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OT: 401k advice

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RUserious23

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Oct 10, 2006
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Sometime at the beginning of April, the company I work for is "merging" with a larger competitor (merging is how the partners are sugar coating it, but we're really being bought out). Anyway, I'm trying to figure out what's the best option for my current 401k. I'm not at all a financial guy, so this is why I'm coming to our board experts. I'm aware of what my options are... keep it where it is (Principal Financial Group), rollover to the new company's 401k, rollover to an IRA or convert to a Roth IRA, or cash out (not at all an option).

A little about me... I'm 30, married and have 1 kid so far. I know I've got more time, so I can be for aggressive with risk vs overall gains. Also, I don't have a lot of extra cash to contribute on top of what I have been to the 401k after you take out the mortgage, car loans and insurance, raising a family, and the killer, student loans for my wife and I, there's no way I'm getting close to the $5500 contribution limit for IRA's. I'm also definitely opening a 401k with the new company no matter what, to take advantage of their profit sharing/contribution matching. So this is where I'm at currently. Any advice would be greatly appreciated. Also, if you recommend going with an IRA/Roth IRA, where would you recommend taking it to? Thanks!
 
RUserious23, I hear you. Between the student loans, kids, house, daycare there is nothing left!

I would roll it into a Roth IRA. invest in index funds/aggressive mutual funds. 401ks are great but are limiting in investment chioces. If you convert now you (hopefully) will be doing it at a lower bracket than when you retire.
 
Originally posted by JerseyPride13:
One question...what is the contribution rate your "new" company is going to provide?
Click to expand...
I'm not sure what the specifics are. We're meeting with their guys on Monday to discuss what funds they offer with their 401k and to enroll. I'll try to find that out then.
 
I wouldn't get a roth ira because when you are retired your income will be much lower than it is now, unless you retire in your 70's and take out a ton of money each year. Most people will pay more taxes with a roth. I wouldn't even get an IRA. To many government imposed rules about what you have to do with your IRA money. IRA's are meant for people who are spenders. The IRA rules force them to stop spending their nest egg money.

This post was edited on 3/14 10:12 AM by Extra Point
 
You are 30, so you have approximately 30 years for the current 401K to grow for you. My suggestion would be to roll over the current 401K into a self directed IRA and go with Vanguard. Several reasons: Vanguard has ridiculously low fees. That will be very important over a 30 year horizon. Also, by rolling over now you will unlock yourself from the limited options your company offers if you keep it in their 401K. With you calling the shots, you can move your money from aggressive holdings to more conservative and bond holdings as you get older when preservation of capital will become very important.

My advice, which you can take with a grain of salt, is to put 1/3 into Vanguard S&P 500 Index or Total Market Index, 1/3 into Wellington Fund, and 1/3 into Vanguard Health Care Fund.
 
Your best bet will likely be to rollover your money into their program. Because they are a bigger company, they typically have the ability to offer better funds at cheaper fees. Small company's get raped by their vendors.
 
Does anyone else feel like converting a traditional Ira to a Roth and taking the tax hit is a big roll of the dice? By the time someone if their 30's is ready to retire it is entirely possible that we could be looking at a new tax code that won't offer that tax advantages that Roth's see today. I think the only way that I would consider converting was if I was in the 15% tax bracket (which most people aren't).
 
I don't think I would want to take the tax hit to convert the old 401k to a Roth, at this point, roll it over to a self directed IRA as suggested above. An alternative option to Vanguard is using TIAA-CREF, use to be you had to be with an eligible institution to use TIAA-CREF, but they have now opened it up, they have a great portfolio of funds very low fees and you can also use their open market option if you want to buy individual stocks ($10.00) a trade.
 
Very good topic.

I'm going to be changing companies soon, so I have the same question, what to do with my current 401k? Is there ever a good reason to leave the money in the old company's system? It's run by T Rowe and the fees are very low. If no, I like the idea mentioned above of moving it to an IRA using Vanguard funds.

Any other ideas or things to consider?
 
Depending on the specifics of the merger you may not be eligible for a distribution unless your employment is terminated. It may be worth your while to have your money remain with the newly merged company as k plans allow for loans and IRA's do not. Additionally vanguard index funds are a good choice, depending on the size of the plan it may offer some institutional investment choices.
 
