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Old 03-05-2016, 08:55 AM   #61
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samclem,
Fee for Principal Group 2030 is 0.88%. Where should her new contributions go?
That's a high ER, but honestly I feared it would be worse. What is the match from her employer? While we are doing this: What is her Modified Adjusted Gross Income (MAGI), her tax filing status, and how much does she normally contribute to her 401K every year? Any tIRA contributions?
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Old 03-05-2016, 08:57 AM   #62
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samclem,
I tried to attach a pdf of what's available in her plan. I will try to post that again. I see no bond index fund. Do you think the 2030 Lifetime fund at 0.88 is totally crazy expensive? Would that be a reasonable bucket to fold everything in plus new contributions while we are figuring out if we can rollover some of her account to her Vanguard IRA. What do y'all think about the bonds and international funds and that Principal Financial stock? Why does she even own that PFG stock at all?
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Old 03-05-2016, 08:58 AM   #63
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I've got almost no info on what she's got available. The PDFs you sent show what she owns, I can't open the footnotes to it. I don't have access to info on other fees she is paying, and the cost of ALL options under the plan.

Likely best option: If she can get the money out and into an IRA somewhere with reasonable cost funds, that would be an option worth exploring right off the bat.

Second best option: If she's got a single target-date fund or other balanced stock/bond fund available with fees that aren't totally crazy, that would be an OK option.

Third option: After you've examined and rejected the above two options: If you have to make up your own allocation of funds within her 401k, use low-cost index funds to build it. And keep it very simple, plan to rebalance it just once per year. Does she have NO bond index funds available to her in this 401K? The allocation Target2019 offered in his spreadsheet looks as good as any, but look for a cheap bond index option. As far as mechanics. why not make this simple and have her sell all of her present holdings and put the money into a money market fund, stable value fund, etc AFTER MAKING SURE THERE'S NO LOAD. After it's all been dumped in there, she can then parse it out as needed according to the allocations you recommend. Yes, it is two steps, but that's it for a year.
samclem,
All good discussion.
1) Target funds are .90 e/r. Also there is an additional admin fee of 7 bps, I believe.
2) Can not transfer out while still employed.
3) One bond index called Core Plus Bond. It is .70% e/r. She might have others available, as I see in my plan, but maybe not.
4) The pdf likely has ALL options available to her.
5) The footnotes, etc. add up to 3.5 pages of 6 pt type for my plan. She might have access to the complete plan document, but I do not see this in my account. I have a printout that employer gave me for our plan.
6) Most of the funds have a 30 day restriction of 1 transfer allowed. This is documented on web site.
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Old 03-05-2016, 09:25 AM   #64
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This is why 401Ks have a bad reputation. And this plan is far from the worst.

Target 2019,
Thanks for the info. It's great (and lucky) you have the inside scoop on the Principle 401Ks
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1) Target funds are .90 e/r. Also there is an additional admin fee of 7 bps, I believe.
Uggh. Well, that's "only" half a percent more (per year) than the index funds she's got available. Plus, any bond funds she'd need (maybe 30-40% of her AA at this age?) look to be about .70% ER, so that's even closer to the ER of these TGT date funds. I'm on the fence--in this case, maybe the KISS factor combined with the crappiness of the other options makes this the best choice for her. It's a set-and-forget solution, and if it helps prevent future bad decisions/predation by a "helpful" advisor, then it could be money well spent.

Are we sure there's no load? When I looked this fund up online (the Target 2050 version), it showed a 5% load, but I'm hoping that is "to the public" and waived within this 401K.

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2) Can not transfer out while still employed.
Is there any chance things are different in the plan offered to GM's daughter, or would they be uniform?


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samclem,
Do you think the 2030 Lifetime fund at 0.88 is totally crazy expensive? Would that be a reasonable bucket to fold everything in plus new contributions while we are figuring out if we can rollover some of her account to her Vanguard IRA.
The 2030 fund is expensive, but possibly worth it as noted above due to the crummy alternatives and the need for a solution that doesn't need any attention. But we need to be sure there's no load before jumping in to it.

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Why does she even own that PFG stock at all?
Who knows? But she certainly doesn't need it. If there are no strings, sell it.
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Old 03-05-2016, 10:01 AM   #65
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pb4uski,
I will inquire about the 401(k) match, and the amount being saved towards retirement and report back. Thanks for these excellent questions.

What is a good AA for a 48 yr. old? Ours is 50/50 and we are 66 and 70, but we still have some earned income and are still contributing to a solo 401(k).

