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Old 12-01-2006, 12:40 AM   #1
todd_k
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Default 401k rollover? IRA?

Since I just changed jobs, I need to do something with my old 401k. The balance to less than $5000 so I can either leave it with the same company and just change it to an individual plan, roll it over into another 401k or an IRA, or take a payout. The payout is not an option.

How do I pick another company? I don't have a 401k with my new company for 3 months so I can't roll it over into that and they are going to do a payout within 60 days (now the clock is down to about 30 days). What hidden fees should I look out for?


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Old 12-01-2006, 01:49 AM   #2
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Well, first of all, I will say that I am not an expert financial planner. However, I am taking courses for that at the moment.

That being said, here is what I know. It looks like you need to do some research into a mutual fund to either roll it into, or take a payout and immediately (within 60 days) reinvest it into a mutual fund. Based on your reported age, you have about 31 more years until you can start withdrawing from it with no penalty. Therefore, you can invest more agressively because you have more time to ride the ups and downs of the market. If it were me (i'm one year older than you), I would find a large cap U.S. or World fund with at least 80% in stock and the remainder in bonds or cash. As you age, periodically adjust this percentage, allocating more to less risky securities (corporate or treasury bonds) and less and less in the volatile stocks. An easy way to do this is with the new Lifecycle funds, that automatically adjust this for you. Some well-established fund companies are Vanguard (I have money invested in this), T Rowe Price, Fidelity, Janus, et al.

The bottom line is that you can use these companies' websites to "roll over" your IRA, or just take the payout and make sure you reinvest it in another IRA within 60 days of withdrawing it. If you go over the 60 days, you will be taxed on it, plus you will be slapped with a 10% early w/d penalty. I'm sure you new this and that is why you said this was not an option, but not sure if you knew about the 60 days.

http://www.irs.gov/faqs/faq17-2.html
Good luck and let me know if you need more details.



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Old 12-01-2006, 02:00 AM   #3
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The first thing to do is open an IRA account with a company like Ameritrade and move the money. I don't use them any more (I consolidated all of my investments to my insurance company USAA), but they served me well for many years. Once the money has been moved you can decide exactly what you want to invest in. These accounts are flexible and include a cash account, so there is no rush. The money can just sit there collecting interest (not much mind you), until you've had time to investigate your options.
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Old 12-01-2006, 02:22 AM   #4
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how much are reasonable fees once I roll it over?
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Old 12-01-2006, 02:27 AM   #5
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With the one company I had this issue with, I just changed it to an individual plan. It was easiest since I had a lot of company stock and I'm restricted as to how fast I can sell it off. So I set up a schedule for the stock to be sold and that is still rolling into the individual plan.

One thing to watch out for with IRAs is if you don't meet their minimum balances for the funds you roll into, you'll be hit with an extra maintenance fee until your balances reach that amount.

If you rollover a 401k to a standard IRA there aren't any tax issues. But if you rollover to a Roth IRA, you have to pay taxes on it like it is regular income. (Taxes on standard IRAs are paid when the money comes out of the account.)

I don't know what reasonable fees are. They vary so much from company to company and fund to fund.

However, if you wait the 60 days for them to pay you out and wait another 30 days, you will be eligable to roll it into your new company's 401k and you'll be under the IRS's 60 day rollover deadline.
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Old 12-01-2006, 12:15 PM   #6
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Todd, for that amount I wouldn't bother with an Ameritrade account, I'd roll it into an uber-cheap Vanguard mutual fund. For a small account like this, I'd probably use their fund-of-fund STAR fund, that gives you all kinds of exposure to different types of stocks (plus it has a good slug of bonds in there to keep it from being too risky). It's a great "first" investment, something you don't have to worry about too much, something that won't divert your attention from where it ought to be (brewing).

PM me if you want more specifics.

Oh, and it's a lot easier to do a direct rollover than to do an indirect rollover (the "60-day rollover"), as when they make the distribution to you they are forced to withhold 20% in taxes. When you do a DIRECT rollover, the old 401(k) company will cut a check directly to Vanguard (or wherever you tell them), and since it never goes to you no taxes are withheld.
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Old 12-03-2006, 12:08 AM   #7
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I think I'm going with the Fidelity 2045 retirement fund. It has no startup fees, maintenance fees, the guy who sells it to me gets no comission (or at least that's what they say and I said if I call back, can I ask for anyone and he said yes), the short term redemption fee would be at most 90 days, and no guidance fees. The vanguard STAR was similar but charges $10 maintenance annually and it doesn't perform quite as well as the Fidelity fund.
I tried calling the customer service for where the money is now and I've waited on hold 3 times and no one ever answers, I guess it's their loss!
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Old 12-03-2006, 12:23 AM   #8
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The Fidelity fund is more aggressive, just keep that in mind. Personally, I strongly prefer the funds that underlie the Vanguard fund, but Fidelity won't hurt you. You can always change in the future, both are no-load (no commission).
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Old 12-03-2006, 01:54 AM   #9
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Quote:
Originally Posted by todd_k
I think I'm going with the Fidelity 2045 retirement fund. It has no startup fees, maintenance fees, the guy who sells it to me gets no comission (or at least that's what they say and I said if I call back, can I ask for anyone and he said yes), the short term redemption fee would be at most 90 days, and no guidance fees. The vanguard STAR was similar but charges $10 maintenance annually and it doesn't perform quite as well as the Fidelity fund.
I tried calling the customer service for where the money is now and I've waited on hold 3 times and no one ever answers, I guess it's their loss!
Not a bad choice. You can just let it sit and not have to worry about it for a while. Redemption fee should not be an issue, since you won't be cashing out or transfering for several years. Expenses are cheaper with the Vanguard 2045, since the expense is only .21%. The Fidelity 2045 expense ratio is .79%.
Therefore, all else being equal, with $5,000, annual expenses with Vanguard would be $10.50 (5,000 x .21%) + 10.00 (custodial fee)= $20.50.
And annual expenses for $5,000 with Fidelity 2045 would be $39.50 (5,000 x .79%).
Be careful with historical returns, as they can be misleading.
In addition to their own websites, check out morningstar.com for more research. Do a search using the "ticker" symbol. Vanguard 2045 is "VTIVX" and Fidelity 2045 is "FFFGX".
One more thing: With the Vanguard account, you can invest as little as $100 each additional time, but with the Fidelity, the minimum additional investment is $250.
Both funds seem to be very well diversified, which is good.

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Old 12-03-2006, 02:26 AM   #10
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As I recallm STAR's only about 60%-stock, while I would imagine the Fido fund is north of 80% (probably 90%+). There's a relatively new Vanguard fund-of-funds that's a little more equity-heavy, but its name escapes me at the moment.


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