When you rollover a 401k from a previous employer, most 401k providers will sell all your investments and send a check to your new 401k or IRA provider. Some 401k providers will make the check payable to “[new provider] FBO [your name]” but they will send the check to you. You then forward the check to the new provider, together with any forms the new provider requires.
Either way, your money will be out of the market from the time the old provider liquidates your investments to the time your new provider receives the check and you reinvest the money. Although I haven’t heard much talk about missing the best 10 days lately, when the stock market is going gangbusters, some understandably don’t want to miss a beat, even for just a week or two for the rollover to complete.
How do you rollover a 401k without going out of the market? If you must go out of the market, how do you make the time as short as possible?
Note I’m using 401k as a shorthand for employer-sponsored retirement plans. This applies equally to 403b and 457 plans as well.
Some 401k providers such as Fidelity or Schwab also offer IRAs. If you rollover to an IRA “in house” they will often be able to rollover the 401k assets in kind, in other words moving the shares instead of selling them for cash. I know Fidelity can do that for sure. When they move the shares, your money stays in the market at all times.
Once you have the assets in an IRA, you can transfer the IRA to your desired destination, again in kind.
This two-step process keeps your money in the market.
The outgoing IRA custodian may charge you an account closing fee. The new custodian often reimburses you for the fee. Some even give you a good bonus and free trades for bringing money over. If you are going this route, be sure to ask about the account closing fee, any reimbursement, bonus and free trades.
Once the assets arrive at your new account, you can take your sweet time in reallocating to the investments you want. The bonus and free trades will make it easy to reallocate.
[Photo credit: Flickr user robertrazrblog]
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice: Find Advice-Only.