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>as you get a chance you immediately transfer your 401k into a self managed IRA account

Another reason to do this is that you can buy "anything" in your IRA account, including stock market ETFs, leveraged bond fund ETFs (which can be a nice diversification option since you don't pay the full income tax on the dividends that you otherwise would need to outside of a 401(k)/IRA), anything that your brokerage account has access to.

On the other hand, your typical 401(k) plan only has access to crappy financial products and shitty fund managers. My former employer offered a bare bones 401(k) plan with no employer match. I went through and looked at all ~20 of the funds available. There were 2 passively managed index funds, 17 active managers who had underperformed the market net fees, and 1 who had done decently well, maybe matched the Russell 2000 after fees (it was a mid cap fund). I looked further and found, exactly to my expectations, that every single one of the 17 bad funds were run by inexperienced, most likely young, managers. The one fund that did decently had two guys who had been running it for over a decade.

Not all money managers are bad. Some do actually provide some legitimate values, even after fees. But (a) most of the ones available to you in a 401(k) plan suck really really badly, and (b) even the good ones will break you with fees.

It is probably not that well known, but "The wealthy" combat (b) by negotiating fees that are significantly lower than the starting fee by saying, "I am bringing $N million to your account. What fee can you offer me? I am shopping you vs other banks."

Except for those companies where you must have a 401K in order to collect a company matching contribution, in which case you are net ahead by keeping it in the 401K rather than forgoing the match

Also, even the crappiest 401k plans have a few "passively managed" index'y mutual funds with relatively low fees (in the range of 0.1%/year) that you can choose.

They usually have a some passive funds, but those still have expense rations that are 5x-10x what Vanguard costs for similar passive funds. Which is totally unacceptable.

I wish. My crappy 401k plan has exactly one (1) passively managed index fund (S&P 500), but the fee is still 0.5%. Every other option is 1%+ (except some treasury bond funds, but who wants that at the moment). I'm seriously considering quitting my current job just so that I can roll over the money that's trapped there.

Which you should do, then every penny over that you want to invest in retirement goes into your personally managed IRA.

How do you transfer from a 401k to an IRA? I work for a very small company, so my 401k investment choices are limited and expensive. I'd love to have a cheap index fund option.

Sadly, you can only roll it over during a 'qualifying event' which is either you leave the company, the company drops the 401k, or reach the minimum age for disbursement. The most common case is people leaving the company.

I've known too many people who change jobs and just leave the 401k they had in their previous job with the company that is still managing the 401k for the old company. There can be (and often are) different rules for former employees that can be (and sometimes are) much more advantageous to the bank. When I left Sun the 401k moved all of the funds into a 'guaranteed interest' fund (aka a bond fund) with a 3% management fee. It was pretty egregious.

That's what I thought. My current strategy is to keep an eye on the total size of our account, hoping it gets big enough to add some better options, or big enough to be worth moving to a cheaper provider.

I wonder what it would take to add a brokerage window (self-directed) option?

All you can really do is pressure the company into picking a better 401k provider (Vanguard is a good bet).

A self-directed option in a 401k isn't really possible as far as I'm aware, since you're limited to mutual funds. They don't want people "gambling" with their 401k money by betting on individual stocks.

Still, given the tax advantages, you're likely to come out ahead in the long run in a 401k compared to a taxable brokerage account. Just pick the funds with the lowest fees.

Self directed options in 401ks are definitely available and if your 401k plan doesn't offer it you should be raising a stink with hr. I'm coming to the conclusion that if your plan doesn't offer it then your company either got screwed by the salesman or are incompetent.

Some 401k programs do allow for "in-service" rollovers which would allow you to move the funds to an IRA before you leave your job. Those that allow this aren't all that common, but it is worth checking into.

There's no such thing as a 'qualifying event' for a rollover. See for yourself: 'http://www.irs.gov/taxtopics/tc413.html

Don't confuse the "plan documents" (aka the terms of service written by the bankers with their hands in your pocket) with the IRS regs. Some plans do allow in-service rollovers, and to be sure, you should make a request in writing.

When rolling over money, have the money sent directly to the other retirement account. If the check comes to you first, then the payer has to withhold 20%, which you won't get back until after you file your taxes and prove the funds were in fact rolled over. And, of course, you would need to 'front' that 20% in order to get the whole amount rolled!

>There's no such thing as a 'qualifying event' for a rollover.

Publication 560 defines when distributions from 401(k) plans can be taken (page 18): http://www.irs.gov/pub/irs-pdf/p560.pdf

A rollover is nothing but a distribution and re-deposit into a qualifying account.

Having done this four times, in each case the people managing the 401k sent me the check made out to my IRA's bank, with the notation FBO me, aka "For The Benefit Of" and each case my bank cashes the check and transfers the proceeds into my IRA.

You can roll over a 401(k) into an IRA only after you leave your current employer. The company where you open your IRA account should be able to provide you with the proper forms.

Two options for those with bad 401(k) options:

1. Call and ask what funds are eligible to be rolled over in a self-directed IRA. Some funds allow you to, some don't. For some weird reason, my old employer allowed me to rollover my 401k match but I couldn't touch my own money.

2. Most 401k plans off a brokerage account option. You may have a crappy selection of funds offered, but with most brokerage accounts you can invest in most anything (stocks, ETFs, other mutual funds). However, again, it will likely be limited, my own 401k brokerage account doesn't allow me to invest in REITs. (?!?!)

Well, I thought the point was that even an S&P-500 fund will suck some money away from you through fees. I wonder at which point it makes most sense to dump the fund and do just SPDR ETFs instead.

ETFs charge fees too - Vanguard's Admiral Total Stock Market Fund charges a 0.05% fee, which is going to be smaller or comparable than almost any ETF (their comparable ETF also has a 0.05% fee), and certainly far lower than the index funds available in most 401(k) plans

>I wonder at which point it makes most sense to dump the fund and do just SPDR ETFs instead.

At any given point in time, an ETF will have the lowest fees compared to other options (mutual fund, professional money management fund, etc). There is no "breaking point" in which it makes sense to switch. If given your parameters, investment objectives and desired sector exposure tell you that an ETF and another option are possible, then at least from a "fee" perspective, it always makes sense to go with the ETF.

Yeah... I've been following a sector-balanced mutual fund approach (10-12 funds from different sectors), rebalancing quarterly. Upon checking my funds (Fidelity funds, fidelity member), while no-load, they seem to each be around 1% in total in fees. There are enough ETFs that I bet I could probably swap them all out for ETFs that are in the same sectors and maybe make an extra percent a year.

spdr has etfs for all sectors. xlk, xle, xlf, spy, etc.

ETFs are different, not strictly better. Given an ETF and mutual fund with the same expense ratio, the choice is simply a matter of preference.

An ETF allows you to buy/sell at any time throughout the day, while a mutual fund lets you buy fractional shares, and make atomic transfers to other funds. ETFs have a bid/ask spread, while mutual funds trade at the day's closing price.

If you do frequent trading, then ETFs are the obvious choice (but frequent trading is generally a good way to lose money.)

It may depend on the funds, but for both the fidelity and vanguard index funds, there are no transaction fees to buy (at least in an IRA in their respective accounts). If I were to make the same periodic investments via ETF, then I'd be paying a commission on each purchase.

the wells Fargo PMA account gives you 85 trades/yr for free (min acct balance of $35k) so that is enough trades for most people