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Retirement Accounts: To Combine or Not to combine?

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  • Avatar Batman 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/15/2019

    Help!

    I finished training last year and started work in September. During fellowship year, I finally started putting money in a retirement account as I’m a late comer to the retirement game. Managed to put away about $9k in a 403b account through TIAA with 100% allocation into Lifecycle Index 2045 Fund (TLMPX). Since starting new job as an attending, I’ve managed to put away $36k into a 401k account with 100% allocation in a Target Retirement Fund through a non-TIAA company.

    Question is, should I rollover my 403b account into my 401k? Are there any longterm benefits in terms of rate of growth potential if I combined them versus leaving them separated? Answer seems obvious, but didn’t want to make decisions in a vacuum. Besides the small headache of having the funds under two different companies, what other pros and cons am I missing here?

    Thanks in advance

    #239041 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 614
    Joined: 08/30/2018

    Overall there are no strong intrinsic reasons to combine or not. Some considerations for your converting your specific 403b: expense ratios for underlying fund (may want to keep if your 401k fund options are expensive); ability to convert to Roth if your 401k does not allow (over time you may want to build Roth space).

    But will likely end up with multiple retirement vehicles over time (Roth IRA, 403b, 401k, perhaps a 457b) so it will become important to manage your AA across all of them. So, I would combine in your case just in the interest of simplification.

    #239062 Reply
    Liked by MPMD
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1312
    Joined: 02/15/2016

    Question is, should I rollover my 403b account into my 401k? Are there any longterm benefits in terms of rate of growth potential if I combined them versus leaving them separated? Answer seems obvious, but didn’t want to make decisions in a vacuum. Besides the small headache of having the funds under two different companies, what other pros and cons am I missing here?

    The biggest question is which has the biggest fees. 401ks/403bs tend to have more layers of fees than a taxable account or IRA. These include the recordkeeping fee and possible advisor and TPA fees. Sometimes, the employer pays them. Sometimes, they’re passed on to plan participants. This has to be disclosed but can be extremely hard to find. E.g. my job’s old 401k had very fine print on the 1st quarterly statement of the year that said all Vanguard funds had an extra .25% fee tacked on. Fortunately, I was loud enough that that old retirement plan is now swimming with the fishes. These fees are not listed on the funds prospectuses either as they’re separate.

    Otherwise, for simplicity, usually it’s better to combine. Are they traditional contributions in the 403b? If so, you could also roll it over to an IRA and convert to a Roth IRA, but this is probably less ideal if you’re in a high tax bracket (unfortunately, this might have been the best move last year). If they’re Roth contributions, then just moving them to a Roth IRA is the best move.

    #239081 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1807
    Joined: 02/11/2019

    It depends on f your old plan was better then your current plan.  However with only 9k in your old plan I would just roll it over and be done with it.

     

    Side note since you are new.  Make sure you know all your options.  Do you have access to a 457, HSA?  Are you doing the back door roth?  Also for your spouse if applicable.

    Good luck and welcome

    “Never let your sense of morals prevent you from doing what is right.”

    #239098 Reply
    Avatar Batman 
    Participant
    Status: Physician
    Posts: 2
    Joined: 08/15/2019

    Thank you all for your responses.

    I’ll have to do some digging to figure out what the expenses are on each account. I was only focused on expense ratios and wasn’t aware of other fees. I assume all this should be in the prospectus or, perhaps I can call a customer service rep from each company to get that info.

    My 403b account is a traditional contribution type of account.

    So to clarify, mathematically speaking, all fees being equal across accounts, there is no benefit to having one lump sum than separate sums? I assumed one lump sum would grow faster in the long run than small separate amounts.
    Am I thinking of this correctly?

    #239108 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4405
    Joined: 01/08/2016
    mathematically speaking, all fees being equal across accounts, there is no benefit to having one lump sum than separate sums? I assumed one lump sum would grow faster in the long run than small separate amounts. Am I thinking of this correctly?

    Click to expand…

    whats 1% of $5 x 2 vs 1% of $10?

    #239112 Reply
    Liked by Batman, Lordosis

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