My Experience with a 401K Rollover

I recently changed jobs. And as part of the transition, I decided to rollover my 401k from my old employer to a rollover IRA. My 401k was with Fidelity, and my plan was to move it over to an existing IRA at Vanguard. In this article I want to walk through the reasons I made that decision, how the process works, and things to watch out for if you decide to rollover a 401k.

Why Rollover a 401k

For me the decision was simple. I prefer the low cost Vanguard funds over Fidelity funds. Fidelity does offer some really low cost index funds, but Vanguard offers a wider variety of funds with rock-bottom expense ratios.

In addition, by moving funds over to Vanguard, I can qualify for even lower fees and more exclusive customer service. In addition to a standard account, Vanguard offers what it calls Voyager, Voyager Select and Flagship accounts. To qualify, however, you must have minimum account balances. By moving more money over to Vanguard, it’s easier to qualify for a higher level of service. Here are the requirements of each account type and what they offer:

Voyager Services®

Investors with $50,000 to $500,000 in Vanguard mutual funds and ETFs qualify for Voyager, which provides the following benefits:

  • Commission-free Vanguard ETF® trades and reduced commissions for stocks and non-Vanguard ETFs. No account service fees.*
  • A detailed financial plan at a discount. A Certified Financial Planner™ professional from Vanguard will analyze your investments and saving strategy.

Voyager Select Services®

Investors with $500,000 to $1 million in Vanguard mutual funds and ETFs qualify for Voyager Select, which provides the following benefits:

  • Sophisticated support from representatives who can answer your more complex investment questions.
  • Commission-free Vanguard ETF trades and additional reductions on brokerage costs. No account service fees.*
  • A complimentary financial plan by a CFP professional from Vanguard that analyzes your investments and saving strategy.

There are of course other considerations to make in deciding whether to rollover a 401k to an IRA. But the above two reasons were what prompted my decision.

Flagship Services™

Investors with $1 million or more in Vanguard mutual funds and ETFs qualify for a Flagship account, which offers the following benefits:

  • Exceptional service from a personal representative who is your guide to all that Vanguard offers.
  • “Ask a CFP® professional” program for guidance on particular financial issues as they arise. For long-range planning, a complimentary financial plan by a CFP professional that analyzes your investments and saving strategy.
  • Exclusive access to select Vanguard mutual funds that are closed to other investors.
  • Commission-free Vanguard ETF trades, 25 commission-free trades for stocks, options, and non-Vanguard ETFs and transaction-fee funds, and significant savings on other brokerage costs. No account service fees.*

The Process was Dead Simple

This part really surprised me. As I thought about how to start the process, I decided to call Vanguard to see what information about my Rollover IRA I would need to give Fidelity. I already had the IRA account from a rollover six years ago, but had long forgotten the actually steps needed to get the process moving.

My call was routed to a department that does nothing but handle rollovers. The rep walked me through the process, and then offered to call Fidelity with me. So he dialed up Fidelity and did all the talking. I guess Vanguard really wanted my money!

We did hit one snag. According to the Fidelity representative, my old employer still had my status as an active employee. So I had to call my employer to get my status changed. That took a few days, and then the three of us got back on the phone to complete the rollover. It took all of five minutes.

You can check out an even more detailed description of the 401k rollover process here.

Watch out for the Distribution Method

One thing you need to watch for is how the funds are distributed. You don’t want the check written out to you or the IRS will treat it has a distribution, not a rollover. Of course, the reps and Vanguard and Fidelity know all these rules and can make sure your withdrawal from your 401k is treated as a rollover. In my case, Fidelity will send me the check made out to Vanguard for my benefit. I’ll then need to mail the checks to Vanguard, with my Rollover IRA account number written on the check.

Once that’s complete, I’ll be able to invest the money in any Vanguard fund or ETF I want.

Topics: Investing

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