Rollovers And Transfers

Should you pack up and roll over your old accounts? From rollovers to transfers, deciding whether to make a move boils down to a few factors. 401(k)s, IRAs, and taxable accounts have a habit of piling up over the years. People change jobs. They dabble in new investments. They try out different advisors. So every now and then, it’s good practice to weigh the pros and cons of consolidation, including access to tax-smart tools, low fees, and automated investing. We break down a few considerations below to help guide your thinking, compare options, and make the right call for your specific situation. Three considerations for making a move Performance Personalization Goal alignment Special considerations for tax-advantaged accounts Special considerations for taxable accounts A sneak peek of how we make moving easier I. Three considerations for making a move Performance It all comes down to this, doesn’t it? Will Advisor B outperform Advisor A? Will they help my investing generate more gains? We couldn’t agree more, albeit with a big clarification: Returns are a major part of performance, but they're only one piece of the pie. Taxes and fees can take a bigger bite out of your investments than you may realize. So before we help you compare returns, let’s first look at these two other pieces. Taxes To maximize your returns, minimize your taxes. And tax-savvy advisors like us take advantage of three strategies to do just that. If your old investments can’t access these benefits, it may be time for a change of address. The first strategy is called asset location, or slotting investments into different account types depending on those accounts’ tax treatments. It’s specific to retirement accounts, and it becomes much easier to do (and do well) when those accounts are consolidated with one provider. Our Tax Coordination feature takes asset location to the next level. The second strategy is specific to taxable accounts: tax loss harvesting. Tax loss harvesting can take a portion of your taxable investing and turn it into tax-advantaged investing. It’s become a tax strategy for the masses thanks to technology like ours and the low-cost trading of exchange-traded funds (ETFs). Speaking of ETFs, they’re considerably more tax-efficient than most mutual funds. All of our stock and bond portfolios are built with ETFs, whereas some legacy 401(k) providers’ technology can’t even support them. If you find yourself with old investments in the form of mutual funds, consider taking a hard look at their potential tax drags and, just as importantly, their costs. Fees Investing fees fall into two main buckets. There’s the advisor fee, which goes to whoever manages your investments on your behalf (like us!). Then there are fund fees, also known as “expense ratios” or “fund operating expenses.” These are charged by the investment funds themselves that make up your portfolio. So what’s a reasonable amount to pay for each? The average advisor charges roughly 1% of the assets they manage for you. Our annual fee for investing comes in well below that average. A 401(k) with even a modest fee may cost you tens of thousands of dollars over time. The savings from rolling into a Betterment IRA of low-cost ETFs, meanwhile, can add up to a more comfortable retirement. On the fund front, the average cost of an ETF is 0.16%, about one-fourth of the cost of the average mutual fund. The biggest ETF in our Core portfolio, for example, charges 0.02%. We make it easy to see the fund fees for each investment at Betterment. Simply navigate to the Holdings tab of any goal, where you can toggle between the “Fund fees per year” expressed as a percentage of your assets or a dollar amount. Some advisors are less than forthcoming about the fees tied to their services or the investments they choose. So ask questions, and consider it a red flag if they don’t make it easy to understand your all-in costs. Returns Here’s where things get tricky, because comparing apples-to-apples returns between different providers and their various portfolios can be difficult. Some may be selling apples, while others may be selling a low-cost, globally-diversified assortment of fruit. But you can level-set somewhat by comparing portfolios with 1) similar allocations of stocks and bonds and 2) similar levels of diversification. U.S. equities have outperformed international markets since the Great Recession, but those tables were turned for extended stretches in the 80s, 90s, and 2000s, and they very well could turn again. Personalization For many investors, it’s important to know what they’re investing in—and to feel excited about it. So if your old 401(k)’s “2050 Target Date Fund” doesn’t exactly set your heart aflutter, try scoping out alternatives. It’s why we build easy-to-understand portfolios appealing to a wide range of interests from socially responsible investing to innovative technology. Each one can be customized to your specific target date and easily updated when life happens and circumstances change. Goal alignment Consolidating more of your retirement accounts under the same roof unlocks several benefits. Asset location, as previously covered, is one. Asset allocation, or the ratio of different asset types like stocks and bonds, is another. It’s best when accounts serving the same goal add up to your preferred asset allocation, and that can be hard to accomplish when they’re spread across multiple advisors. At Betterment, you can nest multiple accounts under the same goal and easily set one asset allocation for all of them. II. Special considerations for tax-advantaged accounts If you’re considering moving tax-advantaged accounts like 401(k)s, 403(b)s, and IRAs, keep a few more things in mind. Account compatibility – Deciding what kind of account to move to can make for a dizzying decision, but in a nutshell: Roth accounts must be moved to a fellow Roth account. Traditional IRAs typically move into traditional IRAs. Exceptions include some cases of backdoor Roth conversions. 