Please help me organize my investments and finances! (401k Rollover!)
March 18, 2014 10:59 AM Subscribe
Need help deciding what to do with my investment finances, including rolling over my prior Co. 401k rollover. I hold 2 401ks, 1 Roth IRA and I'm planning maybe on an index Fund. Details inside!
So here's the deal:
Current Holdings
-Fidelity 401k (Old Co.): $75k+
-Fidelity 401k (New Co.): Just starting no funds yet
-Vanguard Target Retirement FID Freedom 2045: $4700 approx 90% stocks, 10% bonds
The prior company 401k has sat for about 2 years, because I wasn't ready to deal with any rollover etc and it was earning fine for now.
Recently my NEW company changed their 401k plan, so I've enrolled in that last January to get the full match and a little bit more (They match 50% of the first 6%, deferred after a year, which is really 100% of 3% if I'm understanding right.) I'm contributing **5%** to it currently. I currently earn 90k before taxes a year, and am hoping to have my raise/bonus info by end of 1st quarter 3/31. My ONLY debts currently are **$600** on a credit card *which I plan to pay off by end of month*, and my consolidated 2 college loans, which equal **$5,168.62** as of today. The loan is only %2.63 and I pay off about $150 a month automatically above the minimum $92 payment.
My questions
1. How/what should I roll over the old 401k to? Or should I? I know that having it in an IRA I can do without any tax penalties etc, and it will afford me more control over the investment options than if I left it alone. What do you recommend?
2. The IRA I will continue to add the yearly limit of $5,500 of. I just received $2200 in tax return, and was planning on dumping 1-1.5k into that immediately, and the rest to engagement/wedding savings.
3. I would ALSO like to open an Index Fund and fund that slowly, say 1-$200 a month. Any recommendations which are good?
4. Should I rush to pay off the college loan, or since it's such a low percentage make my money work more for me in other investments?
Thanks in advance, I'm trying to really get my finances brushed up a bit with spring cleaning.
So here's the deal:
Current Holdings
-Fidelity 401k (Old Co.): $75k+
-Fidelity 401k (New Co.): Just starting no funds yet
-Vanguard Target Retirement FID Freedom 2045: $4700 approx 90% stocks, 10% bonds
The prior company 401k has sat for about 2 years, because I wasn't ready to deal with any rollover etc and it was earning fine for now.
Recently my NEW company changed their 401k plan, so I've enrolled in that last January to get the full match and a little bit more (They match 50% of the first 6%, deferred after a year, which is really 100% of 3% if I'm understanding right.) I'm contributing **5%** to it currently. I currently earn 90k before taxes a year, and am hoping to have my raise/bonus info by end of 1st quarter 3/31. My ONLY debts currently are **$600** on a credit card *which I plan to pay off by end of month*, and my consolidated 2 college loans, which equal **$5,168.62** as of today. The loan is only %2.63 and I pay off about $150 a month automatically above the minimum $92 payment.
My questions
1. How/what should I roll over the old 401k to? Or should I? I know that having it in an IRA I can do without any tax penalties etc, and it will afford me more control over the investment options than if I left it alone. What do you recommend?
2. The IRA I will continue to add the yearly limit of $5,500 of. I just received $2200 in tax return, and was planning on dumping 1-1.5k into that immediately, and the rest to engagement/wedding savings.
3. I would ALSO like to open an Index Fund and fund that slowly, say 1-$200 a month. Any recommendations which are good?
4. Should I rush to pay off the college loan, or since it's such a low percentage make my money work more for me in other investments?
Thanks in advance, I'm trying to really get my finances brushed up a bit with spring cleaning.
Best answer: 1. Definitely roll over the 401(k) to an IRA that you control, rather than leaving it in control of your old company. This is a good idea because it gives you more control over your money, and you are likely to have lower fees in an individual IRA account with a low-cost company like Vanguard. Since you already have a Vanguard account I would do the roll over to a Vanguard IRA. Call up Vanguard and ask them what to do, they will help arrange everything for the rollover over the phone. (They may send you some papers to sign, but they will know just what to do.)
2. Maxing out your Roth IRA is a great idea. Definitely do that. I recommend that after putting in your tax refund you also set up a regular monthly investment so that the contributions are on autopilot. You can do this on the Vanguard website or over the phone with them.
