Often times, I’m Lazy, but never so much with 401k plans from past jobs I have held. I know I should transfer the money to a Rollover IRA. This would save me money in administrative fees. It would also give me more choice in investments. If I wanted to buy a gold ETF I could. It’s an all-around win – there’s almost no rational not to do it. (I write “almost” there because high-income earners may find that it’s a negative if they plan to convert IRAs to Roths in 2010. This is a sticky situation and to be quite honest, I’m not qualified to opine on it. I suggest you see your tax professional.)
So the question shouldn’t be, “Do I transfer my money from my 401k plan to a Rollover IRA?” It should be, “Which company do I want handling my Rollover IRA. My IRAs are currently being handled by TD Ameritrade. It’s a fine institution, but it’s not one that I chose. They simply bought Datek.com and my account was transferred. They charge a very low $10 commission to buy or sell a stock – or an Exchnage Traded Fund (ETF), which I use. Each year I tend to make one simple transaction. I buy a very diversified index fund ETF with my whole contribution. This means that I only incur the $10 commission once a year. When I sell, years later, I’ll incur another $10 fee (assuming that the fee doesn’t change) for each ETF that I own.
Zecco, under many circumstances, offers stock trades for free. Between free and paying $10, I’ll take free any day. But there’s a catch with IRAs – an annual $30 fee for maintaining your account. Thus the $10 a year that I spend now, would rise to $30. That eats away the savings. However, with Zecco, I could rebalance my portfolio for free throughout the year. I could even designate a few thousand dollars as “play money” and buy the down sector hoping to catch a return-to-the-norm bounce.
I could also be more diversified than I am currently. The only cost of buying and selling would simply be the spread between the bid-ask price, which might not amount to much.
Is this worth the extra money each year?
I think it depends how much money is in the IRA. If you have $500 in an IRA, you aren’t going to want to pay $30 a year in account fees, but if you have $225,000, $30 might seem like a great bargain. When does it become more valuable for me to go with the Zecco account for the advantages there. I’m not sure where the crossover point is. I currently have around $75,000 to transfer, which makes that fee about 0.04% (note that it’s a small fraction of 1%, not 4%) of the whole account. When put that way, it seems like Zecco might be a good value.
At any rate, I’m sure the fees that I’m currently paying in my 401K is many, many times that. It shows once again that I shouldn’t let the pursuit for perfection prevent me from performing positively.