AS MY WIFE AND I approached our June 2014 retirement, I set out to consolidate and simplify our investments.
The first account I dealt with was my 403(b). Fidelity Investments was handling the 403(b) plan for the University of North Carolina System, which is where I worked. But while Fidelity was the administrator, the plan included several Vanguard Group funds, to which I’d been contributing. This was where I had the majority of my retirement money.
To simplify our finances, I stopped contributing to the account in January 2014 and transferred the balance to a rollover IRA at Vanguard. Even though I was still employed, I was able to do this “in-service distribution” because I’d reached age 59½. The rollover removed Fidelity as the middleman and allowed me to access my money directly using Vanguard’s website. My wife and I already had other accounts at Vanguard.
Rolling over my 403(b) money required quite a bit of paperwork, but I got representatives from Fidelity and Vanguard to walk me through their forms. I paid $25 to have Fidelity send the check overnight to Vanguard. The alternative was a free but slow transfer, during which Fidelity would no doubt earn interest. An electronic transfer wasn’t an option. This seems to be standard procedure when withdrawing money from brokerage firms. They want one last bite before they hand over your money.
In addition to removing Fidelity as the middleman, moving my 403(b) money to Vanguard meant I could invest the U.S. stock portion in Vanguard’s Total Stock Market Index Fund. The fund wasn’t available through my 403(b) at Fidelity, which only offered a limited number of Vanguard funds. In my 403(b), I’d split money among Vanguard’s S&P 500, mid-cap and small-cap index funds in an effort to replicate the broad U.S. market.
I also had a small Roth 403(b) account at Fidelity, but I kept this in place until I retired, so I could continue contributing to it via payroll deduction. After retiring, I rolled this into a Roth IRA I already had at Vanguard.
In addition to my 403(b), I had money in a 457 plan with the State of North Carolina that was administered by Prudential. Even though the fund expenses are higher than Vanguard’s, I’ve left significant money in the account. Why? My 457 is covered by a North Carolina state law—since changed—that meant money could be withdrawn without paying state income tax. In fact, I’m able to roll money into the account and then withdraw it, thus avoiding state taxes—something I plan to do periodically.
My wife already had a rollover IRA at Vanguard that held money from a retirement plan she had with a former employer. On top of that, she had a SIMPLE IRA at Vanguard, which allowed her to make pretax contributions from her private practice earnings as a clinical social worker. When she retired, we moved this money into her rollover IRA.
The upshot: We started 2014 with seven accounts—a 457, 403(b), Roth 403(b), rollover IRA, SIMPLE IRA and two Roth IRAs—with these seven accounts spread across three financial companies. When the smoke cleared, we were down to five accounts—a 457, two rollover IRAs and two Roth IRAs—at two companies. I was also able to use the same Vanguard funds across all our accounts, except for the one bond fund I keep in the 457 plan at Prudential. All this greatly simplified our investments, making it much easier to track our portfolio and to rebalance occasionally.
Still, we may not be done with our simplifying. Eventually, when I get tired of managing our investments, I’ll just move all our money into a Vanguard target-date retirement fund or one of the firm’s target-risk LifeStrategy funds. These funds offer a diversified portfolio in a single mutual fund, with Vanguard handling all rebalancing. Why not make the move now? These one-stop shopping funds have slightly higher expenses than the funds we currently own and, for now, I’m having too much fun doing the rebalancing myself.
Brian White retired from the University of North Carolina, where he worked as a systems programmer and then director of information technology in the computer science department. His previous articles include Time to Retire, Limited Selection and Lesson Well Learned. Brian likes hiking with his wife in a nearby forest, dancing to rocking blues music, camping with friends and stamp collecting. He also enjoys doing Volunteer Income Tax Assistance (VITA) work at the Chapel Hill senior center.