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Should I put the money back in the 401K or leave in the IRA?

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  • Should I put the money back in the 401K or leave in the IRA?

    Hello all, I'm new here and need help. Thanks in advance for taking the time to reply!

    Last year I changed jobs and decided to rollover my 401k to an IRA with Vanguard. I was only 20% vested so I forfeited around $5K of the employer contribution. This year I went to work again for them. I have the opportunity to recoup the $5K if I rollover the money back to their 401K.

    The dilemma is that the few funds (18) they offer in the 401K have expense ratios of over 1, 1.5 being the average. Meanwhile I have chosen very cheap funds in my IRA (less than 0.3 expense ratio). I still have some 20 years more before I can retire.

    I don't know if it would be better to get the money back in the 401K or just keep it in the IRA. In other words, I don't know how to calculate if the higher expense ratios of the funds in the 401K would cost me more than losing the $5K in employer contribution. The funds are around $50K.

  • #2
    At a 1.5% expense ratio, your gross expense for $50,000 calculates out to $750 a year. So if you get that $5000 recredited to your 401(k), it would take 6.6 years of expenses to chew up the $5000.

    But, theoretically, all that time the $5000 is growing at an average 6% per year on a capital-diminishing basis (to be conservative). By the time the expenses have eaten up the original $5000, the original sum will have generated an additional $900 to cover another 1.3 years of fund expenses. So the $5000 and its generated gains will all be gone in 8 years, due to the higher expenses you have referred to.

    So, maybe now you can decide what you think is better to do.

    Good luck.
    Retired To Win
    I blog weekly on frugal living, personal finance & earlier retirement at:
    retiredtowin.com
    making the most of my time and my money

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    • #3
      Originally posted by tortuga View Post
      The dilemma is that the few funds (18) they offer in the 401K have expense ratios of over 1, 1.5 being the average. Meanwhile I have chosen very cheap funds in my IRA (less than 0.3 expense ratio). I still have some 20 years more before I can retire.
      There aren't any funds with an ER less than .5? Look for index funds.

      If the 401K has index funds that are charging over .5, the plan participants are getting royally screwed.
      seek knowledge, not answers
      personal finance

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