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Working to plan overall Allocations - stumbling on pproach to consolidate 401Ks
Old 01-20-2015, 10:34 AM   #1
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Working to plan overall Allocations - stumbling on pproach to consolidate 401Ks

Hi All,

First let me say I am a 54 year old, the nervous investor type and have been stricken by analysis paralysis for some time, tending to leave 401k allocations alone, and a lot of cash in the bank. I have accumulated an asset base that should allow me to retire late this year (~$2MM). I need to finalize a plan for the investment and start the execution into the appropriate accounts. Through the kind help of this forum (thanks to all), I believe I have gained the knowledge and insight to begin to build a plan for retirement. I have been working for a while to really understanding portfolio allocation. I have spent lots of time reading about the Ultimate Buy & Hold plan, Perm Portfolio, IVY Portfolio, etc. At this point, I believe I should be in a B&H with as much risk as I can tolerate, likely 50/50 or 40/60.

The current problem I am faced with, is I have three 401Ks, wife also has one plus an IRA, then there is a large taxable account with E-Trade. I am not sure the best approach to build this blended portfolio. As I analyze each of the 401Ks I am amazed at the different levels of operating costs (.55% to .05). It appears I need to get into lower cost solutions were possible, plus in the current plans, I am unsure of which funds to group for equivalent B&H portfolios. In reading the forums I also see the advantages of pooling Bonds in specific accounts since the tax rate is higher. All this together is a bit overwhelming to digest.

I have the ability to roll over my two old 401Ks ($450k) to my current employer which has a Wells Fargo plan. This plan has a Schwab PCRA option that might be a good vehicle to get all of my 401K monies into a simple place that provides the common ETFs for a B&H portfolio. Are there good reasons I should roll over to the WF 401k or should I roll over to a Vanguard IRA? I searched and really couldn't find a lot of info (at least that made sense for me) about 401k vs. IRA. Are there forum topics addressing this that I just didnít find?

Thanks any suggestions or pointers to information you folks can provide!
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Old 01-20-2015, 10:41 AM   #2
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I rolled over the vast majority of several accounts into a Vanguard IRA. A good guide is to choose your lowest cost options and check their Morningstar ratings. My core funds are VTSAX , VTIAX and VBTLX . Did the same with DWs non-spousal inherited IRA. What I haven't rolled over is waiting to see if bond prices drop and yields rise. They will eventually be rolled over as well.


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Old 01-20-2015, 11:22 AM   #3
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It doesn't have to be difficult. The most common mistake is investors who try to apply a chosen asset allocation to each account (taxable, 401ks, IRAs, etc.). There's usually no reason to apply your asset allocation to each account!

Most investor’s primary goal is to maximize after-tax return. In general, an optimal portfolio from an asset location perspective would hold broad-market index equity funds/ETFs or tax-managed equity funds in taxable accounts and taxable bond funds in tax-deferred accounts.

Step 1: Ignore your accounts (taxable, 401ks, IRA) to start, and decide on what overall asset allocation you want. 50/50 or 40/60 based on your OP.
Step 2: Choose the specific fund(s) you want to fill each asset class in your portfolio (e.g. domestic equity, international, bonds, etc.) as if you only had one account instead of several.

Step 3: Sort your funds in terms of tax efficiency (see pic below for general guidance, but look up tax efficiency for each holding on Morningstar or similar). [This all assumes, based on your mention of B&H, you're not planning on doing a lot of equity fund buying and selling, which generates capital gains and a tax impact - that might change your placements.]
Step 4: Put your least tax efficient funds in your tax deferred accounts, three 401k's, IRA's etc. You may be forced to choose funds similar to those you identified in step 2, e.g. you may want VBTLX but you may have to choose whatever is closest in your 401k (Fidelity, T Rowe Price, etc.). And you'll want to be aware of fund expense ratios for each 401k's funds, that might dictate which funds you'll want to place in which 401k.
Step 5: Once you've taken up all the "space" in your tax deferred accounts, your remaining investments have to go into taxable (and any remaining space in tax deferred accounts).

Step 6: Monitor your investments and rebalance back to your chosen asset allocation periodically (annually, quarterly, other).

That's it!
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Old 01-20-2015, 11:48 AM   #4
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Are there good reasons I should roll over to the WF 401k or should I roll over to a Vanguard IRA?
You might want to be in an self-directed IRA (like at Vanguard, Fidelity, or Schwab) if:

* the choices in the Wells 401K do not meet your asset allocation requirements,
and/or
* the expense ratios of the funds in the 401K are higher than similar funds at a discount broker

Midpack has found a diagram that very nicely lays out where you should place assets.