Thanks everyone for the great ideas to consider. The main reason I can think of to convert to a Roth IRA now is that all gains over the next 30+ years wouldn't be taxed when I retire. Otherwise, it seems like many of you think it wouldn't be worth paying the likely higher taxes now. Seems like I'll also need give Vanguard a look as well as TIAA-CREF.
 
I moved mine to a TDAmeritrade IRA, which basically gives you access to everything and mostly free trades into Vanguard funds.

It's nice to have unlimited options, though mostly I'm in a few low cost ETFs and don't trade.
Posted from Rivals Mobile
 
Originally posted by MoobyCow:
I moved mine to a TDAmeritrade IRA, which basically gives you access to everything and mostly free trades into Vanguard funds.

It's nice to have unlimited options, though mostly I'm in a few low cost ETFs and don't trade.
Posted from Rivals Mobile
Click to expand...
Does Vanguard have ETFs? Or just normal mutual funds?
 
RUMIKE: Vanguard does offer ETF's. Their website Vanguard.com is easy to navigate through.
 
Originally posted by RU'70:

You are 30, so you have approximately 30 years for the current 401K to grow for you. My suggestion would be to roll over the current 401K into a self directed IRA and go with Vanguard. Several reasons: Vanguard has ridiculously low fees. That will be very important over a 30 year horizon. Also, by rolling over now you will unlock yourself from the limited options your company offers if you keep it in their 401K. With you calling the shots, you can move your money from aggressive holdings to more conservative and bond holdings as you get older when preservation of capital will become very important.

My advice, which you can take with a grain of salt, is to put 1/3 into Vanguard S&P 500 Index or Total Market Index, 1/3 into Wellington Fund, and 1/3 into Vanguard Health Care Fund.
Click to expand...
Yes, roll it over to an IRA but not WITH Vanguard. I found that their web site is very poor. I would roll it over into Fidelity and still buy the Vanguard Index funds. Stick with ETF and not Mutual Funds. Total Market (VTI) is a good choice for 1/3 but forget Wellington Fund, I'd split up the remaining 2/3's of the money into different sectors. I like First Trust ETF's Health Care (FXH), Biotech (FBT), Consumer Discretionary(FXD), and Consumer Staples(FXG) right now. But those sector funds could be replaced with others over time.
Total Market can be split into 2 parts which would be Vanguard S&P 500 (VOO) for large caps and Vanguard Extended Market (VXF) for Mid/Small Caps with the percentage depending on the direction of the market over time.
Right now I don't do Foreign Equities or any Bonds. Just stick with US equities and you'll be fine over the long term.
 
Hi,

Here is very goodd advice:
1. Don't make any rush decision until you know the following:
a) find out the investment options and the fees in the new 401k

If you're happy withe the variety of investment choices and the fees are low
(Compare their fees versus Vanguard equivalent funds.) then you should transfer them
To your new company 401k plan.

If you are not happy with either: investment choices, or fees or if you prefer to trade
Individual stocks then roll over your existing 401K to a discount brokerage.

Remember once you move your 401k to rollover 401k you cannot move the account to a
Company 401k acct.

You're young so you should be aggressive 80% stocks 20% bonds. and remember
to rebalance at least once per year.

Good luck
 
mktman posted on 3/14/2015...

Does anyone else feel like converting a
traditional Ira to a Roth and taking the tax hit is a big roll of the
dice? By the time someone if their 30's is ready to retire it is
entirely possible that we could be looking at a new tax code that won't
offer that tax advantages that Roth's see today. I think the only way
that I would consider converting was if I was in the 15% tax bracket
(which most people aren't).
____________________________________________________________________________________________

You are correct you can't predict the future in regards to the tax code. Yes it's very possible that taxes will be higher in the future. But I also wouldn't put it pass our politicians to change the rules and start taxing Roth's either (don't forget social security use to not be taxed either). For what it's worth I'm a big fan of spreading my exposure out. Roll some of the money into the Roth, and roll some of it into your new companies 401K. Since there is no way to know what the future brings if you have some money in each type of account you will be better able to take advantage of the tax codes when it comes time to retire. Most importantly make sure you always put what ever the company matches into your 401K as that is "free" money.
 
