Helping Mom Transfer Old 401(k) To Vanguard IRA

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My mom is trying to organize and simplify her financial accounts, which I applaud. A major part of this is to finally move her orphaned 401(k)s and IRAs into one location. I recommended Vanguard, since that’s where all my IRAs are. She was okay with sticking with low-cost and passive index funds, which is Vanguard’s specialty. They are also known to be investor-oriented and have high client loyalty.

If you intend to buy individual stocks or ETFs, I wouldn’t go with Vanguard Brokerage Services because they are relatively expensive. Open an account elsewhere – check out Zecco, TradeKing, or Sharebuilder.

Make A Phone Call To Old Administrator
There are a variety of ways these rollovers can happen. They may want to know the name of the company you’re going with, and also have some various paperwork to fill out. With some companies, you can request everything be done online. Even so, I think the easiest way is to simply call them and ask them the easiest way to do it (my mom didn’t like having to deal with the old company “Why are you leaving us? You can simply rollover to an IRA here…”).

You have to ask for a “direct rollover”, because otherwise you may be subject to a 20% automatic withholding, taxes, and also penalties. If the transfer can’t be done electronically, the old company will liquidate your account and send you a paper check made out to your new company. Be sure to send the check to your new company within 60 days.

Open An Account At Vanguard
Just go to, click on “Open an account” at the top-right, and follow the guide. We went with “Invest for retirement” > “Roll over a 401(k) or other employer-sponsored plan” and then “Vanguard® mutual funds”.

Choosing Initial Investments
If you don’t know what to buy yet, just choose a conservative money market fund to get started. One popular option is the Prime Money Market Fund (VMMXX). You can switch into other mutual funds later easily as there are no transaction fees.

If you have over $100,000 in assets at Vanguard, you reach their Voyager level which includes a discounted financial plan. The pitch: “Pay just $250 for a plan developed by a Certified Financial Planner™ from Vanguard—a $1,000 value.” I haven’t actually paid for this myself, so I don’t know how customized it is.

Avoiding Fees
Don’t want mom getting hit with crazy fees! Vanguard charges a $20 annual fee for each Vanguard mutual fund in which your balance is under $10,000. Again, if you are at the Voyager level ($100,000+ in total assets at Vanguard) these are all waived. After that, the easiest way to avoid this fee is to sign up for electronic delivery of documents. Most people are willing to save a potential $20-$100 a year by printing out their own statements.

So now she has a funded Vanguard IRA. Next task is to provide her some investment options which fit within her overall portfolio.

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  1. Rolled in to a Roth Ira or a Traditional IRA?

  2. I am in Vanguard as well and they do certainly have some quirks though. In your IRAs, they do NOT list your unrealized gains/losses so you have no way of knowing how they have grown unless you keep book tracking elsewhere. They will tell you some info on the performance tab as percent return (though that is only updated monthly), but not what your absolute gain is (only for last year…).

    Brokerage accounts will show you your absolute gain, but not turn this into annual rates of return….

    So many mutual fund and brokerage firms are negligent at providing clear, usable personal performance numbers. Low costs are fine, but performance is what brings home the bacon!

  3. simplesimon says

    @Thad: While I also like to keep track of performance (I do so by inputting data on Yahoo Finance), assuming you’re using Vanguard’s index funds, there really isn’t a need to look at performance. Movements in the market are out of the investor’s hands so why worry?

  4. Thad,

    Do you use a excel spreadsheet to manage the performance of your brokerage accounts?

    I do, it’s rather simple to setup (formulas for Money Multiplier, Annual Return ect…) and maintaince throughout your investments.

  5. Are you recommending she roll over the entire lump sum in one transaction or over a period of time through some type of dollar-cost averaging?

  6. hayhehes – It should all be rolled over at one time. Once it’s in the Vanguard account, it can be placed into a money market fund and gradually put into equity funds if you want to dollar cost average. But having it all in a Vanguard IRA account ensures their low fees, instead of whatever the current companies’ fees are.

  7. I did this about 3 months ago, and Vanguard did 99% of the work for me. Called them up, and they setup a conference call with the Ibank who ran my former 401k, did the transfer and I was done.

