Before I ask, know that I'll consider your answers to be your opinions. I won't blame you if I lose all my money (although I might come fill your cab with concrete).

I'm getting ready to change companies. My question is simple. Would it be better to roll my 401k money into an IRA of some sort and just start a new 401k account with the new company, or would it be better to roll the existing 401k money into the new 401k?

I like the idea of putting it in an IRA and starting fresh, simply because I don't like having all my eggs in one basket, but I don't have much experience with this sort of stuff.

Thoughts??

 

Enron is a perfect example of that.

You have answered your own question Grasshopper, you have learned well.

 

Diversify! Ol' Hoss....Diversify!

 

It all depends on your new company's 401(k).

IF you think the new company's stock is going to appreciate more than the market and you can buy a good chunk of it with the money you roll in, and IF the new company's 401(k) offers a good selection of mutual funds that will allow you to diversify your investment, and IF the money you roll in isn't subject to any vesting restrictions in the 401(k), then rolling into the new company's 401(k) is worth considering.

On the other hand, if you want maximum control of your money, then rolling it into an IRA isn't a bad idea.

Rusty

 

I agree. Roll the existing 401 into a IRA and start fresh with the 401 from the new employer.

MikeyB

 

Compounding works better with more money. The only reason not to roll it into the new company's 401k would be if they have bad fund choices, i.e. funds with front-end loads, etc., or if they actually do force you to buy company stock in your 401k. As a general rule, I'd invest no more than 5-10% of my 401k funds in company stock to avoid the "double-whammy" that would hit you if the company were to go out of business.

Diversification is a good thing, but it refers to what you invest the money in, not where it's held. If you do a google search on modern portfolio theory, you should be able to find some good information on diversification.

 

Regarding stock, this is a smaller and privately owned company than I currently work for. To my knowledge, buying stock is not an option as they are not publicly traded.

At this point I'm not sure which funds they offer in the 401k plan. My current 401k is through Vanguard. I considered just starting a Vanguard IRA and rolling it into that, then starting fresh with the new company.

 

If you roll, consider looking at a Roth IRA. You would have to pay the tax to convert but any future growth is tax-free.

 

Vanguard is excellent, lots of very low cost index funds. The best answer still is to research the funds available in the new company's 401k and see what they're like.

 

Ok, side bar... wouldnt there be more tax advantages for Hoss to roll inot an IRA than into the company's 401??
I seem to remember reading that between teh two, an IRA gave more growth over all in part due to teh tax exempt allowable donations........

Not at all sure about this tho........

 

The table below gives the current limits as posted in my 401(k) website:

401(k) Elective Deferral - $15,000.00

50+ Catch-Up Contribution for 401(a), 403(b), 457 and 408(k) or (p) Plans - $5,000.00

50+ Catch-Up Contribution for Simple IRA and Simple 401(k) Plans - $2,500.00

Section 457 Deferral Limit - $15,000.00

Rusty

 

The only way to get stock in a privatley held company is if the company allows stock options. At that point you could invest money in that company but those options are typically for incentive pruposes for executive managment and are taxed at the normal rate. You would also have to cash out of your current 401k to buy the options. The only way to cash in on the difference in strike price of the option price when you were given them versus the strike price of the options is if the company was sold. So...that path is not what you would do with nontaxed money because it would affectively get taxed twice. Most privatley held comapnies don't offer any options anyway. The ones that do are typically owned by private equity investment coprorations for the sake of making money turning non profitable companies or smaller profitable companies into bigger and more profitable companies for a gain.

The best way in my opinion would be to roll your 401k into an IRA of some sort. IRA's are yielding better right now than most managed funds. Another safe way would be some sort of other FMA account that would yield less than an IRA but would be totally safe and you could draw on it within the limits set forth by the managing body of that account. 401k's are typically worth doing because most companies are matching 50 cents on the dollar up to 6% of your gross salary. Basically it's like free money.

Either way, you make out. I would talk to a CFP (certified financial planner) and see what they have to say. Their advice is usually free because they work for insurance companies and investment firms that make their money on how or where you invest it. Might not hurt to make some calls.

 

I have my 401k with Vanguard also, they aren't flashy, and they don't always lead the news with eye popping quarterly results, but if you pic your funds carefully, you will make money steadily. A couple years ago when the market took a skid, I was the only one of my coworkers that made money on my 401k, alot of guys had more risky selections and lost quite a bit of money.

 

You *CAN* buy stock even if a company is NOT publicly traded.

Heck, you can set yourself up as a corporation, with yourself is the only shareholder. No need to be public to have stock.


About the only advantage to many company-sponsored programs is a dollor-matching feature. If it doesn't have that, I would NEVER consider investing through an employer unless the funds (or other vehicles) were non proprietary. For example, instead of "employer fund A", you could choose something like "Vanguard Index Fund" (John Bogle's gang).

Some general principles on investing you can "take to the bank" (sorry):

1) The best money manager/ investment guy you could ever have is YOU. No one will ever care about your money more than you will. Heck, most brokers get paid whether you make money or lose money-- so where's the accountability for their recommendations? Same with Fund Managers. They get their salary even if the fund has a bad year.
2) 80% of professionally managed funds don't even beat the S&P in a given year.

 

Cash it all in and bomb away! Not that is a GOOD investment!