401(k)s can flow into either a 401(k) or IRA. Here’s a simplified version of the IRS’s infamous rollover chart to help: Roll to Roth IRA Trad. IRA Trad. 401(k) Roth 401(k) Roll from Roth IRA ✓ X X X Trad. IRA ✓ ✓ ✓ X Trad. 401(k) ✓ ✓ ✓ ✓ Roth 401(k) ✓ X X ✓ Some important qualifiers depend on your exact move, so we suggest studying the full chart carefully. A big one to call out is that any traditional (i.e. pre-tax) funds moved to a Roth (i.e. after-tax) account must be included in your taxable income for that year and taxed accordingly. It’s one reason why we highly recommend working with a tax advisor, especially if your specific case isn’t so cut and dry. Access – After you leave a job, your 401(k) from that job is still yours, and you can still change its investments, but you can no longer contribute to that specific 401(k) account. Avoiding taxes – In most cases, you can move tax-advantaged accounts to a new provider and pay zero dollars in taxes, but if you simply cash them out and pocket the money before the age of 59 ½, those funds are subject to a 10% early withdrawal tax on top of ordinary income tax, with few exceptions. III. Special considerations for taxable accounts Moving taxable accounts potentially comes with (surprise, surprise) tax implications. The first thing to do is suss out which of your old assets can be moved “in-kind” to a new provider. This means the new provider is able to accept the new assets, either slotting them into your new portfolio as-is or selling them on your behalf and reinvesting the proceeds. Some assets first need to be sold before you can transfer the funds. In these cases, you can first work with a new provider (like us!) and a tax advisor to estimate the potential tax hit. Then, if you decide to move ahead, you’d work with your old provider to liquidate those assets before transferring the funds. IV. A sneak peek of how we make moving easier The process of actually packing up and making a move can be complicated. It doesn’t help that it takes two advisors to tango, and your old provider may not make things easy. But we do everything possible on our end to help streamline the process. That includes letting you quickly initiate a transfer or rollover in the Betterment app. Some transfers can be serviced entirely online, whereas other transfers and most rollovers require some paperwork. If you’re considering moving $20k or more, our Licensed Concierge team is available at no cost to walk you through all the considerations above, size up whether a move is in your best interest, and should you decide to switch, help move your old assets to Betterment. Because whether moving to a new house or a new advisor, it never hurts to have a little help.

How we help move your old accounts to Betterment Moving investment accounts from one provider to another can be tedious and complicated. We help smooth out the process. Moving investment accounts from one provider to another can be complicated. You may be in the early days of mulling over a move. Or maybe you’re ready to make a switch and simply need a little help making it happen. Wherever you are in the process, we’re here to help. And once you’re ready to act, you can easily start the ball rolling in the Betterment app. The steps vary slightly different depending on your situation and how willing your old provider is to play ball: ACATS — Most taxable accounts, and even some retirement accounts, can be transferred automatically by simply connecting your old provider’s account to Betterment. You stay invested, and the entire process often takes less than a week. Direct rollover/transfer — Some retirement account providers, meanwhile, require a check be mailed to either you or your new provider. In these cases, we provide step-by-step instructions for reaching out to your old provider to initiate the process, which often takes 3-4 weeks. And for those considering moves of $20k or more, our Licensed Concierge team can help you size up the decision before helping shepherd your old assets to Betterment, all at no cost. Here’s how. The Betterment Licensed Concierge experience Whether you’re already sold on a switch or need help weighing the pros and cons, our Concierge team uses a three-step process to help guide your thinking. Step 1: Assess where you are, and where you want to be We start every Concierge conversation by gathering as much information as possible. What are your financial goals? How well do your old accounts align with those goals? How much risk are you exposed to? How much are you currently paying in fees? We sift through statements on your behalf to decode your old provider’s fees. We analyze your old portfolios’ asset allocations. And we help assess whether Betterment’s goal-based platform could