I hope the title is descriptive enough. Basically my previous employer and my current employer are both using Fidelity to manage my 401(k) accounts. I'm wondering whether it makes sense to rollover the 401(k) amount from my previous employer or that it is simply a waste of time?


I would check to see what the fee schedule is on your previous employer's 401k. Depending on how it was setup, the quarterly/annual maintenance fee may be lower/higher than your current employer. Another reason to rollover/not-rollover is that selection of funds available is better than the other plan. And of course always consider rolling over your old plan into a standard custodial rollover IRA where the management company gives you a selection of investment options.

At least look at the fees and expense ratios of your prior employer's plan and see if anything reaches a threshold of what you consider actionable and worth your time.

Note: removed reference to self directed IRA as vehicle is more complicated account type allowing for more than just stocks, bonds, and mutual funds. Not for your typical retail investor.

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    "self directed IRA" is a specific, non-common, type of IRA that allows a wider range of investments, such as rental real estate. Is this what you intended? Or do you just mean a traditional IRA? – JTP - Apologise to Monica Jan 30 '17 at 10:49
  • I think I left it a bit vague as to encompass other options should the OP care to research them. Generally though a traditional rollover IRA with a major mutual fund company is the expectation. – Morrison Chang Jan 30 '17 at 14:48
  • You didn't leave it vague, you specifically named a "self directed" IRA, that's a kind of IRA... – quid Jan 30 '17 at 19:03
  • Updated answer to reflect concerns about self-directed IRA. Thanks. – Morrison Chang Jan 30 '17 at 20:20

I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons.

First off, it opens up your investment choices significantly and can allow you significantly reduced expenses related to the account. You may be able to find a superior offering from Vanguard or Fidelity to what your employer's 401(k) plan allows; typically they only allow a small selection of funds to choose from. You also may be able to reduce the overhead fees, as many 401(k) plans charge you an administrative fee for being in the plan separate from the funds' costs.

Second, it allows you to condense 401(k)s over time; each time you change employers, you can rollover your 401(k) to your regular IRA and not have to deal with a bunch of different accounts with different passwords and such. Even if they're all at the same provider, odds are you will have to use separate accounts.

Third, it avoids issues if your employer goes out of business. While 401(k) plans are generally fully funded (particularly for former employers who you don't have match or vesting concerns with), it can be a pain sometimes when the plan is terminated to access your funds - they may be locked for months while the bankruptcy court works things out.

Finally, employers sometimes make it expensive for you to stay in - particularly if you do have a very small amount. Don't assume you're allowed to stay in the former employer's 401(k) plan fee-free; the plan will have specific instructions for what to do if you change employers, and it may include being required to leave the plan - or more often, it could increase the fees associated with the plan if you stay in. Getting out sometimes will save you significantly, even with a low-cost plan.

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