If you have any financial accounts anywhere, you have probably read about rolling over you old 401(k) retirement account to a new company that will “charge less” and help you “earn more.” While I am a big fan of moving an old retirement account when you leave an employer, it is important to take your time and make an educated decision.
Your Old 401(k)
First off, you have to look at where you account is today. How much do you have there? Is there a fee for the fund you have your money sitting in? Is there a maintenance fee? What is the total cost per year and cost as a percentage per year?
Using the free 401(k) analyzer at Empower, a free site I use regularly to monitor my investments and investment fees, I found that I pay .67% per year to keep my investment in a variety of funds that meet my goals. That is a great, competitive rate, but it still means I am paying $85 per year to give Wells Fargo the pleasure of managing my retirement funds. That is an estimated 20% of my future earnings! If I were to leave, I could find lower fees managing the funds on my own.
If you are like me and don’t love the fees at your employer, remember to move things right away when you leave. It is worth keeping everything with the employer’s endorsed provider as long as you get a match on your contribution. If you have already found a new employer, it is time to move on and stop letting that bank take fees on your hard earned money.
Reasons to stay with old employer 401(k):
- Low fees/no fees (rare)
- No extra work (lazy person’s excuse)
Reasons to move on from your old employer’s 401(k):
- High fees (likely)
- Little control and few fund options
- No more contact with HR department where you used to work
Most often, the reasons to move outweigh the reasons to stay. If you are going to move, don’t just take the cash out and pay the tax penalty!!!! If you contributed to a retirement account, you got a big tax saving. Taking money out of a retirement fund early comes with hefty IRS penalties in the US, and I am sure similar penalties in Canada and other countries around the world (readers, please verify in the comments if you know). When you take out the funds, they have to go directly into a comparable retirement fund somewhere else or you have to pay up.
Rolling Over Your Old 401(k)
So, you are ready to move? Now it is time to research possible storage for your 401(k) in the future. Note that you can always move your 401(k) or IRA to another bank/broker, you are not limited to when you leave a job.
Googling 401(k) roll over gives you about 495,000 results and countless sponsored options. You see ads from places like TD Ameritrade, Charles Schwab, T. Rowe Price, Vanguard, Edward Jones, Sharebuilder/ING, E-Trade, and many more. You can use virtually any bank (not recommended) or brokerage (recommended). Here is a short list of my favorites:
1. Your Broker – You are probably there for a reason. If you are happy, explore retirement account options. You should be able to talk to an expert a sales person that can help you easily move your old account. Just be sure to ask about fees and investment options before you agree to anything.
2. Charles Schwab– Schwab is my broker, so it is a natural fit for me. I can invest for free in a whole slew of index funds and mutual funds with no trade fees and no maintenance fees. Like with any broker, it is up to me to monitor the fees the funds charge me. I have no reason to go elsewhere based on anything I have read.
3. Vanguard – One of the most popular firms with “low fee fund” options. Many other brokers offer access to invest in Vanguard funds as well. I have a large portion of my retirement funds in Vanugard funds through my Charles Schwab account.
4. Sharebuilder– If you are an investor bent on controlling the details and doing your own research, Sharebuilder offers low cost trades, so you can manage the account with fewer trading fees than other brokers. It is also easily funded through Capital One 360 (formerly ING Direct).
Remember that these are just a few of the many options you have for investing your hard earned retirement funds. Just be sure to do your research on fees and investment options before you sign up. I would love to hear what you use in the comments.
Originally published January 5, 2010. Updated April 29, 2013. Image by zoetnet / flickr
Great post. I am ashamed to admit but I haven’t looked at all the details in my 401 K plan. I did have the matching contribution since I started working with my current employer but I am not privy to the specific details. Thanks for referring Personal Capital. It looks like a great site.
It is worth a few minutes to dig in and learn the details of where your money goes, what it costs, and options to save money. Personal Capital really opened my eyes on the cost of some of my investments.
I’ve worked for a company for over 10 years and have considerable money in my 401k. I currently only work part time there and have my own business now. I have all my monies in the money market account earning nothing but being charged fees every quarter so essentially I am losing money. Is there any way I can roll over my 401k into an independent brokerage house? I called Putnum who manages my 401k and they said unless I quit my job I have to leave it in there. The company no longer matches. Thank you!
Until you leave the company, you are probably out of luck. You are right to want to roll over into a self-directed account, but most 401(k) plans don’t allow any rollovers while you are still an employee.
Do they have any funds better than a money market so you can try to capture market gains to offset the fees? Even a conservative fixed income focused fund is probably better than money market, and depending on your age and fund offerings there are usually better options than that too.
Thank you for your response. There are other funds and target funds I can buy but since they don’t match anymore I wanted to roll it over. I also was hoping the market would take a dip before getting back into the market which is foolish because then I’m trying to time the market. Regardless I appreciate your response.
As long as the cash is sitting there, might as well keep it something like a target date fund. When you leave the company, you can easily roll it into something similar or a low cost S&P 500 fund at your favorite brokerage. But no reason to let your cash sit idle just because you are not getting a match. After you max a Roth, you still do best with tax advantaged accounts like a 401(k).