3. I *think* this part is saying that you want to save $100-200 a month outside of retirement accounts, in a regular taxable account. Is this what you mean? If so, I would wait to do this until you are consistently maxing out your other retirement funds - you should be contributing 6% of your salary to your new company 401(k) to get the maximum match, and you should be maxing out your Roth IRA. If you want to do more after that, great, but again I'd wait 6 months to let be sure you're really maxing out the other accounts first. Once you're ready for the extra $100-200 a month in the taxable account, the next question is what do you want this money for? What's the goal? That will determine what type of funds you should consider.
4. The college loan is a low interest rate, so you will hear arguments that go both ways on this one. Saving for retirement is likely to have a long-term investment return that is larger than your interest rate, so that's likely to be better financially. On the other hand with only a $5K balance left, you could pay off the student loan pretty quickly and then be free of debt, and not having debt is awesome. If you can afford it I would consider maybe paying a little more per month on the college loan just to get rid of it more quickly. But I tend to feel happier with less debt, so that's my preference. Yours may be different.
posted by medusa at 11:15 AM on March 18, 2014
2. Maxing out your Roth IRA is a great idea. Definitely do that. I recommend that after putting in your tax refund you also set up a regular monthly investment so that the contributions are on autopilot. You can do this on the Vanguard website or over the phone with them.
3. I *think* this part is saying that you want to save $100-200 a month outside of retirement accounts, in a regular taxable account. Is this what you mean? If so, I would wait to do this until you are consistently maxing out your other retirement funds - you should be contributing 6% of your salary to your new company 401(k) to get the maximum match, and you should be maxing out your Roth IRA. If you want to do more after that, great, but again I'd wait 6 months to let be sure you're really maxing out the other accounts first. Once you're ready for the extra $100-200 a month in the taxable account, the next question is what do you want this money for? What's the goal? That will determine what type of funds you should consider.
4. The college loan is a low interest rate, so you will hear arguments that go both ways on this one. Saving for retirement is likely to have a long-term investment return that is larger than your interest rate, so that's likely to be better financially. On the other hand with only a $5K balance left, you could pay off the student loan pretty quickly and then be free of debt, and not having debt is awesome. If you can afford it I would consider maybe paying a little more per month on the college loan just to get rid of it more quickly. But I tend to feel happier with less debt, so that's my preference. Yours may be different.
posted by medusa at 11:15 AM on March 18, 2014
You can open a rollover IRA.
Don't forget that in addition to maxing out your 401(k) you can also max out your IRA - you can't do a tax deductible one if you already have a 401(k) but there's still the great benefit of tax-free growth for a non-tax-deductible IRA.
Don't put tax-deductible and non-tax-deductible IRAs into the same IRA account. Always keep those two types in separate accounts.
Any recommendations which are good?
Yes, the ones that have the lowest fees and are highly diversified, like a total stock market index fund from Vanguard or Fidelity (a lot of people who are Vanguard fans don't realize that Fidelity also has very low fee index funds). You can set up automatic investments at either company, and that's definitely a wise move because most people don't have the discipline to invest regularly (such as monthly) on a manual basis.
posted by Dansaman at 11:17 AM on March 18, 2014
Don't forget that in addition to maxing out your 401(k) you can also max out your IRA - you can't do a tax deductible one if you already have a 401(k) but there's still the great benefit of tax-free growth for a non-tax-deductible IRA.
Don't put tax-deductible and non-tax-deductible IRAs into the same IRA account. Always keep those two types in separate accounts.
Any recommendations which are good?
Yes, the ones that have the lowest fees and are highly diversified, like a total stock market index fund from Vanguard or Fidelity (a lot of people who are Vanguard fans don't realize that Fidelity also has very low fee index funds). You can set up automatic investments at either company, and that's definitely a wise move because most people don't have the discipline to invest regularly (such as monthly) on a manual basis.
posted by Dansaman at 11:17 AM on March 18, 2014
Also, there are a couple other questions you should be asking that aren't in your question, so I'm going to tell you to ask them. (This is not meant to be snarky, just suggesting other things that make sense to include in your "spring cleaning".) First, what funds should you use in your rollover IRA? Second, what funds should you use in your new 401(k)? You might want to consider another question about this if you're not confident in your ability to choose funds. You might also want to go to bogleheads.org and read the wiki and the forum to learn more about assett allocation and fund choices.
posted by medusa at 11:20 AM on March 18, 2014 [1 favorite]
posted by medusa at 11:20 AM on March 18, 2014 [1 favorite]
Rollover anything where you are not currently working into an individual IRA.
I have a couple of pet investments:
1. A targeted investment fund. You pick a year you think you're going to start withdrawing (for retirement), say 2040. You pick the Fidelity Freedom Fund 2040. What it does is it starts out with more aggressive investments and as it matures, the invesments move into more conservative offerings.
