If you have any financial accounts anywhere, you have probably read about rolling over you old 401(k) retirement account to a new company that will “charge less” and help you “earn more.” While I am a big fan of moving an old retirement account when you leave an employer, it is important to take your time and make an educated decision.
First off, you have to look at where you account is today. How much do you have there? Is there a fee for the fund you have your money sitting in? Is there a maintenance fee? What is the total cost per year and cost as a percentage per year? At my employer, I pay less than 1% to keep my investment in a 2050 target date fund and an additional $5.75 per quarter in fees. I don’t mind the 1%, but the extra five bucks could go to better use.
If you are like me and don’t love the fees at your employer, remember to move things right away when you leave. It is worth keeping everything with the employer’s endorsed provider as long as you get a match on your contribution. If you have already left an employer and keep watching fees chipping away at your retirement, it is time to move on.
Reasons to stay with old employer:
- Low fees/no fees (rare)
- No extra work (lazy person’s excuse)
Reasons to move on:
- High fees (likely)
- Little control
- No more contact with HR department where you used to work
Most often, the reasons to move outweigh the reasons to stay. If you are going to move, don’t just take the cash out and pay the tax penalty!!!! If you contributed to a retirement account, you got a big tax saving. Taking money out of a retirement fund early comes with hefty IRS penalties in the US, and I am sure similar penalties in Canada and other countries around the world (readers, please verify in the comments if you know). When you take out the funds, they have to go directly into a comparable retirement fund somewhere else or you have to pay up.
So, you are ready to move? Now it is time to research possible storage for your 401(k) in the future. Note that you can always move your 401(k) or IRA to another bank/broker, you are not limited to when you leave a job.
Googling 401(k) roll over gives you about 495,000 results and countless sponsored options. You see ads from places like TD Ameritrade, Charles Schwab, T. Rowe Price, Vanguard, Edward Jones, Sharebuilder/ING, E-Trade, and many more. You can use virtually any bank (not recommended) or brokerage (recommended). Here is a short list of my favorites:
1. Your Broker – You are probably there for a reason. If you are happy, explore retirement account options. You should be able to talk to an expert a sales person that can help you easily move your old account. Just be sure to ask about fees and investment options before you agree to anything.
2. Charles Schwab- Schwab is my broker, so it is a natural fit for me. I can invest for free in a whole slew of new index funds and there are no maintenance fees, so I have no reason to go elsewhere based on anything I have read.
3. Vanguard – One of the most popular firms with “low fee fund” options. Many other brokers offer access to invest in Vanguard funds as well.
4. Sharebuilder- If you are an investor bent on controlling the details and doing your own research, Sharebuilder offers low cost trades, so you can manage the account with fewer trading fees than other brokers. It is also easily funded through ING Direct (affiliate link).
Remember that these are just a few of the many options you have for investing your hard earned retirement funds. Just be sure to do your research on fees and investment options before you sign up. I would love to hear what you use in the comments.
