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What To Do w/ Existing 401k?
Old 03-29-2014, 05:23 PM   #1
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What To Do w/ Existing 401k?

Recently found this site, so trying to learn before I make the next move Appreciate any help you can provide.

Primary retirement was previous employer sponsored 401k. Got laid off and have accepted employment elsewhere. New employer does not have a formalized retirement plan (yet). Also, have a few dollars I'd like to move from savings to a safe, easily accessible and decent growth account. All things combined, I have a few questions:

1a. Should I move my 401k? Existing plan is with reputable company, but options are limited to about 20 funds. Last year ROR was approx 30%.

1b. Where do I move the 401k? I know the answer is traditional IRA initially, maybe convert to ROTH. Just not sure WHO to use. Met w/ the company that holds my 401k -- they are happy to do the IRA, but fees seemed more expensive. Also met with EJ advisor. We haven't discussed fees, but I presume it may be a similar experience. Thought about Scottstrade, but I'm not a finance guru and may need some advise to get me setup properly.

2. For new retirement funds, ROTH or traditional IRA? Obviously I would be investing taxed dollars, so ROTH jumps out. But if I invest in traditional, I understand I get a tax write off the end of the year.

3. Biggest concern with new employer not having 401k is I will exceed the $5,500 threshold. What's the next best investment for the overflow?

4. What type of account/fund should I be looking at for the extra from my savings? I want growth, but nothing overly risky and liquidity of a few weeks.

I can provide more info as needed. Just trying to get lined up right.
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Old 03-30-2014, 03:57 PM   #2
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1a. If you like the funds offered, you can leave it there. What are the expense ratios of those funds? You are looking for low cost index funds as a starting point.

1b. Vanguard, Fidelity, or Schwab would be the first three I'd look at. That would be do it yourself mostly, but pretty much no costs to you. Vanguard can set up a portfolio for you for a one-time charge or free if you are moving enough to them.

2. Roth vs. IRA is principally a tax consideration. If you have a higher tax rate now than you will after you retire, use a traditional IRA. If you are at the same rate or higher, use the Roth. You might also consider a Roth if you have no Roth accounts now. That gets a 5 year clock started and gives you some tax diversification, even if it might not be completely optimum.

3. You may just need to use a normal taxable account, from one of the brokers listed above. Invest tax efficiently, mostly equities, low dividends. Index equity funds are a good choice. A Health Savings Account is nice if you have that health insurance option.

4. A target retirement fund with a nearby date will give you a fairly conservative one fund option. Or select a total stock market, total international stock market, total bond market combination. Vanguard Wellesley or Wellington might be attractive. As far as liquidity, watch out for redemption fee periods. Many funds charge an additional fee if you sell your shares within 30 to 360 days of purchase. Otherwise, it will take less than a week to access your portfolio by selling shares and transferring cash to your bank.
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Old 03-31-2014, 06:01 PM   #3
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Where do I move the 401k? I know the answer is traditional IRA initially, maybe convert to ROTH. Just not sure WHO to use.
If you wish to save money on expenses you should probably consider making an exchange into Vanguard (VG) funds. Your 401(k) probably has fees (expenses) that are greater than what you will experience at VG. Most employer-sponsored plans do.

I have rolled-over a few 401(K) accumulations as well as a profit sharing accumulation to VG years ago and expenses have actually decreased since that time. More for me. Less for them.
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Old 03-31-2014, 07:43 PM   #4
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If your current 401k has a stable value fund that pays a decent rate of interest then keep you fixed income allocation in the 401k.
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Old 04-06-2014, 07:18 AM   #5
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Thanks for the input. Obviously fee structure is important to me, but within reason as my overall goal is the most return on my money.

I am not disagreeing with anyone -- but why is Vanguard, Fidelity and Schwab recommended over Scottstrade? Is it a "red is better than blue" argument, or other more solid reasons?

Below is a list of funds I am currently invested in via my 401k:

JLGMX JPMorgan Large Cap Growth R6 Fund JLGMX Quote Price News
MEIJX MFS Value R4 Fund MEIJX Quote Price News
VINIX Vanguard Institutional Index I Fund VINIX Quote Price News
APHQX Artisan Mid Cap Value Institutional Fund APHQX Quote Price News
VSISX Vanguard Small Cap Index Signal Fund VSISX Quote Price News
RNPGX American Funds New Perspective R6 Fund RNPGX Quote Price News
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Old 04-06-2014, 09:01 AM   #6
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Also, if you plan to retire 'early' then I would leave the 401k where it is.

If you roll it over to an IRA, you will have to pay a penalty tax if you tap into it before 59 1/2.

If you leave it in the 401k and retire before 59 1/2, you can draw on it w/o an early withdrawal penalty tax (although the amount you draw out will be taxed as 'ordinary income').
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Old 04-06-2014, 11:39 AM   #7
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Originally Posted by 69supabee View Post
I am not disagreeing with anyone -- but why is Vanguard, Fidelity and Schwab recommended over Scottstrade? Is it a "red is better than blue" argument, or other more solid reasons?
Vanguard, Fidelity, and Schwab are big and will naturally have more customers here. I have no experience with Scottstrade. You're just looking for no fees, a large selection of no transaction fee mutual funds that you like (low cost index funds would be nice), a good selection of no-commission ETF's if you want them, an easy to use website, and good customer service.
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Old 04-06-2014, 11:53 AM   #8
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Originally Posted by BBQ-Nut View Post
Also, if you plan to retire 'early' then I would leave the 401k where it is.

If you roll it over to an IRA, you will have to pay a penalty tax if you tap into it before 59 1/2.

If you leave it in the 401k and retire before 59 1/2, you can draw on it w/o an early withdrawal penalty tax (although the amount you draw out will be taxed as 'ordinary income').
No disagreement, but that(early withdrawal) is defined in each plans' Summary Plan Description(SPD). You may be able to do early withdrawals penelty free, my plan allows and its very liberal as many xfers as I want, set up periodic withdrawls..... Some plans don't allow or have strict limits on termination at this age, or they limit the withdrawls you can make. YMMV.

Definitely check into it. Of course there's 72t as another alternative.
Yes you are taxed either way, you just avoid the penalty.
Best wishes,
MRG
Edit- attempt to define vague wording.
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