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I want to ditch my great 401(k).
When BrightScope rankings of 401(k) plans were available to individual investors, mine ranked very highly. By most measures in this Morningstar article on whether to keep your 401(k) in retirement, mine merits keeping. Besides these factors, I have a few of my own reasons that I like it.
First, I like its stable value fund, which is managed to keep a $1 per share price (not guaranteed) but with a higher return than any money market I’ve seen. In fact, it did very well during the high inflation of the last few years. This fund is nearly half of our bond/cash allocation, and I won’t find the same combination of safety and return elsewhere.
Second, I like that the plan’s policies mean this portion of our portfolio has some guardrails such that it’s difficult to interrupt compounding unnecessarily. (Thank you, Charlie Munger.)
Third, while I value the simplicity of having assets under one umbrella, I also like having a nice chunk at a second provider. I call this “fraud and cybersecurity diversification,” and while the term is clunky, it probably needs no explanation. Of course I could get this anywhere.
So, what’s the problem?
The website is a pain. Every single time I log in, the username/password fails on the first try. At least it then reliably works on the second. I got used to it in my 15 years in the company and have continued to live with it over three years of retirement. And once in, the site is not user friendly. I’d keep living with it if this were my only complaint.
Lately I’ve been researching exactly what happens to my account when I pass. Obviously, my named beneficiary who is my spouse inherits, but then what? Can she keep the account forever? If not, will she get a few months to roll over into an IRA, or will she automatically get a check in the mail when she reports my death? These are not IRS rules but plan policies, so I can only get my answers from the administrator. I found most of what I needed to know in the summary plan description but have further questions, which I’ve submitted twice with no response.
When I logged on to do the above research, I found a message that I needed to designate a beneficiary as I had none on file. I’ve had the same beneficiary designation in place for years. I submitted the information again and also contacted the administrator. Their reply informed me that even though the system showed no information on file, I could rest assured my previous designation remained valid. Really? The correct information appears when I log on now, but sorry, I do not rest assured.
It’s tempting to take my money elsewhere. If I do, this could be a simple rollover to an IRA, but as I’m beyond age 59½, there are other options.
Any other retirees out these still holding on to your 401(k), or near retirees planning to?
Mine is held by Empower, which is owned by Great West Financial, an insurance company. We will part ways as soon as I retire. Good riddance.
Our retirement system is far from perfect, but the greatest feature is choice. You choose to keep or eliminate your 401k. You choose to convert to Roth or not. You choose your investments and financial service providers. The worst feature is choice requires taking responsibility for your own actions. You are responsible for education regarding your options, finding unbiased information about investments and financial services, following the tax code, and being in command of everything.
Most of the time when I hear about issues with a 401k, it is more an issue of the responsibility people have to exercise with their 401k than the plan itself.
I think what say in your first paragraph about our system in general is true.
As to the second, I can’t say I’ve heard many complaints about 401(k) plans. My own and that of my old work colleagues is a great plan. That’s why I’m still in it despite the negatives I mentioned. So far anyway.
We’re lucky in that our 3 employers all have 401(k)s at Fidelity. So far I’ve left my accounts there since I’ve retired. Two of the plans allow use of Fidelity’s BrokerageLink where we can invest in just about anything. (I’ve used it for Vanguard ETFs, T-bills, and TIPS.) And the 3rd is a pretty decent plan (low expense ratios) from when we both worked at IBM. I have been doing Roth conversions from my other 401(k) directly to a Roth IRA which I opened at Fidelity for convenience. It’s very easy to do a conversion with one phone call to Fidelity.
Sounds like that’s worked out well. I agree, Roth conversions at Fidelity couldn’t be easier.
I prefer not having a layer between me and my brokerage company. I understand the desire for broker diversification because we’ve seen recently with the fraud attacks that brokers can suddenly change/alter policies that might warrant a quick move of funds.
The only thing I can think of in favor of 401k is that some offer automatically rebalancing your portfolio every year or 6 months. That can be nice, but they don’t offer rebalance bands, an approach I like even better.
Thanks for the comment. My plan does offer the automatic rebalance to a set allocation, but I don’t use it.
401K usually protects your money from creditors, civil lawsuits, and even bankruptcy proceedings.
Since I never thought I would one I did the following..
I have changed employers many times thru my career.
Every time I change jobs, I roll over my 401K to Fidelity/Schwab (Vanguard is another good choice). It’s a logical choice.
You and me, some of us remember to roll over the 401k account to an IRA account at our preferred stock broker company. Most people are clueless about 401k rollover when changing job (my unscientific statistic is 2 out 10 persons).
Thanks for that comment. I’ve read that if you roll your 401(k) into an IRA and keep it separate from your other IRAs, it continues to enjoy that better protection.