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Life After Salary: 401(k) Rollover Complete

This article was written by in Investing. 9 comments.


In late April, I described the process for rolling over a 401(k), and last week, I finally got around to doing it myself. I quit my day job nearly six months ago, and I’m slowly unwinding all of my employer-related investments. My 401(k) was worth about $106,000 and was my largest investment account, so I wanted to be careful with the move from my employer’s managed plan to Vanguard.

With one call on June 1 to Vanguard and one conference call with Vanguard to my former employer’s 401(k) department, everything was set into motion. I had to options when moving my funds to Vanguard. I could choose whether to move shares of stocks and funds as they are (in-kind) or sell the shares I owned in the 401(k), move the cash, and invest in new funds at Vanguard. There are no tax consequences to selling investments in a 401(k) when the purpose is to rollover the investment to a new provider and the purchase is completed quickly. Since I did not want to be invested in the same higher-priced investments that were available in my employer’s 401(k), I chose the latter option.

I had a portion of my employer’s 401(k) in a Roth 401(k), so I needed to designate two separate accounts for the rollover process. I brought my Roth 401(k) into the same Roth IRA account I’ve had at Vanguard for the past few years, and I designated the standard pre-tax 401(k) funds for the Rollover IRA I created when I rollef over my pension earlier this year.

One aspect of this process made me nervous. The only option for transferring funds from one company to the other was a check. The fastest this process could be complete would be overnight, if I were to decide to pay extra for faster delivery. I chose to settle for the free option, regular delivery. This means that my investments would be sold on one day and invested a few days later. Whether overnight or a few days later, this opened up an opportunity for the stock market to increase while my biggest investment account was not invested. The long-term performance of the S&P 500 is well documented, but if you miss out on the days with the biggest gains, you would only see a small portion of the reported performance.

On June 1, when my investments were liquidated, VTSAX was at $33.25; when the check finally arrived at Vanguard and I was able to purchase shares yesterday, VTSAX was at $32.48. It appears I avoided a 2.3% decline by the luck of timing. I wasn’t invested in VTSAX with my employer’s 401(k), though, so this is not a perfect evaluation of the situation.

One thing I liked through this process was the level of customer service I received from the Vanguard representative. She ensured my account would be ready to receive the check from my former company, and accompanied me on the phone when speaking with my former company to ensure the check would be designated and addressed correctly. After dealing with the 401(k) rollover, I asked about whether Vanguard offers a service for managing my business’s money. I’m looking for one location to handle business checking and investment. Apparently, by opening a new account using the corporation as the owner rather than an individual, I can use Vanguard as my business bank, with access to all the services available in a personal account. There is no distinction between business and personal accounts, and as long as both accounts are registered with the same address, the combination of assets would qualify me for Vanguard’s next level of service, “Voyager Select.”

Now that the rollover is complete, I’ll be looking at this next major task.

Published or updated June 7, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar Steve Dupree

Those “missed the best days of the market” calculations always assume that you missed, e.g., the best 10 days over a decade. Missing one day wouldn’t be the end of the world and the odds that it would coincide with your few days out of the market are miniscule. You probably lost more money by waiting 6 months to get out of those expensive funds in your old 401(k).

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avatar Luke Landes ♦127,485 (Platinum)

Good point, Steve. A quick report in Quicken tells me my 401(k)’s average annual rate of return (internal rate of return, annualized) from December 14 to May 31 was 23.23% (incorporating all fees embedded in the funds) while the VTSAX returned an annualized 19.40% over the same period (8.93% over the period, annualized). I lucked out staying invested in my 401(k) but it was riskier…

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avatar Steve Dupree

You lucked out a little on both counts. But even if the opposite had happened, in the grand scheme of things, it’s just noise.

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avatar Philip

I didn’t know about the business services. I’m going to look into that myself. Maybe get a SEP going with them. Voyager Select, huh? Big timer!

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avatar avonbyc ♦126 (Cent)

I have a teacher retirement account sitting in another state that I am uncertain as what to do with. It has about 12K in value and i obviously don’t want to lose it but I don’t know if I can roll it over or cash it out. Teacher retirements are not the same as 401(k) to my knowledge. Suggestions?

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avatar qixx ♦1,890 (Half-Dollar)

Your best bet might just be to go into or at least call a Broker. I’d expect the process will be much the same Flexo’s experience above. From my understanding you can always roll it over. And you can always cash it out, usually with big penalties.

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avatar rewards ♦31 (Newbie)

I believe that many “teacher” retirement plans are 403 or 457 accounts (except for those with pensions). These can be rolled over just like a 401 into a Traditional IRA account.

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avatar skylog ♦368 (Nickel)

thank you for the post. i am “possibly” leaving my job in the near future and i am trying to get everything straight just in case i do make the move. while my 401(k) in not with a “bad” firm, i am looking forward to moving those funds to vanguard.

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avatar Kellen

I use T. Rowe Price and I’ve always found their customer service to be super helpful and friendly. Hopefully if I ever need to roll over my 401(k) they’ll be just as helpful to me as Vanguard was to you. I wouldn’t worry about missing out on too much from one day, but then again, I imagine you’re talking about way bigger amounts of money than I have invested! :)

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