5

As far as I know, all 401ks charge recurring fees to the employees. Some even charge percentage fees based on your balance. This is on top of the fund fees you'd have to pay for Fidelity/Vanguard/etc funds.

Also, as far as I know, personal IRAs at places like Fidelity and Vanguard do NOT charge recurring fees.

Isn't it always better to roll over your 401k at a company you left into your own personal IRA where you have no fees, and can invest in whatever funds you want?

I'm trying to think if there are any advantages to rolling over a 401k into a new company's 401k, or leaving it in the old company's 401k account...

  • I guess this question is very related: money.stackexchange.com/questions/842/… (the answers get at what I'm asking). I'm fine with 'closing as dup' if others agree. I'd prefer an unequivocal 'You should always go to IRA in the situation you described'. – Michael Pryor Jun 18 '14 at 15:45
  • I was once in a state plan (non-401k) that precluded rejoining after a rollover. Not sure if that's a legal restriction on 401(k)s, though. – Mike Chale Jun 18 '14 at 15:49
  • I have been in multiple 401k plans where there is no fee if you're above a certain balance. Also, the 401ks usually have access to medallion funds (funds with really low fees) that you wouldn't have access to in your ira unless you have a certain amount invested – RohitJ Jun 18 '14 at 16:34
  • The premise of your first paragraph is false. Fees are plan-dependent. It's very possible to have a 401k that offers better options than an IRA you can roll into. – Todd Jun 18 '14 at 16:38
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5

I'm trying to think if there are any advantages to rolling over a 401k into a new company's 401k, or leaving it in the old company's 401k account...

Advantages of 401k (either the old one or the new one):

  1. (In the company where you're currently employed) you can take a loan from your 401k.

  2. Depending on the plan choices you may have funds with much lower expense ratios in 401k than are available to retail investors (IRA).

  3. There are no RMD (Required Minimum Distributions) from 401k.

  4. 401k balance doesn't affect the IRA->ROTH conversion (the IRA loophole).

  5. You can start withdrawals from 401k at the age of 55, IRA - at the age of 60.

Disadvantages, as you mentioned, are fees and plan choices' limitations. The decision is yours, but it's not straight-forward. You'll need to decide which trade-offs to make.

  • (1) this is a good reason to move to the new company 401(k), correct? (3) ? Only while still working, once you leave the company, RMDs kick in at 70.5. (4) Nice shameless plug, and an article worth a read. (5) only if you separate from the company after 55, careful if you leave any younger. – JoeTaxpayer Jun 18 '14 at 17:00
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    +1 for (4); there is a large percentage of people who are above the Roth IRA contribution income limit, and this is the only way to contribute. Also, another advantage: 401(k)s are better protected from bankruptcy and debtors than IRAs. – user102008 Jun 18 '14 at 21:02
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    @JoeTaxpayer has already commented on statement #3 about RMDs which I also believe is incorrect; 401k plans do have RMDs. I will add the point that if there are several 401k plans, it is necessary to take an RMD from each of them in the proper amount for each plan (ditto for 403b plans etc). In contrast, all the (non-inherited) IRA balances are lumped together in determining the RMD, and the RMD amount can be taken from any combination of plans that the owner chooses; it is not necessary to take the appropriate amount from each IRA account as it is with 401k plans. – Dilip Sarwate Jun 18 '14 at 22:49
  • And. Roth 401(k) has RMDs as well, while the Roth IRA avoids this. – JoeTaxpayer Jun 18 '14 at 22:54
  • I stand corrected, I was sure 401ks don't have RMD – littleadv Jun 18 '14 at 23:11

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