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.