Ask the Grumpies: Roll over 403(b) to new employer or not?

Amanda asks:

We moved [to a new job in a new state].  Although I continue to have access to TIAA-CREF in my new job and matching contributions that are comparable, the fund selections aren’t identical.  For instance, I have access to a small cap index fund with a slightly (.06% vs .05%) lower fee structure at my prior job (and with similar 5-10 year returns). Obviously new contributions have to follow my new employers plan. But what about the previous contributions? Should I roll over and combine funds, even though the fund isn’t QUITE AS good as before (but very close)? Or not? Why or why not?

Standard disclaimer:  We are not financial advisors.  We do not have fiduciary responsibility.  Consult with a fee-only advisor or do your own research before making any major financial decisions.

You actually have three options, not two.

  1. You can keep things as they are
  2. You can rollover into your new employer’s 403(b)
  3. You can rollover into an IRA

All of these have pros and cons (but probably not major pros and cons).

Keeping things as they are (option 1) means that you’ll have more accounts, more clutter, more chances of losing paperwork or having your loved ones deal with hassle later on in your life should you cede financial decision-making prior to emptying the account.  But the fees are lower, which makes it more attractive than your new employer.  And if you make the switch now, you’re the one who will have to deal with hassle.  Make sure that they don’t have additional fees for people who are no longer working at the company– if they do, then definitely don’t choose the first option.

Rolling over into the new employer’s 403(b) (option 2):  The sole benefit to doing this is that you would have less clutter.  Everything would be in one place.  If you die suddenly, nobody has to go looking for passwords to a second account.  If you hate having multiple accounts, then go ahead and consolidate.  You’ll be paying for the privilege, but not that much.  (Less, in fact, than I pay to use Target Date funds instead of rebalancing manually.)

Rolling over to an IRA (option 3) means you could just put everything in Vanguard along with any taxable funds and IRAs/IRA-Roths you already own.  Your fees would be low.  However, having a large traditional IRA could cause complications should you ever want to convert some of your traditional IRA to a ROTH or if you want to start making contributions to a backdoor Roth.

Grumpy Nation, what would you do in Amanda’s case?


7 Responses to “Ask the Grumpies: Roll over 403(b) to new employer or not?”

  1. Sara Says:

    If both your existing account from your old job and the account you’ll create at the new job are at TIAA-CREF, they actually make it pretty easy to manage both accounts from a single log-in. My previous employer had access to cheaper target date index funds that my current job. TIAA-CREF’s website has tools that let me look at the overall balance from all the accounts at once. (My old employer kept their match in a separate account from my contributions, so I technically have 3 separate accounts.) If you’d be using different providers for the accounts, there would be more incentive to consolidate.

      • becca Says:

        I love TIAA-CREF for this!
        I have a 457(b) (governmental) and a 403(b), and I have no desire to loose some of the advantages of the 457 money, but it’s so nice to see it all in one place.

    • Leigh Says:

      +1 to this. Otherwise, if the accounts were at different firms, I would calculate how much the expense ratios will cost you extra and consider how much you’re willing to pay to simplify things. In this case, it’s an extra $1 per $10,000 invested.

    • Susan Says:

      I actually have something like 10 accounts in Tiaa-cref from 3 former employers, 1 current employer and Roth IRA.

      It drives me a bit nuts though with all the different fund options that are constantly changing. My current employer has great options (s&up 500 index fund!) so I am thinking of converting all to current employee plan.

      Can you elaborate on why converting all to a traditional ira in vanguard could be a headache? Or point to article?

  2. Jenny F. Scientist Says:

    The spouse had tiaa funds from a previous job and somehow he can still contribute to the same fund even though current employer doesn’t offer it. May be worth calling them up to ask if you also may get this loophole.

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