Friday, May 09, 2008

Rolling Over My 401K to Vanguard

I recently left my old job for a brand new and exciting one, and as I have previously written, I am a big believer in rolling-over my 401K as soon as feasible after I leave a job. There are many reasons to roll-over a 401K into an IRA, but some of the biggest are the high-costs and limited transparency of typical 401K plans and the relatively limited investment options.

Being the devoted index investor that I am, I rolled my 401K money into my traditional Vanguard IRA. The process itself was smooth and painless. First, I logged into my 401K account online. There I chose to terminate my account and to take my money in the form of a direct roll-over. Note that if you choose to withdraw your cash instead of rolling it over, you may be subject to a 10% tax penalty, and to an immediate 20% withholding. ADP - my now former 401K plan provider - asked me to enter the name of the institution into which I will be rolling over my account, and presto - a week later a check arrived in the mail made out to Vanguard, for the benefit of your humble blogger.

This morning I called Vanguard - whose service center closes at 5 PM Pacific for some strange reason. The representative was very friendly and informative and simply asked me to identify myself, which account the money will be rolled into and how I would like my money invested. I chose to invest my hard earned $46,000 as follows: 15% Total REIT Index (VGSIX) - I have been beefing up my investments in that fund recently to offset declines over the past year; 40% in Total International Stock Index Fund (VGTSX); 35% in Total Market Index Fund (VTSMX) and the remaining 10% in Vanguard's Extended Market Index Fund (VEXMX). The whole process took me about 10 minutes. I mailed the check to Vanguard today, so with any luck my money will be back in the market within a few short days.

On a (little) sad note, when I left my employer after almost three years, I left behind 50% of my employer matching funds, which were not yet vested. This amounted to a few thousands of dollars, but if you get a good career opportunity, you don't give it up for some short term gains. Still, I am never happy when I need to leave money on the table.

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