Have you ever felt like you went to battle with a pile of paperwork? I spent the last month in a brutal melee with two IRA rollover forms. I almost gave up a few times, when the boredom and legalese nearly overcame me. But in the end I emerged victorious, scratched up but not seriously harmed. For those four hours of work, I saved about $25,000.
My wife had two 403(b)s from a previous job. These retirement accounts, available to public and nonprofit employees, allow savings to grow tax-deferred. They’re similar to 401(k)s, and if used properly, they provide a huge boost to your retirement savings. Except...my wife’s accounts were disasters. Peddled to her by insurance salesmen and loaded up with high-fee investments, they hurt our long-term plans more than they helped. During the period of 2009-2014, when the market went on a huge run, her accounts barely made any money after fees. She even had some money in a cash equivalents fund charging .5%. This is like being charged to put money in your own mattress.
So I set to rolling them over. Once you’ve left an employer, you’re allowed to move your retirement accounts, either to a new employer or to a rollover IRA that you control. As long as it’s done as a qualified rollover, you don’t owe any taxes on the transfer.
We contacted the financial company we wanted to use to initiate our rollover. Piece of cake; they were happy to accept our money. Then the battle began.
One company’s form ran eight pages; another’s ran twelve. Neither was clear, and both got kicked back to me many times for obscure reasons. They required notary signatures and sign-offs from fund custodians. I talked to customer service reps around the globe. I faxed and faxed again. Real faxes, not the Internet faxing we commonly call email.
I can’t say that they obstructed me, exactly. But I don’t think it’s a coincidence that the paperwork used to take money away from a financial company was universally lengthy and complex.
But my persistence paid off, because both accounts eventually rolled over. I’m happy to say that all of my wife’s 403(b) money is now invested in low-fee funds with a company that understands that email is like a fax machine without the hassle.
So why do I say that it saved me $25,000?
It’s easy to use this Bankrate calculator to model mutual fund fees over time. My wife’s 403(b)s totalled roughly $10,000. In her previous accounts, the fees hovered around 1% per year. By contrast, her new financial company charges just .15% for the funds she’s chosen. Model that out with modest market returns until we turn 65, and here’s what you get:
For the high-fee account:And for the low-fee account:
When we’re 65, we can reasonably assume that our balance, without any new contributions, will now be $111,866 instead of $85,092. That’s a difference of over $25,000.
In my life, I hear people talking about the stock market all the time. Is it about to crash? Can we expect new highs? Is it a gamble? Is it rigged?
I’m not interested in those conversations. I want to focus on what I have control over, and at the top of the list is fund fees. It took me three years to bear down and fill out these rollover forms. It seemed almost impossible. Then, just like that, I did it. And as annoying and mind-numbing as it all was, I can’t think of an easier way to make 25 grand.