A nice article about how 401k plans are better off with only index funds. I do have a quibble with the article. Index funds generally outperform actively managed funds over the long run due to their lower fees. Looking at the last 10 years, all of the index funds I have recommended for 401k plans have performed in the top half of their peer group, and most in the top third, due to significantly lower fees.
Listen to this interview with the author of A Random Walk Down Wall Street. The book explains the basics of investing in a very simple way and cuts through a lot of investment myths and hype. http://www.npr.org/2015/01/19/377698238/markets-may-stumble-or-skyrocket-but-this-economist-says-hold-on-tight
That is a great question that I get often. There are a couple of things to think about.
In most circumstances rolling your old employer plan into IRA is probably the best option. That option allows you to access low cost funds from places like Vanguard and Fidelity that may not be available in your old employer plan. It also makes it easier for you to keep up with the money, if you change addresses etc.
If you are thinking about rolling your old employer plan to a Traditional IRA and your Adjusted Gross Income (at the bottom of the first page of your tax return) is more than about $112,000 (single) or $178,000 (married) and you do not have a Traditional IRA now, you may want to skip rolling over your old employer plan into a Traditional IRA. Keeping that money out of a Traditional IRA allows you to make a tax-free “back door” Roth IRA contribution by contributing to a Traditional IRA and then immediately converting it to a Roth IRA. In that case you would move your old 401k plan balance directly to your new employer plan if it had lower cost options than your old plan, or leave it at your old plan if the opposite were true.
On the small chance that your old employer 401k balance was in a Roth 401k, I recommend rolling the balance directly into a Roth IRA and not into your new employer plan.
I hope this helps.
I was recently a guest on the Morning Shift on Chicago Public Radio about retirement planning.
The PBS show Frontline aired a great piece last week about 401k plans called “The Retirement Gamble.” The show exposes some of the excessive fees that 401k plan providers charge, and the lengths they go to hide them from employees and their employers.
If you are an employer or employee that thinks that your 401k plan provider may be charging to much, or you do not even know how to figure that out, you can go to www.brightscope.com to check out how your plan stacks up. Or you can contact me if you would like me to review your plan and show you some better options.
Vanguard announced they are changing the incidicies they use to construct some of their most widely held funds including the Vanguard Total Stock Market Index, The Vanguard International Stock Market Index, and the Vanguard Total Bond Market Index. Instead of following the Morgan Stanley Capital Indicies (MSCI), domestic funds will follow the University of Chicago’s Center for Research in Security Prices (CRSP), and international funds Financial Times and Stock Exchange (FTSE) index. The reason for the shift is to lower the ongoing fund fees. The new indicies charge a lower licensing fee then than the current MSCI ones do. Vanguard does not anticipate a major change in the composition of most of their broad based index funds. They also do not anticipate signficiant capital gains distributions from the switchover.
The only possible hiccup involves South Korea. Right now it is in the MSCI emerging market index. FTSE has it in the developed market index. If you own the Vanguard Total Stock Market Index or both the Vanguard Developed and
This is not the first time the Vanguard has shifted indicies, for example the Vanguard Total Stock Market Index moved from following the Wilshire 5000 to the MSCI index in 2005.