Originally posted by mktman:
Does anyone else feel like converting a traditional Ira to a Roth and taking the tax hit is a big roll of the dice? By the time someone if their 30's is ready to retire it is entirely possible that we could be looking at a new tax code that won't offer that tax advantages that Roth's see today. I think the only way that I would consider converting was if I was in the 15% tax bracket (which most people aren't).
Click to expand...
On the other hand depending on income rolling to a Roth might allow him to backdoor convert to Roth more easily (since there would be no basis in a traditional IRA). Would then allow more earnings to grow tax free instead of ultimately paying for gains in a taxable account.
 
Originally posted by Piscataway:
RUserious23, I hear you. Between the student loans, kids, house, daycare there is nothing left!

I would roll it into a Roth IRA. invest in index funds/aggressive mutual funds. 401ks are great but are limiting in investment chioces. If you convert now you (hopefully) will be doing it at a lower bracket than when you retire.
Click to expand...
The problem with converting is that he has to pay the tax now. he has stated that he does not have a lot of cash left.

I would stick with the 401K of the new company and do some homework on investment choices.
 
The only thing you give up by rolling a 401k into an IRA is a loan provision which you ought not to use anyway, so it's kind of a no brainer.

In your early 30's, if you can absorb the hit to your savings to convert to a Roth that's pretty much a no brainer too. 30 or 40 years of capital appreciation will accrue to tax savings on the distribution side that will exceed the up front cost by a significant multiple. An added bonus is that there is no required minimum distribution at 70 1/2 for a Roth as there is for a traditional IRA.

Investment options are numerous. If you want to invest aggressively historical performance dictates that you should overweight a stock portfolio toward value and small cap. But that approach also carries the most volatility. Choosing the right investments is a function of understanding your own risk tolerance. Index funds and ETF's are good ways to invest but they are also an unhedged roller coaster ride that will, at times, take your breath away. Consider adding alternative investments like reits, managed futures, currencies, MLP's, etc. which are loosely correlated with stocks and can reduce volatility while enhancing long term results.
 
Originally posted by RU82:

Investment options are numerous. If you want to invest aggressively historical performance dictates that you should overweight a stock portfolio toward value and small cap. But that approach also carries the most volatility. Choosing the right investments is a function of understanding your own risk tolerance. Index funds and ETF's are good ways to invest but they are also an unhedged roller coaster ride that will, at times, take your breath away. Consider adding alternative investments like reits, managed futures, currencies, MLP's, etc. which are loosely correlated with stocks and can reduce volatility while enhancing long term results.
Click to expand...
Can you explain this, regarding ETFs? Not sure what you mean.
 
Roth IRA has an income cap of about $180K per household, so if you foresee going over the cap probably not worth it. As a general rule, I do not leave money in a previous company 401k. I've had this decision in the past - I rolled over the old company 401k into a new independent plan with my financial advisor and then started fresh with the new company 401k. I have more flexibility with investments that way.
 
Lots of good info here. One thing I will say is that some companies have access to special investor classes of funds that have very, very low fees and which you can't get into as a run of the mill IRA investor through a Schwab or some place like that. So while the 401K may have limited investment choices, they may be in funds that you can't access from the outside. I would only look at the fees when examining this. Realistically with 401K money and 30 years horizon you are going to select something and let it alone for awhile.
 
roll it into your own IRA (or create a new one). You will have control and can move it anywhere you want. You will have essentially unlimited choices and can control the costs. Financial planning for 401(k)'s etc. is not really all that difficult. Learn a little about companies, fees, etc. and own it. You will be better off in the long run.
 
Assumptions: $100,000 in 401k now
35 years till retirement
30% tax bracket now
15% tax bracket at retirement
7% yearly rate of return
Can roll it over
will not hit contribution ceiling
no change in tax code
Paid by-weekly

In order to break (approximately - actually a bit better in the Roth) even you will have to contribute $390 per paycheck.

