Advice needed: Vanguard won’t let me transfer my Fidelity Rollover IRA to current 401(k)

[katalin95]

A few months ago, I transferred my 401(k) funds from my previous employer into an existing Rollover IRA, both on Fidelity. The existing Rollover IRA was a 401(k) before, created by an employer long ago.

I started a new job a few months ago and have a new 401(k) with Vanguard, which is through my current employer. I talked to someone from Vanguard about directly transferring the money from Fidelity to this current Vanguard account. But I never did.

Yesterday, I was on a call with Vanguard again about taking those steps, and they said that my Fidelity Rollover IRA isn’t eligible for transferring to the Vanguard 401(k). Now that money is just sitting in my Fidelity account, without extra funds being added to it.

In the meantime, I’m currently adding 15% of my paycheck to my Vanguard 401(k). I would much rather have all that money in one account and retirement plan so that the compound interest does its thing on the bigger numbers. It feels like bad advice was given.

What’s the best course of action here? Is this going to mess my retirement funds up in the long run?

I am 35 and have a lot to learn about how retirement plans work, fees involved, etc. I would like to talk to a financial counselor as well, but figured to start here first. Thank you for any helpful advice you may share.

 

[stevenj]

@katalin95

I would much rather have all that money in one account and retirement plan so that the compound interest does its thing on the bigger numbers.

That's not how math works. If you have the same amount of money, it doesn't matter if its in one account or one thousand accounts (operational issues not withstanding).

What’s the best course of action here? Is this going to mess my retirement funds up in the long run?

Doesn't matter. Plans aren't obligated to allow reverse rollovers

 

[katalin95]

@stevenj Thanks for your advice!

 

[justanyone]

@katalin95 First, moving this money over won’t have any impact on your compound growth. $10k that grows 10% is worth $11k, and two accounts of $5k each that each grow 10% will be worth $5.5k each, for a total of $11k. The size of the account isn’t relevant.

As for not being able to roll it over, not all 401k plans allow for roll ins, so if that is the rule of your current plan you can’t really do anything about. Make sure your IRA is invested properly.

 

[katalin95]

@justanyone Thank you so much for illustrating with concrete examples. That was super helpful. I feel a little better now!

 

[into_the_wilderness]

@katalin95

Yesterday, I was on a call with Vanguard again about taking those steps, and they said that my Fidelity Rollover IRA isn’t eligible for transferring to the Vanguard 401(k).

Note that this decision is made by your employer, not Vanguard. The plan decides whether it will accept incoming rollovers.

I would much rather have all that money in one account and retirement plan so that the compound interest does its thing on the bigger numbers.

Compounding doesn't work that way. Assuming all other things being equal (investment options, fees and expenses), two accounts will compound at exactly the same rate as one account.

 

[katalin95]

@into_the_wilderness Thanks so much for sharing that it’s actually my employer’s policy and not something on me. All of this is good to know. I feel better about having two accounts now.

 

[justseekinganswers]

@katalin95 Get hold of the employer 401k plan and read it. See if Vanguard is right that the plan doesn’t allow rollovers. Vanguard told me I couldn’t do something and I read the plan and told them they were incorrect and pointed to where the plan document allowed it. They reversed their decision.

 

[katalin95]

@justseekinganswers Thank you for the suggestion, I will do that and see what it says.

 

[oddrob]

@katalin95 If you want all your accounts under one roof you can probably open a vanguard IRA and move your fidelity IRA into it. You certainly don't need to, and you would likely still have two logins to manage your accounts, but they might all display in one place which could be nice. It's also helpful to not forget about your old IRA. But end of the day, there's no issue in having old 401ks roll into a combined IRA somewhere different from where your current 401ks is managed. This probably won't be your last company so it's likely at some point in the future you'll need to do it again.

 

[kkcarter215]

@katalin95 Since it sounds like you can’t roll in your Fidelity IRA to your new employer sponsored Vanguard 401(k), your best bet would be to leave the IRA with Fidelity. Depending on the amount in that IRA and whether you can take tax hit, you could always complete a Roth Conversion to move those funds into a Roth IRA (greater in the long term since you are no longer contributing to that account. All gains will be tax-free). From there, you can use those funds in the IRA for a more aggressive investment strategy (you’re young so it’s recommended in your younger years) while using your new 401(k) for a more moderate strategy, all while still having the tax deduction benefits per year from the 401(k)

 

[katalin95]

@kkcarter215 Thanks for this helpful advice. I considered opening up a Roth IRA that’s separate from the Rollover IRA, and this might work as well.

 

[yager]

@katalin95

I would much rather have all that money in one account and retirement plan so that the compound interest does its thing on the bigger numbers

That's not how math works.

Account A and B each have $100. They each grow by 10% in a year. You now have $220 total.

Account C has $200. It grows by 10% in a year. You now have $220 total.

Plans don't have to allow rollovers from IRAs; that was a choice your employer made.

 

[katalin95]

@yager Thank you for showing how that works with a good example. That was super helpful.