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How to make the most of bad 401k options?
Old 11-05-2008, 09:23 AM   #1
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How to make the most of bad 401k options?

Just got the details of DW's new 401k plan and I am not impressed. Supposedly the 5.75% loads are waived, but almost all of the 25 fund choices have expense ratios between 1.0-1.5%. This is a far cry from my 401k options at megacorp, fewer funds but rock bottom expenses. In DW's plan there seems to be a lot of duplicate offerings from different management companies and possibly some closet indexers. The best option seems to be an S&P500 index fund that "only" charges 0.34% (MASRX). The next cheapest fund is an intermediate bond offering (CCIAX) at 0.80%! Or I could just leave it all in the money market fund (MRRXX).

DW will get 3% employer contribution automatically. My question is - should she make any additionally contributions? I would love to defer taxes on some income as we will probably be in the 28% bracket for 2008. However, the S&P500 is not my favorite index (would rather have total market index), and it is still overpriced compared to what I could get it for at Vanguard (0.15%). And given that tax rates could easily be higher by the time we retire (we're in our 20s) I am not sure it is wise to pay higher expense ratios today in the face of a questionable tax benefit down the road.
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Old 11-05-2008, 09:35 AM   #2
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I sure wish I had your wife's plan instead of the 401(k) I have with its higher expenses. Her plan looks wonderful to me.
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Old 11-05-2008, 09:42 AM   #3
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Don't complain with your mouth full. Sounds like a good plan to me. I'd fund it to the max, since the company match more than pays the fees. Make your (her) own choices among the available funds; you can factor in the individual fund fees when making your investment choices, but at only half-point fee differential, it probably isn't worth losing sleep over. Then you can focus on managing other resources in your portfolio where you have more control over fees. On this one you don't, and never will.
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Old 11-05-2008, 10:16 AM   #4
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Quote:
Originally Posted by soupcxan View Post
Just got the details of DW's new 401k plan and I am not impressed. Supposedly the 5.75% loads are waived, but almost all of the 25 fund choices have expense ratios between 1.0-1.5%. This is a far cry from my 401k options at megacorp, fewer funds but rock bottom expenses. In DW's plan there seems to be a lot of duplicate offerings from different management companies and possibly some closet indexers. The best option seems to be an S&P500 index fund that "only" charges 0.34% (MASRX). The next cheapest fund is an intermediate bond offering (CCIAX) at 0.80%! Or I could just leave it all in the money market fund (MRRXX).

DW will get 3% employer contribution automatically. My question is - should she make any additionally contributions? I would love to defer taxes on some income as we will probably be in the 28% bracket for 2008. However, the S&P500 is not my favorite index (would rather have total market index), and it is still overpriced compared to what I could get it for at Vanguard (0.15%). And given that tax rates could easily be higher by the time we retire (we're in our 20s) I am not sure it is wise to pay higher expense ratios today in the face of a questionable tax benefit down the road.
Throw the choices out on here and maybe we can help. No everyone in the USA gets vanguard or Fidelity funds to choose from.
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Old 11-05-2008, 05:30 PM   #5
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I guess these expenses are not as bad as I first thought (I've been spoiled by Vanguard) but I worry about underperformance vs. the index for those that are actively managed. Currently most of our tax-advantaged accounts hold bonds and the equities are in taxable accounts to enable better control over a dividend-tilt and the ability to tax loss harvest (has come in handy this year, that's for sure). I am tempted to just put a small amount in the 401k and put other free cash into existing lower-cost investments at VG or at my megacorp job when I start working again. If we get the match either way, why pay 0.34% for an S&P index fund in DW's 401k when I could get the same index in my 401k for 0.01%?

Symbols, funds, styles (if not obvious), ERs

ATHAX Amer century heritage, midcap 1.25
ALPAX Amer century large company value 1.08
AREEX Amer century real estate 1.39
RAFCX American AMCAP, multicap 1.01
RLBCX American balanced, 0.9
RMFCX American mutual, multicap 0.95
RERCX American Europacific growth 1.07
MDDVX Blackrock equity dividend 1.03
CCIAX Blackrock intermediate bond 0.8
MDLHX Blackrock large cap growth 1.27
MASRX Blackrock S&P 500 index 0.34
CFICX Calvert income fund 1.18
NMGIX Columbia Marsico Growth 1.2
DPDFX Delaware diversified income 0.99
EKZAX Evergreen international equity 0.95
FRVLX Franklin Small cap value 1.17
IGLAX ING Global real estate 1.3
JDPAX Janus adviser mid cap value 0.92
OMEAX JPMorgan market expansion index 0.7
LZOEX Lazard emerging markets portfolio 1.47
LSVAX Loomis Sayles small cap value 1.4
MEMAX MFS emerging markets equity 1.79
MRRXX Merrill Lynch reitrement reserves money fund N/A
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Old 11-05-2008, 05:37 PM   #6
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I think that 80% of VTI is large caps, so being stuck with a .35% expense ratio S&P ain't all bad. Especially when you get that 3% match. You can adjust your asset allocation in your other investment accounts as needed to deal with this add'l portion of LC stocks.
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Old 11-05-2008, 05:40 PM   #7
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The 401(k) match is free money, so I'd at least make sure that you maximize that. If you need bonds to meet your asset allocation, I'd buy the bond fund, if not, go with the S&P index fund.

Outside of that, max out Roths (if you qualify), then go with index equities in taxable accounts.
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Old 11-05-2008, 06:35 PM   #8
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I feel ya on the 401k options. I too am spoiled by offerings from a great megacorp plan, although it also has too many overlapping choices. Its a long shot, but some 401k's permit rollover to an IRA and then you could get whatever choices you like after capturing the co. match and getting vested. Check the SPD very carefully......I always have to challenge Fido when Im making these manuevers.
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