. If so, then over the long run, all other things being equal (e.g. fees), then you'll be better off combining it all into your employer's fund, no? Can verify with a simulation of hypothetical numbers

current situation:
old fund has $100k, at 2% growth, no other contributions; & employer fund $300k, at 5% growth + $4500 contributed per term.

combining funds will be:
$400k at 5% and +$4500 contributed per term. <-- Better deal over time, e.g. already +$13k favorable after 3 terms vs. keeping the funds running separately

Re: Financial Advice/Question [ryans] [ In reply to ]

Mar 25, 19 6:35

Post #18 of 18 (888 views)

It's allowed and one way to get over the income cap for Roth IRA's. But just keep in mind that any amount you convert gets added to your income for the year so if the balance is larger, there will be a significant tax burden. It all depends on your marginal rate and how close you are to the next level.

ryans wrote:

So move it to a standard IRA and convert to Roth? I hadn't thought of that. Well, did not know it was allowed. The vast majority of my retirement funds are held as pre-tax currently. It might be a good idea to get a nice lump of funds transitioned. Thanks for the idea. I will look into it.

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