Bail out of Stable Value in a 401k?

[prudent_one]

My brother is thinking about pulling out of the Stable Value fund in his 401k. He's already transferred everything else out of the 401k to an IRA. He can't get back in if he moves out of it. The SV yield for now is a guaranteed 1.8% and he's attracted to 4% in a money market fund. He's retired, living on SS and withdrawals, no pension. I don't believe he has any real money concerns, my feeling is he saved a lot and he's not a spender.

He is very conservative with risk and has an AA of 30% stock/40% bond/30% cash.

Should he have any concerns about leaving the SV fund for a better return in money market funds? I wanted to say do it right now but as I'm no expert on SV funds I said I would research first.

[tulak]

I bailed out of my SV fund a couple of years ago. Its yields were never that great and there are much better options elsewhere.

My guess is that the age of easy money is over and you’ll get >2% yields with no/minimal risk when things normalize. Not much benefit in owning an SV fund.

Just a guess on my part though. You never know what the future holds.

[dmpi]

One thing he might consider doing (if possible) is move the 401K money from stable value to bonds or stocks inside the 401K. Then on his IRA and/or after tax account sell out the same amount of bonds and stocks into cash and use that cash to buy into a money market fund.

[Spock]

So its really a 2 part question:
1. should he move out of the 401K stable value to his rollover IRA?
I did so I'm biased to saying yes he should.
2. "he's attracted to 4% in a money market fund."
I would not trade the stable value fund for a money market fund as a long term plan. When rates drop the money market fund will drop the fastest of any other alternative. During the dark days of 0% interest, my 401K Stable Value fund (2.2%) was a cash haven.

So if he leaves the 401K, I would suggest the funds should be laddered into treasuries or CDs to lock in the current rates for how ever long he chooses for maturities. The better returns in a money market fund are not going to stay higher for very long once rates turn south again. Last I heard the market is forecasting 1% in rate cuts later this year.


ETA: Think of the Stable Value as a longer term fund where the rates drift slowly and a money market fund as a short term investment where the rates move very quickly. He's trading the longer/slower Stable Value for the shorter/faster money market. Individual treasuries/CDs in the rollover IRA would be crudely similar to replace the Stable Value in the 401K. A year from now the SV fund might look more appealing than the MM. Treasuries/CDs lock in todays rates that are drawing him out of the 401K.

[Al18]

I’ve never seen anything special with a SV fund once you’ve retired. When you’re working, you can’t easily buy a MM fund or CD’s, so SV is a substitute. I transferred my 401K to a rollover IRA 4 years after retiring because there were more options.

[Alex The Great]

I don't see any value in 401K assets except for 55 rule. I plan to move all 401K funds into tIRA once I reach 59.5 age, and I don't even care about institutional S&P 500 fund available in 401K.

[ut2sua]

Quote:

Originally Posted by prudent_one My brother is thinking about pulling out of the Stable Value fund in his 401k. He's already transferred everything else out of the 401k to an IRA. He can't get back in if he moves out of it. The SV yield for now is a guaranteed 1.8% and he's attracted to 4% in a money market fund. He's retired, living on SS and withdrawals, no pension. I don't believe he has any real money concerns, my feeling is he saved a lot and he's not a spender. He is very conservative with risk and has an AA of 30% stock/40% bond/30% cash. Should he have any concerns about leaving the SV fund for a better return in money market funds? I wanted to say do it right now but as I'm no expert on SV funds I said I would research first.

For your brother's particular case, if he pull $ out to an IRA, he could buy a 5 year CD at 4.8% today. So, assuming the SV yield will remain around 1.8%, he will make more interest $ in the next 5 years than leaving it in the SV for the next 10 years.
The above is a first order consideration. There are other things to consider such as the 55 no penalty withdrawal rule and other 401K protections that an IRA may not have.

[Dtail]

As Spock mentioned, when the MM funds turn south as they will, the SVF will beat it again.
My SVF is currently yielding a net 3.46, so keeping it for now. It has beat my MM funds all years of retirement except this one.

[ut2sua]

Quote:

Originally Posted by ut2sua For your brother's particular case, if he pull $ out to an IRA, he could buy a 5 year CD at 4.8% today. So, assuming the SV yield will remain around 1.8%, he will make more interest $ in the next 5 years than leaving it in the SV for the next 10 years. The above is a first order consideration. There are other things to consider such as the 55 no penalty withdrawal rule and other 401K protections that an IRA may not have.

Also, he should purchase CDs from multiple banks to ensure all CDs from each bank total below $250K for FDIC protection.

[Spock]

Quote:

Originally Posted by ut2sua ...There are other things to consider such as the 55 no penalty withdrawal rule and other 401K protections that an IRA may not have.

The Rule of 55 is something to consider if the brother is younger than 59.5.
And along with that check with the 401K admin to see if they allow Rule of 55. Not all 401K plans do.

[Graybeard]

My 401k's SVF was great for many years until the interest rates started to rise last year. The yield on the SVF was not a lot which I thought was good as I did not want it in junk bonds for a better yield. I assumed the SVF's interest rate was rising last Summer as T bills were and when I looked I was surprised (shocked)that is hadn't budged all year. It's all short term paper so after 9 months it was basically where it was on 1/1/22! I rolled it over to my Vanguard roll over IRA and started to buy treasury bills and have some in the Settlement Fund. Why settle for 1.7% or 1.8% when T bills were 50% higher (today 100%+ higher) plus it simplified things having everything at Vanguard.

[tulak]

Keep in mind not all SVFs were that great. Mine was never more than around 2.5%. It was better than alternatives at the time, but I’m happy it’s gone.

[pb4uski]

If there are any other reasonably attractive equity or fixed income options in his 401k he could put his SV money into those and sell equity or fixed income outside the 401k and use the proceeds to buy CDs.

That would keep a SV option open for the future.

[m3bs]

I haven’t started withdrawals from my 401K yet after retiring in 2009. I’m thinking about doing a significant rollover to chase rates now. When I first got into my SV fund, it was paying about 13.25%. (It’s been a year or two…..). Now it’s down to under 2%. I’m going to watch it to see how quickly it ticks up with the recent rate increases. If it continues to lag too far I’ll do a rollover to get more options.

[Dtail]

My 401k also has low cost Vanguard equity index funds, so if I decide the SVF is too low, then would just move into these funds and substitute the fixed income holdings outside the 401k.