Should hers be 70/30, 80/20, or even more aggressive? She has the Principal Group 401(k), a Vanguard Target Date 2035 fund valued at about 67K, will have no pension, and has no Roth. I am encouraging her to make efficient use of her HSA but she hasn't done that yet. Thanks!

Goldenmom
If she is 48 today and aspires to retire at 60, then she'll retire ~ 2028. The Vanguard 2030 target retirement fund has a 75/25 AA so that isn't a bad place to start and then put contributions into the bond fund so the account will become less equity focused between now and ~2030 when she retires.

The market is ~65% large cap, 27% mid-cap and 8% small cap, so I would go with the following: 35% large cap index fund, 15% mid cap index fund, 5% small cap index fund, 20% international and 25% core bond fund (assuming she has not taxable or tax-free retirement savings to consider) and put new money in the bond fund but monitor the AA and make midcourse adjustments as needed.

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pb4uski,
Could the deductible IRA be moved to Vanguard if she qualifies for it? I'm much more familiar with Vanguard funds and their fees are lower.
Yes, if she qualifies for a deductible IRA then I would do it at Vanguard.

Also, there has been mention of an in-service rollover.... if this is available it would be a good idea but plans allowing in-service rollovers are rare.
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Old 03-05-2016, 10:19 AM   #66
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Uggh. Well, [the Target 2030 ER is] "only" half a percent more (per year) than the index funds she's got available. Plus, any bond funds she'd need (maybe 30-40% of her AA at this age?) look to be about .70% ER, so that's even closer to the ER of these TGT date funds. I'm on the fence--in this case, maybe the KISS factor combined with the crappiness of the other options makes this the best choice for her. It's a set-and-forget solution, and if it helps prevent future bad decisions/predation by a "helpful" advisor, then it could be money well spent.
Okay, I'm off the fence. If you think your daughter will not succumb to temptation and purchase other funds at the advice of an advisor and if she isn't allowed to do an in-service transfer from this 401K to an IRA, then I think she should set up a low-cost mini-portfolio within this 401K. She'll save about 0.60% per year compared to the Principal Group's 2030 Target Fund, which is $600 per $100K invested. That's a lot of beer and pizza.
But--if you or she will be tempted to time the market or look for "bargains" or hot deals among the other choices, or if you aren't going to rebalance the funds across the AAs every year or so, then just put it into the Target 2030 fund, and don't think about it again. Only you and she know the situation and your level of commitment, knowledge, and discipline you are able give to this project.
And, if you set up several funds, I agree with the AA's recommended by pb4uski and Target2016. I like the idea of going relatively low on the bond fund now (maybe 25%) and directing her new contributions to that fund. This helps reduce the "hit" from the high ERs in that bond fund, and it will help to gradually increase her bond holdings over the years.

On the day she terminates employment for whatever reason, she should strongly consider moving all of this money to a Vanguard IRA, unless she's got some unusual circumstances.
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Old 03-05-2016, 10:25 AM   #67
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PFG = Principal Financial Group. Hard to say why she has that. It may have been a settlement of some kind?

If the choice is between one fund at close to 100 bps, and 5 funds at 50 bps less, I would take the later choice for 20 years to come. I think you give up 8% approximately if you go with the higher fee in this case. But that is just my opinion. She might forget to re-balance, and it costs more. Or maybe it works in her favor.
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Old 03-05-2016, 04:20 PM   #68
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That's a high ER, but honestly I feared it would be worse. What is the match from her employer? While we are doing this: What is her Modified Adjusted Gross Income (MAGI), her tax filing status, and how much does she normally contribute to her 401K every year? Any tIRA contributions?
Hi samclem,
We got her Vanguard agent authorization completed & mailed. She's going to call Principal next week about forms needed to make me her agent at Principal and to find out if any of her funds can be rolled over to her Vanguard IRA.

Her annual pay is listed on the Principal website as $72,726 and it says she contributes $419.57 every 2 weeks which is 15%. I urged her today to max this out by further reducing lifestyle to get to 17%. She's divorced and files as individual.

I'm leaning towards simplifying & consolidating into the index funds since they're cheaper & will get you the available bonds & international funds in her plan.

I will have to greatly simplify a consolidation plan for her or she will get overwhelmed on the call(s). I wonder if it would be easier for her if I organized it by what she will sell, hold, buy, and then give her the final percentages.

