How to choose index funds when rolling over 401k to IRA

Hello Jeremy…omg!!! Your information and insights to finance is amazing!!! Wish I knew about your page sooner. I have a question. Following your advice, I want to rollover my 401k with fidelity to IRA however I don’t know what index funds to choose other than VTSAX. How many more should I choose and what about the % within the portfolio for each if there’s more than one needed? Also would I have to still contribute monthly to the IRA once it rolled over from the 401K? Lastly could I roll over the funds from the 401k to a target date index funds and forget about it like you said or would I have to take the steps to set up an account with Vanguard?

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Hi Erica! Why not just use VTSAX?

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Thank you! I see your point. Just invest all of the 401k into one index fund, then invest again into a target date index fund. Correct? @dgurgan

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If I understand you correctly, I do not see why not! If you want the simplicity of just one or two index funds, then this is the path for you! Just a note, the target date index fund is a collection of funds, so it is diversified. (Contrary to what some think!) And as the “date” on the fund draws closer, the fund will become more allocated into less risky equities.

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I agree with @dgurgan. Dump 100% of the investments into a target date index fund. It’s fully diversified, all you ever need. Make sure to match it to the brokerage you use though. i.e. buy Vanguard funds in a Vanguard account and Fidelity funds in a Fidelity account. This avoids any transactional fees.

No. What you’ll likely end up with is a Rollover IRA. That just sits there and grows, but you don’t actually put new contributions there. You would open yet another account, like a Roth IRA, sometimes even called a “Contributory Roth IRA” because that is where you put new contributions. So you’ll have the Rollover IRA that just sits there and grows, collecting any new 401k rollovers in the future as well. Then your Roth IRA where new contributions go. (Both can/should be invested in the exact same target date index fund)

So… you may be confusing accounts and what goes inside of accounts. You’ll roll over your 401k to a Rollover IRA. Then inside of that Rollover IRA you will buy and hold a target date index fund. If your 401k is with Fidelity, you could roll it over to a Fidelity Rollover IRA (if you want to stick with Fidelity) or you could roll over your 401k to a Rollover IRA with Vanguard. Both are great. Either way, once the account switch is made (From 401k to Rollover IRA) you’ll want to buy and hold the target date index fund inside of your new Rollover IRA. Here’s a look at the “layers” of investing:

Thank you so much!!! This really helps. I found out that my 401k is invested into TDR7. The breakdown is:
57% domestic
25% Foreign Stock
16% Bond
2% Short term

So once I roll it over just leave it as a traditional/rollover IRA but I do want to switch to Vanguard. Once I switch to vanguard buy and hold the target date index fund within this IRA?

Then open a new account which will be the Roth IRA with Vanguard to make the contributions but making sure I have/using the same target index fund that I chose with the Rollover IRA? CORRECT?

SOUNDS LIKE A GOOD PLAN TO ME. You can start that process by just going to and clicking “Start your rollover online”:

Awesome!!! Thank you again!!! Will be contacting you again soon about future investments!!!:grin:

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