Start with $100,000 in 401k, after 35 yrs in the IRA you would have $2,361,555.33
Minus 15% tax equals $2,007,322.03

Start with $100,000 in 401k minus 30% tax hit ($70,000), after 35 years in a Roth you would have $2,041,257.89

So if you can make up the difference from what you are contributing now and $390 per paycheck I would convert.
 
most of the above advice here assumes that the OP can take distribution - which is not a given as he is 30 years old. So if he retains employment he does not have an IRA option. Some one else pointed out that a plan loan is not always the best option - however if purchasing a home in the near future it may be a good secondary funding alternative. Here is where in plan roth may be a good option - as a hardship withdrawal from a roth source used to purchase a home may minimize tax burden on an in-service withdrawal (assumes ongoing roth contributions does not assume conversion of previous contributions).

ultimately - the homework on investment choices boils down to comparison of expense ratios. As some astutely pointed out - Vanguard has some of the lowest. Principal (which appears to be the recordkeeper here) tends to be a small market provider - which means the available funds may have higher expenses.
 
Since you guys are talking about it, what would you say is the reason for someone in their low to mid thirties to invest some of their portfolio in bonds.

Based on the things I read, bonds perform inversely to stocks in the same market conditions. That bonds are best to hold in a declining stock market...so holding both sort of offset each other. If you have a 30-35 year time horizon before retirement, what's the incentive to have any money in bonds at all if you're going to ride all the highs and lows of the market cycles over such a long period of time? Bonds don't seem to perform as well long term. I could see if you're approaching retirement to put your money into something less volatile, but until then not sure what the point is.

A metric I've seen is to subtract your age from 110 and that's what percentage you should be invested in stocks..and that the rest should be in bonds. Can't find a good reason why though.
 
Originally posted by RUserious23:
Sometime at the beginning of April, the company I work for is "merging" with a larger competitor (merging is how the partners are sugar coating it, but we're really being bought out). Anyway, I'm trying to figure out what's the best option for my current 401k. I'm not at all a financial guy, so this is why I'm coming to our board experts. I'm aware of what my options are... keep it where it is (Principal Financial Group), rollover to the new company's 401k, rollover to an IRA or convert to a Roth IRA, or cash out (not at all an option).

A little about me... I'm 30, married and have 1 kid so far. I know I've got more time, so I can be for aggressive with risk vs overall gains. Also, I don't have a lot of extra cash to contribute on top of what I have been to the 401k after you take out the mortgage, car loans and insurance, raising a family, and the killer, student loans for my wife and I, there's no way I'm getting close to the $5500 contribution limit for IRA's. I'm also definitely opening a 401k with the new company no matter what, to take advantage of their profit sharing/contribution matching. So this is where I'm at currently. Any advice would be greatly appreciated. Also, if you recommend going with an IRA/Roth IRA, where would you recommend taking it to? Thanks!
Click to expand...
I would roll it into an IRA. Roth IRA doesn't really make sense because your 401K has been tax deferred from your previous employer, so you would need to pay all of the taxes on it now if you did a Roth IRA.

You can roll it into your new companies 401k but then you will need to choose the funds that they offer. If you put it into a traditional IRA (say on Etrade or Ameritrade) you can invest in whatever you want, as it would be your choice of funds.

In my opinion, any idiot off the street can invest just as good as the "experts" who don't actually know what they're talking about. You can either pay some clown to manage your funds, or you can manage them yourself.
 
http://www.huffingtonpost.com/2013/01/15/orlando-stock-picking-cat_n_2479491.html

http://www.huffingtonpost.com/2013/04/05/monkeys-stocks-study_n_3021285.html

http://www.ft.com/cms/s/0/abd15744-9793-11e2-b7ef-00144feabdc0.html#axzz3UbcDGLAJ

http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/

http://www.marketwatch.com/story/dart-throwing-chimp-still-making-monkey-of-internet-funds


Here's a bunch of articles about monkeys, chimps, and kittens beating "experts". My recommendation is find the mutual funds with the lowest maintenance fees so that you don't end up paying these other "monkeys" money for nothing.
 
By the way, can you rollover a 401k/403b into an existing IRA account or does each rollover generate a new account?
 
