For the past three years, I’ve let the ~$25k accumulated in an old company 401k account sit there after I left the company. I knew the expense ratios were probably high, but wasn’t paying that much attention and also thought it would be a hassle to rollover the account to an IRA.
Then I recently realized the expense ratio on my $25,000 was an average of 1.50% over four different funds (whereas my Vanguard expense ratios are around .20%) — Yikes! I took a few minutes out of my lunch hour today to figure out how difficult it would be to rollover the accounts to Vanguard. It turns out this wasn’t hard at all (or at least it didn’t seem to be, it’s all in transfer right now so I’ll let you know if it was as easy as it seemed.)
First, I created a rollover account on Vanguard and decided what funds I would invest in with the money when it arrived. This created an account # as well. I went to the 401k site and filled out a form for about 5 minutes to tell the bank to send the check directly to Vanguard and deposit in my new account. Easy peasy.
I can’t believe how high the expense ratio at my old 401k was — on a $25,000 investment that would be a fee of $375 per year. Assuming a modest 5% rate of growth every year, a $25k investment into a fund with a 1.50% annual expense ratio would cost $5712 over 10 years (including $4603.26 in fees and 1108.85 in foregone earnings.) However, an account with a .20% expense ratio would cost just $807.16 ($653.90 in fees and $153.25 in foregone earnings.) That’s a difference of $4905 — and that’s just on a $25,000 investment.