My job has a pretty crappy 401K plan. No match, and the investment choices have higher management fees than I’d like. Still, I like the fact that it’s tax deferred, and I can put more money into it than I could into just an IRA (I’m already maxing out a Roth IRA, so I can’t have a traditional IRA too).
I know that when you leave a job, you can choose to roll your 401K fund into an IRA, but I like my job, and have no plans to leave in the near future. Is there any other way to do this? I’d like the freedom and lower fees that an IRA would give me.
If the only way to trigger it is leaving the company, what if I quit my job and got rehired the next day? I have no idea what kinds of costs my company would incur for doing this, but if they’re low enough, they might be willing if I asked in the right way.
I will assume that the usual caveats about taking financial advice from a message board apply, and will consult with a professional before doing anything stupid. I’m just interested in knowing if this is possible, and where I should start looking.
Likely not. Some plans allow for withdrawals during emlpoyment, but if you’re not older than 59.5 this would only be from employer funded dollars. It sounds like your plan doesn’t have any of that. If you could prove a financial hardship for one of the reasons the plan allows, you could potentially get your money out without quitting. This money would not be an eliglble rollover distribution though.
This won’t fly. If you quit with the expectation of being rehired the next day, you haven’t incurred what your plan refers to as a “separation from service”. This is what allows you take your money out after you quit. Even if the costs of this proposed sham transaction were low, your employer would be taking large risk by allowing it to occur. If the IRS picked up on it during an audit, there would be trouble.
Thanks, Ass For A Hat. I didn’t really think that my temporary joblessness would work. Any loophole you can think of in the three minutes it takes to write a post was probably closed.
newcrasher, the various funds range from 0.68% to over 2%. I’ve got eveything in the cheapest one (which is approximately an S&P500 index), but, compared to, say Vanguard, I’m still overpaying by almost half a percent a year.
It may be possible to get my employer to change plans. I’m not sure what that would take. I’d guess if enough employees complained, that might work.
Well I would say the overall benefit of being diversified would outweigh the savings by keeping everything in one fund because it is cheap. When you invest outside of your 401k, do you simply invest in the fund with the lowest fees?
It’s an index fund, so it’s already where I’d be heavily weighting my investments anyway. And I disagree with you on the value of diversification. Over the long term, losing an additional 1% a year in fees is far and away going to overcome the expected gains from diversification.
When I invest outside the 401K, I do not invest in big US indexes because I’ve already got plenty of money there. But I do tend to just invest in the fund with the lowest fees in whatever asset class I’m interested in. My understanding is that paying higher fees for a particular fund is foolish.