Buy and hold is an excellent strategy, and you have already defined your allocation mix. All that is left is to decide where funds should be placed and in what dollar amounts. So lay out a portfolio.

Then you can have a conversation with Vangard, Fidelity, or Schwab to get their help in completing your plan. You may find that you have assets that are not available at the new broker. No worries! They can fix that for you.

If you chose to move your old 401K's to them, any of these brokers will get on the phone with you to the old 401K and start the transfer process (it's pretty painless as these 401K administrators are used to working with brokers to transfer assets). Then after the transfer, they are ready to work with you to allocate the funds according to your plan.

So, now, I'm going to confuse the expense ratio issue for you. Although I am sure you have already read/studied this:

Vangard has among the lowest expense ratios for index and managed mutual funds
Vangard also has many of their mutual funds available as an Exchange Traded Fund (etf), for even lower expense ratios. Available for no commission.
Schwab has the largest selection of low cost ETFs, some Vangard, some not - available for no commission costs.

Should you chose to invest in ETFs, just follow the mantra: Index ETFs based on a known bench mark with low expense ratios, and large capitalization.

I know, more analysis, but the suggestion for ETFs is optional and can be implemented later.

-- Rita
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Old 01-20-2015, 12:39 PM   #5
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Seraphim,

Thanks for the guidance. Perhaps there are no concerns or considerations when moving from a 401k to an IRA... I just wanted to ask the question as I have never rolled over...
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Old 01-20-2015, 12:40 PM   #6
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Midpack,

Thanks for laying out a simplified approach. I started researching each of the funds available across the 401k, including ERs as a start. I appreciate the help!
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Old 01-20-2015, 12:49 PM   #7
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Gotadimple,

Yes, most of my reading has led me to believe ETFs are the best choice to curb cost. thats why I was considering rolling to the 401k plan that has a Schwab PCRA option. As I understand it (I may be wrong here) this allows access to all of the Schwab ETFs at not cost trades. I thought it might be easier and cheaper if I consolidated to the WF 401 and transferred the balances to the PCRA and allocated into a BH portfolio of ETFs. If I map all of the 401k funds back to the BH portfolio and allocate across several accounts I guess I achieve the same result. Thanks for your guidance!
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Old 01-20-2015, 12:59 PM   #8
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Gotadimple,

Yes, most of my reading has led me to believe ETFs are the best choice to curb cost. thats why I was considering rolling to the 401k plan that has a Schwab PCRA option. As I understand it (I may be wrong here) this allows access to all of the Schwab ETFs at not cost trades. I thought it might be easier and cheaper if I consolidated to the WF 401 and transferred the balances to the PCRA and allocated into a BH portfolio of ETFs. If I map all of the 401k funds back to the BH portfolio and allocate across several accounts I guess I achieve the same result. Thanks for your guidance!
Good Plan, Dollar!

According to Schwab PCRA: Schwab Brokerage: Personal Choice Retirement Account, there would be no commission fee on ETFs or Mutual Funds in their OneSource program (or $8.95 if not in the OneSource program). They have a lot of offerings in this program, so go for it. You may also have a dedicated phone number you can call for help/assistance with rolling over, and starting the investment process.

I use Schwab exclusively for my accounts now, but did have accounts with both Vangard and Fidelity because my former employers had chosen them for 401k's. All three are good.

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Old 01-20-2015, 05:39 PM   #9
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Thanks Rita for the advice and encouragement!
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Old 01-20-2015, 07:40 PM   #10
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Be sure the rollovers you do are direct and not by sending a check to you. Otherwise you might run afoul of the new IRS rule.

You can do as many direct ones as you like in a year ( example broker to broker).
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Old 01-20-2015, 08:01 PM   #11
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I'm actually right in the middle of the end-to-end process that Midpack describes above. In my case, I decided that I need to remove myself from 1) too high expense mutual funds 2) too many individual stocks that were now a very significant part of my portfolio and 3) having no real idea what my asset allocation plan was, but knowing it was too heavily weighted in stocks. I am 52 and am hoping to retire at 55, so I knew that I need to do some structuring and analytics to determine if I can feasibly do this.

In my taxable account, I decided to take quite a large capital gains for this year by first selling expensive funds that I've had for several years. In my non-taxable accounts, I also sold everything that was not a low cost index fund. I made the decision to invest in a mix of Vanguard funds/ETFs. I also decided to do some of this directly with Vanguard, so I opened an account and am slowly moving cash into it this month.