Originally posted by OntheBanks:

Yes, roll it over to an IRA but not WITH Vanguard. I found that their web site is very poor. I would roll it over into Fidelity
Click to expand...
And I find just the opposite. I think the Vanguard site is excellent and easy to use. (I haven't used the Fidelity website in a few years, and since I only had a single Fidelity fund, I didn't use their website a lot, so it isn't an apples-to-apples comparison, but I prefer the Vanguard website over Fidelity.)
 
Originally posted by BigLou:

Originally posted by Piscataway:
RUserious23, I hear you. Between the student loans, kids, house, daycare there is nothing left!

I would roll it into a Roth IRA. invest in index funds/aggressive mutual funds. 401ks are great but are limiting in investment chioces. If you convert now you (hopefully) will be doing it at a lower bracket than when you retire.
Click to expand...
The problem with converting is that he has to pay the tax now. he has stated that he does not have a lot of cash left.

I would stick with the 401K of the new company and do some homework on investment choices.
Click to expand...
This is the correct advice.
 
No advice on what to invest, but the general advice is 1x salary at 35 and 3x salary at 45. Being aggressive now will give your money 35 years to grow.
Posted from Rivals Mobile
 
Okay, I have a new 401K rollover question. I need to rollover my old 401K into an IRA (preferred over my new 401K). I am 24-25 years from retirement (i.e, 40 years old) and I'm thinking about the following allocation:

40% Large caps
20% Mid caps
10% Small caps
10% International large caps
20% Bonds

Any advice on other allocation ideas? I am not an investor, so this can't get too complicated. Also, I'm planning to focus on Vanguard ETFs to keeps fees ultra low.

Thanks in advance!
 
Originally posted by T2Kplus10:
Okay, I have a new 401K rollover question. I need to rollover my old 401K into an IRA (preferred over my new 401K). I am 24-25 years from retirement (i.e, 40 years old) and I'm thinking about the following allocation:

40% Large caps
20% Mid caps
10% Small caps
10% International large caps
20% Bonds

Any advice on other allocation ideas? I am not an investor, so this can't get too complicated. Also, I'm planning to focus on Vanguard ETFs to keeps fees ultra low.

Thanks in advance!
Click to expand...
Almost all 401(k) now have "target date funds". Which are just a mix of stock/bonds that reduce risk (increase bonds/decrease stock holding) as you get closer to the "target date" (i.e., your retirement date).

Just pick the fund closest to your retirement date (or 2-3 funds around your target retirement date) - and the fund will do the rest.

This post was edited on 3/30 10:19 PM by RUfromSoCal?
 
Take a look at the Sectorsurfer web site.There is a lot of reading there .They offer member's Hall of Fame Strategies that another member may copy and use. But there is so much more than just that,so reading it all is getting a very strong education about your investing needs.My Daughter hes been using this very reasonable,cost wise, site for a couple of years and using a Roth Ira has seen gains in the 25-35% range. Basically ,after you select a strategy they suggest that you switch to a different holding in your strategy when your current holding does not lead others in your strategy as the trend leader.It is really a very simple concept but you have to read the site's material to get a good idea of the concept. Good luck in whatever you do.
 
A few points, I would roll your 401k over to a self directed IRA or and existing IRA if you are happy with the flexibility that exists in the existing IRA, no reason to pay the tax nut upfront to go to a Roth, basically if you roll to an IRA at age 30 you have 40 years of untaxed growth before the gov't makes begin the RMD process. I get a little nervous when people start to take over other people I got my money out the door of the old company as soon as I could. The mechanics of a roll are pretty simple, you can have your 401k check made out to you and then deposit it within 30 days into an IRA (and avoid the tax man) Or you can have the transfer check made out to the fund you are moving it to (for the benefit of [your name]), you probably need to validate the process through your current 401k admin. Relative to fund allocation, what you suggest will work although you might want to take a smaller position in US large cap and a larger position in European large cap as they have embraced a quantitative easing type program much like what the Fed did in the US coming out of the recession. In either case stay in Index and or ETF instruments to capture a broader exposure to the various sectors you want to be in, especially if you are not prone to want to manage your portfolio.
 
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