The 401(k) is of the best investment you can make with your income especially if your employer matches your investment. However, do you know what to do with your 401(k) once you leave a job? Here are the fun filled choices.
- Leave it with your previous employer
- Rollover to a Brokerage IRA
- Rollover to new employer (not an option for me since I’m a stay at home dad/blogger now.)
- Cash out (I don’t plan to withdraw until I’m over 60 so there is no sense cashing out now.)
Even before I retired from my corporate job, I planned to rollover my 401(k) to a brokerage so I can have total control of my investments. My previous employer’s 401(k) plan has certain restrictions which I’m not willing to live with now that I no longer work there.
My 401(k) plan is managed by Fidelity and there have been quite a number of changes over the past year. They trimmed the fund choices and made Fidelity BrokerageLink available for the employees. This whole move was very confusing to everyone and to make a long story short, my 401(k) was split into 3 parts. This is what my 401(k) looks like at the moment.
- Fidelity NetBenefits (no trading fee so it’s easy to rebalance, but there are only about few choices) – FLPSX (mid cap) and VIIX (institution SP500 index)
- Fidelity BrokerageLink (lots of choices, but I have to pay trading fee) – VB (small cap), VDE (energy), and VWO (emerging market)
- Employer contribution plan – “Global Diversified” fund. I don’t have a choice of investment in this portion. The company figures their genius engineers are too dumb to make financial decisions.
The biggest problem here is the Global Diversified fund. The expense ratio is 0.9%. That’s $9 per $1000 of investment. That doesn’t sound like a lot, but if you have $100,000 invested, that’s $900 per year. It is not cheap. Another problem is that I don’t know what this fund is investing in.
Global Bond Fund
Large Cap US Stock Fund
Small Cap US Stock Fund
% of Total Portfolio
What does this mean? There is no ticker symbol to track this investment because it is not a mutual fund. (I guess this is what a hedge fund looks like.) This is a big problem for me because it makes my asset allocation much more difficult. I have to find an equivalent fund and figure out my total asset allocation manually.
If I have a ticker symbol, I can just put it into my Personal Capital account and it will factor the investments into my asset allocation. BTW, I highly recommend Personal Capital to any self directed investors. It’s a great tool to have in your toolbox.
Now that I’m not working at this company anymore, I’m going to rollover the 401(k) to an IRA so I can have full control of this investment.
I’ll consolidate the IRA into 3-4 vanguard funds to keep it simple. This is my current target allocation.
- 30% large cap
- 10% mid cap
- 10% small cap
- 30% international
- 20% bond
I’ll probably go with VTI (total stock market), VWO (emerging market), and VCLT (corporate bond) in my IRA. Then I’ll consolidate Mrs. RB40’s IRA into small cap and mid cap. I have an appointment with a financial planner/adviser from Personal Capital this week so maybe she’ll have some suggestions here.
Originally, I wanted to rollover to Vanguard and do most of my retirement investing there. Did you know that Vanguard is owned by the funds themselves which means the investors own the company? This removes any conflict of interest and lets the company focus on keeping fees low and maximizing return to investors. However, E*TRADE currently has a $600 rollover bonus which is really tempting. I talked to a rep last week and I think I will go with E*TRADE for now. I’ll keep the IRA with them for a year and then see if it makes sense to move it after that.
I think leaving your 401(k) with your old employer is a bad idea. When you don’t work there anymore, you are out of the loop and you will be the last to know when there are changes to the plan. Most 401(k) plans have limited investment options and restrictions. Personally, I think it’s best to rollover to a brokerage IRA and invest in low fee Vanguard funds.
Have you had to go through this process recently? What did you do?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.