She told me today that her old Ameriprise "advisor" was able to "move around" several things in a single call so we may not be too restricted on what we can change at one time. Taking dinner break and will be back soon.
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Old 03-05-2016, 05:05 PM   #69
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samclem and members,

The only Fixed Income options in Cheryl's PFG plan are:
  • Principal Global Investors: Core Plus Bond 0.71%
  • Principal Estate Inv: U.S. Property 1.15%
Her only International options are:
  • Principal Global Investors: Diversified International 1.06%
  • Principal Global Investors: International Emerging Markets 1.51%
  • Principal Global Investors/DFA: International SmallCap 1.46%
None of the above funds say "Index" in their names.
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Old 03-05-2016, 05:39 PM   #70
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samclem,
No tIRA contributions. Sorry I missed that question earlier.
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Old 03-05-2016, 05:49 PM   #71
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Target2019,
I don't see where Core Bond Plus is an index, but she has almost no Fixed Income choices. The funds marked N/A on the pdf are available under plan but not currently held. I was disappointed, but not surprised, to see you say that she cannot transfer out while employed--not any of her funds while employed? She's considering new employment at a hospital. That would allow me to rollover her current 401(k) and get away from these limited expensive funds. With any luck the hospital would have a better plan.
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Old 03-05-2016, 05:58 PM   #72
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pb4uski,
Thanks for the detailed breakdown of the funds and their percentages. That should be very helpful if we go with discrete funds as opposed to the Lifetime2030 option. I'm considering both very carefully.
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Old 03-05-2016, 06:15 PM   #73
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Goldenmom,
So, she gets no employer match for her 401K.

The money that goes into her 401K goes directly from her employer into those accounts, she never sees it or gets an easy chance to spend it. You know her best, and this is important: If, instead, some or all of her retirement savings money was automatically sent from her bank to a Vanguard account once a month, would she leave that arrangement alone for 20 years, or is it likely that she'd get into a pinch sometime and turn it off to use the funds for spending? The answer to this question will be important to determining whether she should keep contributing >all< her retirement savings to the 401K, or if she'd be better off diverting some/all to a Vanguard tIRA instead.

Also, for 2016, the phaseout for IRA deductibility for a single taxpayer starts at a MAGI of $61K, so that might limit her to a 401K (for new deductions--she could still roll over all of her existing 401K into a lower-cost tIRA at Vanguard if she changes jobs).
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Old 03-05-2016, 06:15 PM   #74
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samclem,
I'm very interested in your "off-the-fence" mini-portfolio to save for greater stores of beer and pizza. I'll personally re-balance each year right here with the help of the forum, and there will be NO TINKERING. (Be assured that January 2016 was a good teacher and threw a "bear" scare into me that I won't soon forget).

I like the 25% bond fund allotment with new contributions going to Core Plus Bond. Upon her retirement she will be instructed to rollover her 401(k) into her Vanguard IRA. She might do this sooner if she changes jobs. I will create a folder with instructions in the event of my death or infirmity.

I'm reading this thread straight down and responding as I go. Sure hope I see her completed portfolio below like one of Christine Benz' Morningstar portfolio makeovers. Christine lists the "before" and then the "after" portfolio with commentary. I love portfolio makeovers and all the comments that follow from readers.
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Old 03-05-2016, 06:20 PM   #75
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Target2019,
I don't see where Core Bond Plus is an index, but she has almost no Fixed Income choices. The funds marked N/A on the pdf are available under plan but not currently held. I was disappointed, but not surprised, to see you say that she cannot transfer out while employed--not any of her funds while employed? She's considering new employment at a hospital. That would allow me to rollover her current 401(k) and get away from these limited expensive funds. With any luck the hospital would have a better plan.
This looks fine to me. Sometimes you need to play the hand that's dealt:

https://www.principalglobal.com/documentdownload/27017

If that was available to me, I might invest into it.

I do understand the menu choices, as I have a full color menu provided by my employer. There are differences, though, such as that bond fund.

If a fund does not say index, it is not necessarily a warning, and that you should avoid. Reading a bit more, and looking at the goals of the fund is suggested.

She may or may not move to another job. It's probably worthwhile to complete this plan on paper, at least. It very well could be that the next job has worse choices. The understanding you gain now will help from this point forward.

For example, as said by someone, most plans do not allow you to transfer out while still an employee.