help meet your needs. All of this information gives us and you the context and confidence needed to take the next step. Step 2: You make a call, then we chart a course forward While retirement accounts can be rolled over without creating a taxable event, that’s not always the case with taxable accounts. So in those scenarios, we provide a personalized tax-impact and break-even analysis. This shows you how much in capital gains taxes, if any, a move may trigger, and how long it might take to recoup those costs. We always recommend you work with a tax advisor, but our estimate can serve as a great first step in sizing up any tax implications. Should you choose to bring your old investments to Betterment, we help you with every step of that journey. The mechanics of moving accounts This includes sussing out which of your old assets can be moved “in-kind” to Betterment. We’re able to easily accept these assets, and either slot them into your shiney new Betterment portfolio as-is, or sell them on your behalf and reinvest the proceeds. If any old assets need to be liquidated before they’re transferred, we’ll help you work with your old provider to make it happen. This includes providing you with a full list of relevant assets to give your old provider. Whether transferring assets or cash, we use the ACATS method whenever possible to help your funds move and settle quicker. Step 3: Moving day! Making a move is exciting. Unpacking? Not so much. So we help set up and optimize your Betterment account to make the most of features like Tax Coordination. Need help setting up your goals? We have you covered there, too. Once everything is in order, we’ll begin implementing your transfer plan. We’ll communicate all the steps involved, the expected timeline, and handle as much of the heavy lifting as possible. We regularly check-in and, once your assets or funds arrive on our end, we’ll send you a confirmation making sure all your transfer-related questions are answered to the best of our abilities. Ready, set, switch Moving accounts to a new provider can be a hassle, so we strive to shoulder as much of the burden as possible. It starts with a simple step-by-step process in the Betterment app, and for those exploring moves of $20k or more, extends to our dedicated team of Concierge members. They’re standing ready to help give your old assets a new life at Betterment. Because whether moving to a new house or a new advisor, it never hurts to have a little help.

Three spring cleaning tips for savers Dusty, forgotten 401(k)s. IRAs left unmaxed from last year. The weeks leading up to Tax Day are a great time to get your accounts in order. Don’t look now, but Tax Day is right around the corner. We say this not to kill your vibe (promise). Temperatures are warming up, and we’ll all soon be swept up in summer fun. That’s why now’s the time to do a little spring financial cleaning. Before all the graduations, road trips, and weddings temporarily short circuit your brain’s budgeting apparatus. So pick a time, throw some music on, and consider knocking out these three essential spring cleaning tasks. 1 | Consolidate your accounts and feel the power of one BIG number Investing and savings accounts can pile up over the years and become a little like that loose change lying around your house and car. A few quarters here, a handful of dimes there. It doesn’t seem like much separately. But it adds up. 401(k)s and IRAs are no different. A couple thousand in this one, a few hundred in that one. Sometimes there’s an account you forget about every year until the tax form comes. All that splintering of your money has several potential drawbacks, especially when it comes to investing accounts: Accounts serving the same goal could have wildly different levels of risk. External accounts miss out on our Tax Coordination feature and make it harder to use our automated tax-loss harvesting without incurring a wash sale. Last but definitely least, lots of small accounts can keep you from noticing your progress and celebrating a milestone. Special milestones like $25k, $50k, or even $100,000 saved for retirement. So we encourage you to consider rolling over old 401(k)s and IRAs into one place. If you’re not in love with the 401(k) plan a previous employer offered, you can even roll that into an IRA if it’s the right call for you. At the very least, it may spare you a few forms to input come tax time. 2 | Travel back in time and save some more Maybe you set the goal of maxing out your IRA last year and fell short. But you’re flush with cash now, possibly thanks to a bonus or a big tax refund that’s on the way. You’re in luck, because the IRS essentially lets you time travel for a saver’s do-over. You have until Tax Day of this year to max out your IRA’s limit for last year. Doctor Who approves. And we make it easy in practice. While making a deposit into your IRA, just select the tax year you want the deposit to go toward. 3 | Take a fresh look at your cash goals The early days of spring are an excellent time for a quick cash gut check: Do you have enough pocketed for that family vacation? Is your emergency fund funded to a point where you feel financially secure? If your tax return came back in the red, can you comfortably cover the expense? If you answer no to any of these questions, now’s the time to reassess your cash flow and redirect it to the right spots.