When I'm finished, I will have Vanguard Admiral Funds (stock, international stock, municipal bonds) in a taxable account at Vanguard. I will have a single Vanguard domestic bond fund in my 401k. I will have Vanguard domestic and foreign bond ETFs in my IRA at Ameritrade. And I will still have some remaining individual stocks in my taxable account at Ameritrade. Next year, I plan on selling most/all of the individual stocks, assuming none of them go negative this year. They all currently have quite large capital gains on them as well.

On one hand, I liked having everything at Ameritrade. But I am exploring Vanguard since I think there's no harm in diversifying across brokerages. If I REALLY like them, I may consolidate to one brokerage at some point. But I do like the Amertrade website better than Vanguards.

In my opinion, the decision to move funds out of a 401k when you leave the company is an easy one. I would rather have that money totally under my control rather than associated with my former employer in any way. I have rolled 3 401k's into my single rollover IRA now and don't regret that at all. I will roll the 4th one when I retire (hopefully in 2.5 years)!

By the way, I extensively used a spreadsheet that I created to figure an track all of the allocation and fund movements. If you can manage a spreadsheet, use it. It will help you visualize things a lot better. My spreadsheet includes a tab for my IPS, a tab for my current investments which shows my current and target allocation and the differences in each class, a tab which I used to calculate how much to put in each of my new funds in each of my accounts, and a tab to document various research on the funds/ETF that I explored. I used Google Docs to create the spreadsheet and I make use of the googlefinance function to pull in stock/fund prices so that I don't have to enter these.
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Old 01-21-2015, 09:40 AM   #12
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PaunchyPirate,

Thanks for sharing the process you are going through. Sound about like my situation. I appreciate the detail you provided, makes it easy to follow your train of though and actions. You mentioned the spreadsheet... Is that something you can share? I have a felling I will need to ask more questions as I move along... THANKS!
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Old 01-21-2015, 10:10 AM   #13
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Not to pile on to the OP's questions about tranferring from a 401K to an IRA, but I'm curious - is their a time limit on when the transfer must happen after leaving a company? In other words, if I leave my company and also leave my money in my company's 401k instead of transferring it to an IRA, can I later (say a few years go by) do the conversion to an IRA or is this a decision that needs to be made within 60 days or something.
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Old 01-21-2015, 11:31 AM   #14
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PaunchyPirate,

Thanks for sharing the process you are going through. Sound about like my situation. I appreciate the detail you provided, makes it easy to follow your train of though and actions. You mentioned the spreadsheet... Is that something you can share? I have a felling I will need to ask more questions as I move along... THANKS!
Dollar, I tried to send you a private message, but apparently I cannot do that until I'm a "trusted" member on here. But I can't find info on how to become trusted. Perhaps if you're able to private message me, I might be able to reply to you? I'm not sure. I am willing to selectively share a version of my spreadsheet, but I don't want to toss a link out to the entire world.
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Old 01-21-2015, 11:56 AM   #15
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PaunchyPirate

I was able to send you one.... Check to see if you received it.
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Old 01-21-2015, 11:59 AM   #16
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Not to pile on to the OP's questions about tranferring from a 401K to an IRA, but I'm curious - is their a time limit on when the transfer must happen after leaving a company? In other words, if I leave my company and also leave my money in my company's 401k instead of transferring it to an IRA, can I later (say a few years go by) do the conversion to an IRA or is this a decision that needs to be made within 60 days or something.
I am not aware of any time limit to make the decision of going from a 401K to an IRA. The 60 day limit comes into play after after the decision has been made and the rollover process begins. The rollover process must complete within 60 days.
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Old 01-21-2015, 12:37 PM   #17
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Any time limit on how long you can leave funds with your former employer's 401K is based on the arrangement you employer has with the 401K administrator. Some expect you to move out of the 401K within a certain time limit, others don't have any time limit. HR will know.
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Old 01-21-2015, 02:38 PM   #18
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Dollar, I tried to send you a private message, but apparently I cannot do that until I'm a "trusted" member on here. But I can't find info on how to become trusted.
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PaunchyPirate

I was able to send you one.... Check to see if you received it.
IIRC it simply takes 5 (or 10) posts to become trusted, same for every new member.
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Old 01-21-2015, 03:42 PM   #19
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Do any of these 401ks that you have have a stable value fund? A good stable value fund might be a good reason to stick with the 401k but not all 401ks offer a stable value fund.
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Old 01-21-2015, 03:50 PM   #20
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Do any of these 401ks that you have have a stable value fund? A good stable value fund might be a good reason to stick with the 401k but not all 401ks offer a stable value fund.
pb4uski,

Yes I think one of them does. I will check...
THANKS
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