I am not happy with my employer's 401k. They suck out a lot of money in fees/sales commissions. For example, for a passive index fund like Vanguard, I pay 1.32% in fees, but I could invest in the same fund through Schwab and pay .17% in fees. Over time, that will cost me $100K in fees! I want out. Can I move my balance from my employer's 401k to a traditional IRA? I have asked my employer but I got a vague answer. It seems there are two issues: 1) Are there IRS withholding tax consequences? According to the IRS: "Withholding does not apply if you roll over the amount directly to another retirement account. A distribution sent to you in the form of a check payable to the receiving plan or IRA is not subject to withholding." 2) Will my plan provider/employer allow it? Does the law allow the plan provider/employer to refuse to move money out of their plan?
As far as moving your 401(k) to your own IRA the short answer is that it depends on the plan itself. Some plans allow you to do this and other plans do not. I have seen plans that require and individual to be 59 1/2 first and others that require you to no longer be an active employee. I would check with your HR or plan administrator to find out. Explain to them you want to move it to your own IRA at another custodian and want to see if the plan allows it.
You are correct about the fees being high. For a Vanguard Fund, 1.32% seems a bit high. Especially if it is just an index fund. Without know the exact fund I can't say for sure though. I would check on your statement in the section that shows all the funds available in the plan. Usually they show the fund expenses.
Wow, that is a lot in fees. If your numbers are correct, you do have a valid compliant. One very important bit of information is missing from your story. Do you still work there? If you do and you are under the age of 59 1/2 you are likely out of luck. If you are over 59 1/2 and/or have left the company you may roll the funds into an individual retirement account (IRA).
Either way this may be an opportunity for you to help your employer understand what too many do not. that fees matter. A retirement plan does not have to have such high fees. If your employer took their role as a fiduciary seriously they may even be inclined to change it. Who knows, you could wind up being the hero who saves the company and its participant employees a lot of money.
I see the new fee disclosure regulations are starting to have an impact already. As for your question: What they said. If you are not eligible for an in-service distribution, then make your voice heard that you want a lower cost plan!
There are fiduciaries for your plan, called plan trustees. Usually these are partners or upper management. They have a duty to be sure that the plan's expenses and fees are reasonable. It would be a good idea to let them know of your concerns, in writing.
Margaret, as you already know, those fees are high. If your employer has a reasonably small plan, sometimes the administrative fees need to be high until the plan can grow in both assets and average account balance. Without knowing everything, it really seems like it could be more competitive.
It sounds like your employer puts its employees on projects or some sort of per diem work, yet still offer a 401(k) benefit. And though the fees turn out to be unsatisfactorily high, argumentatively, with the type of staff they are trying to support, it may be the best plan they can come up with. It doesn’t make it great, but if they are giving you a match, it may overall a good deal for you.
If they are not giving you a match, you can contribute up to $6500 into an individual IRA and have more control over fees.
Even though you have not worked this month, are still considered an employee? If you are not, then you can transfer your account to a ‘rollover IRA’, and this moment in time may be ideal. But if you are, especially if you are getting a match, it may not be wise to give up seniority plus a match because of 1% in fees. I don’t know your personal situation.
To exit the plan while you are still employed your plan must allow an in-service distribution. To qualify you typically have to be over age 59.5. Your Summary Plan Description will describe this feature if it is in place.
Your understanding of avoiding withholding is generally correct. If you transfer to an IRA or another qualified plan, taxes and penalties are not a problem.
Yes, the law allows/requires the plan sponsor within certain guidelines to restrict access to your funds.
Margaret, I would add that some plans will allow you to hold your account at a brokerage firm of your choice or theirs and invest in whatever you like. This is different from an in-service distribution and if the plan allows you to do this, then all employees must have the same option. Most plans probably do not have this option, most likely because the plan sponsors have a fiduciary liability. It is actually true to that many companies will not take a smaller plan or will charge more for smaller plans as a percentage of assets. Also, some of the fees go for educational materials and services and possibly administration services. Most plans pass a lot of these cost on to the plan participants. I would be interested in knowing the name of the plan provider. John Hancock is far from the cheapest plan provider out there, but they have a great selection of mutual funds and provide good educational and other services to help employers fulfill their fiduciary obligations. Some employers are comfortable with a cheaper, more bare-bones plan while others appreciate the additional benefits JH provides.
I noticed that you are no longer working for the plan sponsor. If that's the case, then there should be nothing keeping you from rolling your assets into an IRA. If that's not the case, then you might inquire about adding a brokerage option to the plan or focus your attention on selecting the best, most appropriate options in your plan. At least your company offers you a retirement plan, many do not.