I was calculating the weighted expense ratio for before and after. Before is .70, after would be .55. That might be a surprise, but when you look at the bond fund and international fund, about half of the total is in more expensive funds. When you noodle about in a spreadsheet and look at these things, it might suggest other moves, especially if you stay put in a job for 20 more years.
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Old 03-05-2016, 06:26 PM   #76
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I think the biggest problem I see is that young lady is not contributing the max to a Roth IRA yearly. That became a bit clearer when I just read that she has no match in the 401(k).

This 401(k) provides one pillar for retirement. The next job will be a 2nd pillar. Roth will be a 3rd, with SS being the 4th.

Don't forget to congratulate her for having a nice balance at 48. She is way ahead of the norm.
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Old 03-05-2016, 06:33 PM   #77
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samclem,
I think she would leave Vanguard deposits alone under normal circumstances, but might "turn it off" under extreme circumstances (not for a vacation or kitchen remodel, etc.). She's pretty careful with her money although I can't convince her to cut the cable she rarely watches and invest the money (smile). She is very uninformed about financial matters so probably benefits from the structure of the automatic 401(k) contributions.

I'm confused about the IRA contributions. I thought you cannot contribute to an IRA. If you can, I want to contribute to ours every month, too. I live to make Vanguard contributions (smile). I thought I even heard Ed Slott say you can't contribute to an IRA on the Jill on Money show. Please educate me. Can you contribute to only certain kinds of IRAs? Bill and I have traditional IRAs at Vanguard and he has an individual (solo) 401(k). The only account we are contributing to is his solo 401(k). Please tell me if I am allowed to send checks to his or my IRA.
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Old 03-05-2016, 06:48 PM   #78
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target2019,
I'm urging her to max out a Roth IRA. I want to do a Roth conversion with our RMDs, too. I always stop and listen when one of my podcasts has a guest talking about Roths and Roth conversions. I'm very interested in that.

Yes, Cheryl definitely needs a Roth bucket of money in retirement. It could help her to defer SS until 70 when she would get a much higher benefit. I'm extremely worried about her having no employer match and no pension, especially in a low-growth, low interest rate economy. Alan Greenspan doesn't sound very positive about future productivity and that worries me--not to mention the credit crisis which I don't want to even think about.

I will keep pitching the Roth to her. She was fussing today that money is tight with her 15% deduction. I'm urging her to go to the 17% on her 401(k) and cut lifestyle. Our 17 yr. old grandson now has a Roth at Schwab.

I'll congratulate her on her nice balance.
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Old 03-05-2016, 06:56 PM   #79
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I'm getting bleary-eyed. I'll check back in tomorrow to continue working on Cheryl's portfolio changes. I'm going to take a break and continue Episode 1 of the new season of "House of Cards" on Netflix. Great show! Thanks everyone. The plan is coming together.
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Old 03-05-2016, 09:28 PM   #80
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I'm confused about the IRA contributions. I thought you cannot contribute to an IRA. If you can, I want to contribute to ours every month, too. I live to make Vanguard contributions (smile). I thought I even heard Ed Slott say you can't contribute to an IRA on the Jill on Money show. Please educate me. Can you contribute to only certain kinds of IRAs? Bill and I have traditional IRAs at Vanguard and he has an individual (solo) 401(k). The only account we are contributing to is his solo 401(k). Please tell me if I am allowed to send checks to his or my IRA.
Anyone with earned income (from a job, self employment, etc) can contribute to a traditional IRA (tIRA). And, a person who has no earned income but who is married to someone who has earned income can also contribute to an IRA (a "spousal IRA").

So, your daughter can contribute to an IRA, and so can you and your husband if you have earned income.

But, there can be income limits for taking taking a tax deduction for contributing to a tIRA.
-- If a person is not covered by a retirement plan at work (including a 401K plan, etc), then there are no income limits for taking the tax deduction.
-- However, if a person is covered by a retirement plan at work, then the tax deduction is phased out based on their MAGI. See the info here for details. The funds still grow tax deferred. Furthermore, if a person makes any non-deductible contributions to a tIRA (say, because their MAGI exceeded the cap), then their eventual withdrawals from that IRA will always require a complex set of computations to figure out what % are to be taxed at normal rates and which should be tax free. It is a pain in the neck. It is quite possible that your daughter's MAGI will be in the phaseout area for deductible tIRA contributions.

Roth IRAs: Like a tIRA, they require earned income. They never offer a tax deduction on the contributions, but are tax-free when withdrawn. There are income caps for making contributions to a Roth, but they are higher than the income caps for taking making a deductible contribution to a tIRA. See the limits here.

I am not a tax pro and my knowledge is thin on this stuff.
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