How to know when it’s time to rollover your old retirement plan

Carnegie LibraryPhoto courtesy of Jim Howe

A little over a decade ago, I had a job with a university. I participated in their retirement plan, a 403(b) plan with TIAA-CREF (now TIAA).

I still have this account. As I moved to a different job, I started a retirement plan there, but my TIAA retirement account stayed put, which was intentional.

Chances are that most people who have worked in a few jobs have more than one retirement account. Considering that the average adult changes jobs every five years or less, you could very easily have quite a few retirement accounts. So this topic is relevant to everyone.

Having lots of accounts isn’t inherently a problem, but it can get needlessly complex. If all of your accounts are hosed by different organizations, do you really want to have to manage them all separately?

On the other hand, might there be a reason to hold on?

History

TIAA-CREF (I’m still adjusting to its rename to TIAA) is a company that historically has provided retirement services to the academic and non-profit sector. Being a colossus of the retirement world (working with some 15,000 institutions), if you work at a university or similar, you probably have some kind of account with TIAA.

Interesting factoids: TIAA was founded by none other than Andrew Carnegie, and once held the retirement assets of none other than Albert Einstein.

How would Einstein feel about shilling for a financial company? Maybe it’s all relative.

It also has, or at least had, the worst possible mouthful of a name for a company: Teachers Insurance and Annuity Association—College Retirement Equities Fund. Mmmph.

Being in the non-profit space, they offered me a 403(b) plan. (A 403(b) plan is effectively identical to a 401(k). It’s just used by tax-exempt organizations like universities.) I didn’t know much about investing at the time, so I just picked reasonable mix of options out of the ones that were offered to me. There weren’t a lot of choices, so that wasn’t hard.

Leaving, and staying put

When one leaves a job, your retirement account can usually come with you. That’s one of the bright sides to all of us being forced to take total control over our own retirement.

But you don’t have to do it immediately. You can let it sit there, quietly accruing interest, as you go on about your life.

And technically, you don’t have to move it at all.

When I left the university position, not knowing if I would ever work in that sector again, I decided that it would make sense to keep my relationship with TIAA-CREF open and ongoing. What if I wanted to get, say, life insurance through them? What if they had the best deal around? A group that’s hard to get into likely has a greater benefit.

So I decided that I would keep my 403(b) there indefinitely, so I could keep my relationship ongoing with them.

Should I stay or should I go

Go to TIAA’s website today. While they talk all about education and non-profits, there’s also a link to open an account. I looked, and could not find a requirement any more that you had to be in that space to be eligible.

Hmm. So much for being a closed group.

While I can’t find any details on when this shift happened, or if perhaps I was always mistaken, but it is clear that even if I were to sever my relationship with TIAA today, I could presumably jump back in at a later date.

And what about fees?

I’ll be honest that I can’t figure out if my account charges plan-wide administration fees. If they are there they are well hidden.

But even if not, there are still costs for owning the funds. This is what’s known as the “expense charge” or “expense ratio”, a percentage of returns that gets returned to the fund administrators. It’s the simplest and easiest way to figure out the cost of owning a fund.

I logged on to TIAA recently, and looked at the expense ratios of my funds. Not including a guaranteed fund, they turned out to range from 0.34% to 0.85%. A little high, but not crazy. But for reference, my main Roth IRA’s funds range from 0.04% to 0.43%, with four-fifths of them being under 0.20%.

Now, low fees aren’t everything. If Fund A costs 1% but returns 8%, versus Fund B that costs 0.5% but only returns 4%, I hope it’s clear that Fund A is a better deal.

But when higher fees are matched with sub-par returns, it’s time to look elsewhere.

Such was my situation. So I figured I could maybe buy some different, lower cost (but still high performing) funds.

And that turned out to be a revelation. Under my current plan, I can invest in only 33 different funds, and half of them are lifecycle funds. While Vanguard 500 was in there, most of the options were unremarkable.

Compare that to my Vanguard IRA, where I can invest in effectively anything, a galaxy of mutual funds, ETFs, and even individual stocks and bonds (if I wanted to, which I don’t).

With that, the decision was made: it’s time to rollover my old 403(b) to an IRA.

Recap

  • If you can get lower fees elsewhere, it’s time to rollover to an IRA.
  • If you can get higher returns elsewhere, it’s time to rollover to an IRA.
  • If you have more and better options elsewhere, it’s time to rollover to an IRA.

It’s not necessary to do any rollovers, especially not immediately, once you leave your job. But if you’re forgoing better returns, you’re leaving money on the table. A little work now will pay off later.

But enough about me. Do you keep your money in your old 401(k) or 403(b)? If so, why? I’d love to hear about it in the comments below.

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

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Mike Pumphrey
Posted on July 17, 2017