Hello!

I have a 401K that I opened almost 10 years ago on my first job (I am now in my early 30ies), with about $10K in it today. I kept the money in the 401K without rebalancing the portfolio as I was not very aware of the importance of investment management.

This year, I became more interested in managing my finances optimally and realized that I should probably put the money in a lifecycle target retirement fund, since I am not interested in actively managing a portfolio, even by rebalancing annually. But, when I went to the 401K to move the money to a lifecycle fund, I found that the lifecycle fund on offer has an expense ratio >2% which I have read counts as*quite* expensive.

I am now considering rolling the money out of the 401K into an IRA so that I can buy into a lifecycle fund with a lower expense ratio, such as a Vanguard fund. I would like to hear forum members' opinion on whether this would be a good idea, and what are some disadtantages I might now have thought of.

Thank you for your comments!

Call Vanguard. It is easy. Fees eat away at you. General consensus is it is better to rollover to a rollover IRA than leave in 401k. You loose some ERISA protections, but as long as you aren't prone to being a defending party in lawsuits, it is no big deal. Your state may offer similar protections for IRA's.

Any financial institution/brokerage can process the paperwork to handle the transfer for you. It'll take a few weeks (operations staff is never in a hurry on these kinds of things) but you'll only need to sign a few papers. It is always wisest not to touch the rollover funds; that way the IRS will not 'flag' it (to make sure you stay within the time deadline to roll it over without incurring tax penalties).

I believe there is a website you can Google for by an analyst who follows Vanguard exclusively and examines which Vanguard funds are best. Not all Vanguard funds are good and in fact, some of them are very poor performers. Nobody has "best of breed" for everything.

Vanguard does offer a "fund of funds", if I recall correctly. Maybe bichon knows more about that than I do; I've seen it mentioned elsewhere. It holds a blend of their own funds in various percentages. If the risk profile appeals to you and the expense ratio is low, you might want to look into that when you are deciding on which funds to use.

Are you still with the original employer that you had the 401k with (i.e. are you still contributing to the 401k and is there an employer match?) And do you have other retirement money outside of this 401k?

I would be interested in this website source. I'm only in about 10 VG funds, but most "perform" as expected, with their index.

Thank you very much for the comments!

No, I am not working there and no longer contributing to the 401k.

@Bichon Frise: Thank you for telling me that it is a general consensus that it is better to roll to an IRA. That is exactly what I wamted to know.

That really depends on how you define "best." If you mean the fund with the highest expectation (in an objectively defined statistical sense) of coming closest to matching market performance after fees, Vanguard does have the best index funds because it has the lowest fees.

Vanguards lifecycle funds are essentially composed of various proportions of its own index funds with addition management fees. One can also just buy the index funds in the same proportion that the relevant lifecycle fund does. But most people needn't bother.