I have some 401k money in a former employer plan. It is doing really well, I like their funds and their Financial Engines program. I hesitate to touch it.

My new employer has a good plan.

The way I see it:

  1. rollover into new employer plan so all my money is compounding. it will cost about $50 to execute the transfer. But I lose those great funds.
  2. Keep it in former employer plan since it is setup to balance my funds for my target retirement age. Probably take a hit on administrative fees, but the profits are worth it.

Any thoughts?

  • What are the two 401k providers in this situation? Just curious as I find it surprising that there would be such a disparity in performance. – Hart CO Nov 27 '19 at 16:26
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    Option #3 transfer the old 401K to a free rollover IRA with Fidelity, Schwab, or Vanguard. That is what I do. – Pete B. Nov 27 '19 at 17:01
  • @Hart CO Vanguard=old. Fidelity=new – Marinaio Dec 2 '19 at 14:56

rollover into new employer plan so all my money is compounding

This is not an issue. Your money will compound the same whether it's in one account or two.

Suppose you have $100 in two accounts, each of which earns 10% for two years. In one year you'd have $110 after the first year and $121 after the second year in each account for a total of $242. If instead you put it all into one account that earned 10% for two years, you'd have $220 after the first year and $242 after the second year. So having multiple accounts has no effect on compounding.

The main benefit or rolling a 401(k) into a new employer's plan is that all of your money is in one place. This is not a financial benefit but an administrative one. You don't need to track it in multiple accounts, you can easily rebalance your entire portfolio, etc.

Another option is to roll it into an individual IRA. The main benefit here is diversity of investments. While your old 401(k) may only have 5 to 20 investments depending on the provider, rolling into an IRA will open up a whole world of investment opportunities. Now, this is sort of like going from a vending machine to a candy store, where the number of options alone can be overwhelming, so that may not be of great benefit to you.

Another benefit is that you might save some money in administrative fees, but that shouldn't be a huge burden.

I would also take a more critical look at age-directed investments. Yes they rebalance for you, but often have higher fees and may not have returns that are better than just investing in a few index funds and rebalancing yourself every year, reducing your risk as you get closer to retirement. Most providers even have advisors that will help you do this periodically, especially once you've saved enough to be a "valued customer".

All that to say that if you like your old 401(k)'s performance after comparing it to some index funds, you don't have any significant administrative hassles, then there's no compelling reason to move it. You're not "losing" anything financially just by having it split into two accounts.

  • @D Stanley This is a concise answer, thanks. After reading I think my main concerns were fees (paying two sets of fees for both) and having one central 401k. – Marinaio Dec 2 '19 at 15:01
  • @D Stanley individual IRA was mentioned a few times here. I never thought of that. I have my own brokerage account that I used the Bogle method which has done well. Does the IRA function just like a 401k? Can I put money in it? – Marinaio Dec 2 '19 at 15:06
  • @D Stanley In the link to the duplicate question it was said, "Another reason to roll over 401k money from one plan to another (rather than into an IRA) is to keep it safe from creditors." If true, doesn't an IRA create more exposure? – Marinaio Dec 2 '19 at 15:11
  • An IRA is very similar to a 401(k) - yes you can contribute to it (either before- or after-tax) but typically your investment choices are less limited. I can't speak to bankruptcy protection because that's not a concern of mine, but from what I've seen IRAs are pretty well protected in bankruptcy. – D Stanley Dec 2 '19 at 15:41

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