    Granted, I’ve had an account with Vanguard for 10 years and have admiral status, but their customer service is has always been exceptional.

  8. I use Quicken to track my returns, as well as a few spreadsheets on the side; thanks. They have some quirks as well but I run with what numbers they show. I had mixed results in using the auto-download of Vanguard transactions to Quicken the way I had my things set up so I can’t bless that interface totally. It might work OK if you are starting fresh and not retro-fitting.

    I would love to form/join a grassroots movement to set up an “Investment Reporting Bill of Rights”, if you will, of basic financial tracking formats that brokerage and mutual fund companies should use to CLEARLY and HONESTLY show basic performance and net gains/losses so the common folk can know how their real investment return and make it easy to compare agianst a simple savings account. I don’t think most folks do as well as they think they are doing in investments…..

  9. Rolled it over from a Trad 401k to a Traditional IRA. Not much point in doing a Roth conversion now, I think their tax rates will be lowest in retirement soon.

    I use this simple calculator to estimate personal performance:

    Estimate Your Portfolio’s Rate of Return – Calculator

  10. Are you sure there’s an annual fee? I thought Vanguard did away with that about a year ago — you just need to sign up for electronic notices and they waive the annual fee.

  11. What is the next best choice to Vanguard? I have my main retirement account there but am approaching the contribution limits. Rather than set up a second account with Vanguard I would like to hedge my bets by going to their best competitor. Who would that be? Fidelity?

  12. I love Vanguard. They really make everything super-easy. I have my Roth IRA and just rolled over my 401k from my previous employer to Vanguard last month. It was about a five minute phone call!

  13. Are the IRAs, unlike 401ks, FDIC-insured? Or might they also “lose value”?

  14. I just recently rolled over my 401K to a Roth IRA… does anybody have any tricks for calculating the amount extra I’ll need to pay in taxes in 2009? Can I apply the % I paid in taxes last year to the amount to get an estimate? Thanks all!

  15. Troy Brown says

    Another more general question about 401k to IRA Rollovers. In the past I’ve had after-tax 401k contributions which I shouldn’t have to pay tax on again upon withdrawal. When you rollover the account balance to a brokerage’s IRA account, you don’t report what portion has already been taxed so I guess the burden is on the taxpayer to be able to prove that. Does that mean I need to keep my payroll remittances (which show the pre-tax and post-tax contributions) for 30+ years until I withdraw these funds in retirement?

    If I convert these IRA accounts to Roth IRA accounts in 2010, is there a method by which I can deduct these after-tax contributions from the balance that I’ll pay tax on and clean up this mess before it haunts me in my old age?

  16. As I’ve read this and other comments, I have to ask everyone about investing in this current economy. Most every fund I’ve looked at is in the negative right now.
    Is it a good idea to leap into any fund when it is yielding -3% or more?

    Why not put that rollover into a money market or bond account or ANYTHING that actually pays some sort of interest for a few months, and then move it into a mutual fund when the market recovers a bit?


  17. simplesimon says

    @Amanda: IRA’s are not FDIC insured.

  18. @ Deb

    Now is a great time to invest. Market’s are counter intuitive so the best time to buy (exceptional stocks and funds) are when they trade at a discount. The best investors buy when market sentiment is at it’s absolute worst.

  19. Hi Jonathan,

    GREAT website! I’m learning a lot!

    Does anyone have an opinion on American Century as a mutual fund company? I have one of their One-Choice portfolios. They have no fees and their expense ratio is .86. It has a 5 star Morningstar rating. My account value is around 60K. Should I roll it over into one of Vanguard’s Index funds? Or is it OK where it is?


  20. @ Elie

    I’m probably in the minority here, but I’m not much of an index fund supporter b/c they have essentially been dead money for the last decade. However, Vanguard does has an excellent selection of sector specific MFs and ETFs with far lower expense ratios than 0.86 that I own.

    I’m a fan of the beaten down sectors like real estate right now, but for the long term, health care MFs/ETFs have historically been exceptional performers.

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