The most common qualified retirement plan transaction is the rollover. Quite often when an employee leaves an employer, the employee rolls over the 401(k) or other retirement plan balance to an IRA.
These rollovers could be costing many investors thousands of dollars, according to a new study from Pew Charitable Trusts.
Many 401(k) and other employer retirement plans allow participants to buy “institutional shares” in mutual funds and other investment funds. These shares have lower expenses and fees than the standard “retail shares” of the funds.
Dow Jumps 200 Points As Labor Market Cools Slightly, Taking Some Pressure Off The Fed
An individual can purchase institutional shares through an IRA, but only when the individual has a significant IRA balance. Most institutional share classes have a minimum initial investment of $1 million. Most people, after rolling over money from an employer plan to an IRA, have to buy the retail shares.
The cost difference between the two share classes might seem very small, but the total additional cost mounts over time. Hybrid mutual funds (typically balanced or asset allocation funds) had the lowest cost difference between retail and institutional shares at 0.19 percentage points.
MORE FROMFORBES ADVISOR
Best Tax Software Of 2022
Best Tax Software For The Self-Employed Of 2022
Income Tax Calculator: Estimate Your Taxes
Even that small difference compounds to a big number.
The Pew study said that many investors don’t realize how much the shift from institutional shares to retail shares costs them over time.
Using the total amount rolled over from IRAs to 401(k)s in 2019, the expense difference cost investors a total of $980 million in that one year alone, according to estimates in the study. Stock and bond funds have more significant cost differences between the two share classes, so the loss to investors is much higher.
Over periods of 25 years or more, the cost really compounds. One estimate in the study is that after 25 years an investor who rolled over $250,000 would have paid more than $10,000 in additional fees.
The final balance of the account would be reduced by more than $20,000.
The study recommends what I’ve long recommended. Before rolling over money from an employer plan to an IRA, compare several factors.
One factor is the quality of the investment options in the 401(k) and IRA. Another factor is the fees and expenses charged by each of the options. Some employer plans have average to high fees, while others work hard to reduce the costs to their participants and are good deals.
Don’t automatically roll over a 401(k) to an IRA when leaving an employer. Consider all the differences between the two options.
Follow me on Twitter. Check out my website or some of my other work here.
James Jr Tristan
Follow
I am the editor of Loom Tower, a monthly newsletter and web site I founded… Read More
Editorial Standards
Corrections
Reprints & Permissions
PREMIUM
RETAIL
Livestream Shopping Stays Hot As Whatnot Valuation More Than Doubles To $3.7 Billion
Lauren Debter
Forbes Staff
I cover the retail industry.
Jul 21, 2022,09:00am EDT
Whatnot founders Grant LaFontaine and Logan Head are taking on eBay with their livestream shopping platform, popular among collectors.
Whatnot founders Grant LaFontaine and Logan Head are taking on eBay with their livestream shopping platform, popular among collectors.WHATNOT
Despite a drawdown in venture capital spending, the livestream shopping platform Whatnot—popular for sports cards, rare toys and other collectibles—has raised $260 million in fresh funding.
Grant LaFontaine has been into collecting since he was was seven years old, when he started selling Pokémon cards on eBay. In his twenties, he and his friend Logan Head got into finding and selling cool sneakers. But he felt like the online interfaces on eBay and other sites were clunky and boring, and the safety features were lacking.
In 2019, he left his job at Facebook to start Whatnot with Head, hoping to offer collectors the chance to buy and sell baseball cards, rare toys, comic books and other coveted items in a live, interactive online setting where they could chat with each other and score new items for their collections.
“We had this hypothesis that a new generation of collectors were entering the market,” said LaFontaine, 34, Whatnot’s CEO. “And we thought this generation, which grew up on an iPhone, was not going to be happy with the existing players because a lot of them hadn’t evolved.”
The three-year-old company has been growing quickly, and just raised another $260 million in a Series D round led by CapitalG (Alphabet’s investing arm) and DST Global, with participation from Andreesen Horowitz, YC Continuity and Bond. That brings its valuation to $3.7 billion, more than double the $1.5 billion it was valued at last year.
The round took just seven days to come together, despite the market downturn and a pullback in venture capital funding.
“The growth here is almost in a class by itself. There are fast-growth companies, and then there’s Whatnot,” said Laela Sturdy, a general partner at CapitalG. “They also have a strong, durable business model, which positions them well.”
The company has emerged as the largest U.S. startup focused on livestream shopping, which is the term used to describe a modern-day take on QVC-style broadcasts in which a seller showcases items that are available for purchase to a live, online audience. The format has exploded in popularity in China in recent years.
A slew of startups like Whatnot, ShopShops and TalkShopLive, as well as tech giants like Amazon and Facebook, are now pouring resources into testing whether there’s an appetite among U.S. shoppers.
LaFontaine said he had no idea of the Chinese phenomenon when they started the business. When he and Head were raising the seed round and investors started asking them about it, he just nodded—then went home and did his homework.
Product shot
Product shot
In one livestream, 2,300 viewers check out and bid on rare cards.WHATNOT
The company, which started out as a struggling marketplace for Funko Pop toys and had to temporarily relocate to Phoenix because it couldn’t raise any money, now offers livestream shopping sessions in more than 70 categories, including sneakers, watches, vintage fashion and rare coins. The average livestream lasts two to three hours, with some sellers moving thousands of products during that time.
“I think livestream shopping is the closest you can get to the in-person retail experience,” said LaFontaine. “You can actually talk to someone, you can see objects as they are. It’s more fun.”
Whatnot has been the fastest-growing marketplace in the nation for the past two years, according to the Marketplace 100 list assembled by Andreesen Horowitz. Last year, sales grew by over 20 times. While the company would not disclose financials, it said it takes an 8% cut on sales and is not profitable.
It has managed to attract a devoted community of buyers and sellers who spend both time and money on the platform, according to Sturdy.
“The data is closer to social media levels of engagement, in terms of amount of time spent on the platform and daily active usage,” she said. “At the same time, it has very strong commerce metrics, in terms of conversion to buying and repeat buying.”
MCM London Comic ConMCM London Comic Con
Toy figurines made by Funko, like this Star Wars character Captain Cassain Andor offered exclusively at Comic Con, have become popular among collectors.WIREIMAGE
In an effort to foster trust and safety on the platform, individuals have to complete an extensive application before they can sell on Whatnot. The company likes to see people who have prior experience, such as owning a comic book store or being a known social media influencer in the space. It also asks for information about from where the seller gets their supply. Whatnot approves about 30% of applications, said LaFontaine, with new sellers completing a training before they can launch on the site. Its sellers range from hobbyists to professionals, with the biggest outfits on the platform operated by 20 to 30 people.
Whatnot, similar to eBay, started in collectibles but sees room to go into all types of merchandise, with plans to expand into electronics and wine, beer and liquor. It also wants to build out additional features that make the app more social. It recently introduced direct messages, for instance. And while other companies are doing layoffs or implementing hiring freezes, it plans to hire another 100 or so employees by the end of the year, bringing its head count over 300.
Most days, LaFontaine works out of his home office in Los Angeles, where Funko Pop toys and other prized collectibles adorn the bookshelf behind him. The office, just a 15-minute walk from his house, is still fully remote.
Follow me on Twitter. Send me a secure tip.
Lauren Debter
I am a staff writer at Forbes covering retail. I have been at Forbes since 2013,… Read More
Editorial Standards
Corrections
Reprints & Permissions
LTA Work Of Art 