2. Exchange Traded Funds. These are based on specific exchanges (I like Standard and Poors 500 Index) and are automatically adjusted based on the Exchange. The benefit is that these funds have lower management fees. They're called Spiders (SPDR) and most investment companies offer them.
I have an account with Fidelity, I like them a lot.
posted by Ruthless Bunny at 11:33 AM on March 18, 2014 [1 favorite]
I have a couple of pet investments:
1. A targeted investment fund. You pick a year you think you're going to start withdrawing (for retirement), say 2040. You pick the Fidelity Freedom Fund 2040. What it does is it starts out with more aggressive investments and as it matures, the invesments move into more conservative offerings.
2. Exchange Traded Funds. These are based on specific exchanges (I like Standard and Poors 500 Index) and are automatically adjusted based on the Exchange. The benefit is that these funds have lower management fees. They're called Spiders (SPDR) and most investment companies offer them.
I have an account with Fidelity, I like them a lot.
posted by Ruthless Bunny at 11:33 AM on March 18, 2014 [1 favorite]
To OP: you already own index funds via the Vanguard vehicle. That vehicle is probably just fine for now. If your new Fidelity 401k doesn't offer that same Vanguard vehicle (it probably does), you can use Fidelity's in-house equivalent. That would be the Fidelity Freedom Index 2045 Fund. I highlight the word Index because that's what differentiates it from the Fidelity Freedom 2045 Fund, which uses Fidelity's higher-cost actively managed funds instead of index funds.
I have a couple of pet investments....1. A targeted investment fund...2. Exchange Traded Funds.
The target fund consists of index funds, which are the open-end mutual fund equivalent of the ETFs you mention. So why do both unless you are using the ETFs for speculative trading or have very specific asset allocation goals? Neither applies to the OP.
Unless you can invest incremental dollars in ETFs without paying transaction fees (commissions), you are better off using open-ended mutual funds like the Vanguard vehicle. Fidelity has some commission-free ETFs but 1) they may not be available in this specific 401k program and 2) there's no reason to bother if you own a target fund anyway.
Exchange Traded Funds. These are based on specific exchanges (I like Standard and Poors 500 Index) and are automatically adjusted based on the Exchange. The benefit is that these funds have lower management fees. They're called Spiders (SPDR) and most investment companies offer them.
So much wrong here. An "exchange" and an "index" are two different things. The S&P 500 is an index, not an exchange (its constituents include stocks traded on both the NYSE and NASDAQ exchanges). And Spiders are a brand-name of ETFs and there are Spider funds based on a ton of different indices beside the stock market indices. A few companies (including Vanguard and Fidelity) offer investment vehicles based on the same underlying indices.
Basically...Ruthless Bunny should stop giving financial advice on Metafilter.
posted by mullacc at 12:11 PM on March 18, 2014 [2 favorites]
I have a couple of pet investments....1. A targeted investment fund...2. Exchange Traded Funds.
The target fund consists of index funds, which are the open-end mutual fund equivalent of the ETFs you mention. So why do both unless you are using the ETFs for speculative trading or have very specific asset allocation goals? Neither applies to the OP.
Unless you can invest incremental dollars in ETFs without paying transaction fees (commissions), you are better off using open-ended mutual funds like the Vanguard vehicle. Fidelity has some commission-free ETFs but 1) they may not be available in this specific 401k program and 2) there's no reason to bother if you own a target fund anyway.
Exchange Traded Funds. These are based on specific exchanges (I like Standard and Poors 500 Index) and are automatically adjusted based on the Exchange. The benefit is that these funds have lower management fees. They're called Spiders (SPDR) and most investment companies offer them.
So much wrong here. An "exchange" and an "index" are two different things. The S&P 500 is an index, not an exchange (its constituents include stocks traded on both the NYSE and NASDAQ exchanges). And Spiders are a brand-name of ETFs and there are Spider funds based on a ton of different indices beside the stock market indices. A few companies (including Vanguard and Fidelity) offer investment vehicles based on the same underlying indices.
Basically...Ruthless Bunny should stop giving financial advice on Metafilter.
posted by mullacc at 12:11 PM on March 18, 2014 [2 favorites]
This thread is closed to new comments.
Not likely. 50% up to 6% means that they will put in 50% of what you put in up to a maximum of your 6% contribution. So if you are contributing 5% then they are contributing 2.5%, in order to get the maximum match you would need to contribute 6% (and they would contribute 3%). If you contribute more than 6% they will still contribute 3%.
posted by magnetsphere at 11:08 AM on March 18, 2014 [1 favorite]