In the first few months of 2023 as my employment was winding down, I moved onto contemplating how to consolidate and simplify my employer based retirement accounts. Most of my net worth was tied up in my 401k plan in two different buckets. The first was a tax deferred bucket with $850k and the second was a Roth 401k bucket with $62k from 4 years of a mega backdoor Roth experiment.
My options were to leave the money with my former employer’s 401k plan or roll it over to a pair of IRAs. The only real benefit to leaving the money in the 401k would be to preserve my ability to do backdoor Roth IRA contributions when our household income is too high to contribute via the front door. If I found another job, I could rollover the old 401k into the new employer’s 401k plan assuming the investment options were as good or better in the new plan. This would preserve my traditional IRA balance of $0 and allow tax efficient backdoor Roth IRA conversions.
There were several benefits to rolling my old 401k into IRAs. My old 401k had unitized funds instead of mutual funds. The unitized funds included a total US stock market fund that more or less tracked VTSAX but it didn’t pay dividends. The unitized funds daily settlement price wasn’t updated until 22:30 CST instead of 17:30 CST. And the artist formerly known as Personal Capital (now Empower Personal Dashboard) couldn’t figure out the sector allocation of private unitized funds. The lack of dividends is somewhat arbitrary as dividends are paid by lowering the price of the fund but I always felt shorted seeing Mrs. Dress Pockets’ VITPX (institutional VTSAX) pay quarterly dividends.
Perhaps the most cathartic reason to roll my 401k over to IRAs was to sever the naming plan rights of my former employer. I decided to call up the employee benefit center and initiate a rollover of $62k to my existing Roth IRA at Vanguard. One might think you could initiate these transfers electronically or ask Vanguard to go pull the money on my behalf but no such luck. Analog phone calls and paper checks are required. Having the old plan write the check directly to the IRA custodian FTBO (for the betterment of) yourself makes things easier from a tax and penalty perspective. There was an option to pay $25 for 2-day delivery of the check. I decided to roll the dice with the postal service for the smaller check. Time out of the market is the concern here. Then you have to mail the check to Vanguard with some account rollover paperwork. Luckily the Vanguard mobile app allows you to deposit rollover checks directly and forgo the second trip in the mail!
A few weeks later, I called back up to initiate the rollover of the $850k remaining to a new rollover IRA at Vanguard. The size of this check meant I had to talk to a few extra people on the phone who wanted me to roll the money over to a Fidelity IRA. Fidelity was the 401k plan administrator for my former employer. After I clearly reiterated my request to roll the money over to Vanguard, they acquiesced. I did pay the $25 for 2-day shipping of this check and the Vanguard mobile app flawlessly deposited the large check.
Ideally at this point, I would quickly purchase VTSAX and VBTLX per our overall 80/15/5 (stocks/bonds/cash) allocation but I got cute and thought I could time the market waiting for a market sale (a drop in the S&P500 and VTSAX). So for 4 months the money sat in Vanguard money market funds nicely yielding 5% and paying monthly dividends until I got another chance to pull the investment trigger in late September. I didn’t find the market bottom at the end of October but I came close enough. I firmly believe the market always goes up with time and I know I can’t time the market but when faced with investing larger sums of money I still get tripped up. All’s well that ends well.
End note: There was a 3rd rollover of $46 from a pension at my former employer. The pension balance was supposed to be zero due to a QDRO to an ex-spouse. But after months of processing they found $2 per year of employment service to send me. I rolled this pension check over to my Roth IRA and will pay the tax on that $46 conversion.
