Young 401k

[bode316]

Hello, been a while since I've posted.

Stats - Married 6 years, 2 kids - 28 years old
401k-180k
Roth 40k
Wife
401k- 20k (only works part time- kids)

Question-

She is thinking about switching jobs- all her benefits are with my company already. She will not be offered a 401k with her new employer, bc it will be part time also.

I want to know if it is a good idea to roll the 401k into a Roth, Traditional IRA or Leave it alone?

We are going to start her a Roth regardless, bc I think thats the best way to invest, but I was wondering about paying the taxes by rolling the 401k into a Roth.

Anyways, any input would be greatly appreciated.

 

[bode316]

incase anyone is wondering...

I also have Covendell College Savings account set up for the kids, both have roughly 5k each in them.

I really hope they dont lower the maximum contribution to $500.. that wont pay for a book in the future.

Also no debt except a mortgage- $120k left on it - paying extra, hope to be paid off by the time im 40.

 

[Animorph]

If you can stay within the 15% tax bracket this year and pay the extra taxes, roll the 401k into a Roth (or that part of it that fits within the tax bracket). Otherwise just roll it into a traditional IRA. You can then roll it into a Roth whenever you have the opportunity, such as during ER before SS starts and you have zero outside income. Generally your investment options will be better at Vanguard or Fidelity instead of a 401k, but if you like the 401k options there is no rush to convert it unless the company is pushing you out.

 

[bode316]

If you can stay within the 15% tax bracket this year and pay the extra taxes, roll the 401k into a Roth (or that part of it that fits within the tax bracket). Otherwise just roll it into a traditional IRA. You can then roll it into a Roth whenever you have the opportunity, such as during ER before SS starts and you have zero outside income. Generally your investment options will be better at Vanguard or Fidelity instead of a 401k, but if you like the 401k options there is no rush to convert it unless the company is pushing you out.

The options are pretty bad. I have fidelity for my 401k, and I really like the service, and we can invest in anything.

I also have schwab for my Roth and like that as well.

 

[KisKis]

Hi there. Same age, same length of marriage, same number of kids, and similar stats, so cheers! Since the options are bad, and your earnings will be going up in the future, I would definitely roll the 401k now. I really prefer Roth over Traditional IRAs because it will be my last retirement withdrawal option, and will hopefully become a tax free inheritance for the kids.

Best wishes~

 

[bode316]

Just wanted to give an update and get a report card... been a long time since i posted.. almost 4 years!

Stats - Married 10 years, 2 kids - 33 years old
401k-450K, 60% stocks 20% bonds, done very well, and just recently sold 20% of stocks and held in cash..
Roth IRA 100k, got lucky with Under Armour Stock.. bought it at $14, split 3 times.. 70% stock holding...
College Savings- 24k, 12 for each kid
Cash on hand 45k
HSA- 2500 all cash(just started this last year.. but max this out and will continue)

Wife
401k- 20k (Stay at home mom for the past 4 years. kids)

Debts- Home 140k (@3.75 interests.... 15 year note, have 11 years left, but wanting to pay off earlier)
Car- 30k (Still kicking myself over this.... but planning on paying this off this within the next 12 months)
No other debts, house valued at 295k in a fast growing area, plan is to have all debts paid in the next 3-5 years... working at it.. once paid off, plan to start using it as a rental house or buy another house and rent it..

Just want a report card on where I need to improve/suggestions.

 

[bode316]

guess i should say why my mortgage is different, I took a promotion and moved about 400 miles from my home town.... just incase anyone was wondering.

 

[Taxman59]

Keep on truckin! You seem to be on track to a healthy net worth . I would make sure any extra payments go against the car loan first then double down on the mortgage (depending on the economy at that point in the future).

 

[exnavynuke]

Nice progress. At your age, your portfolio seems excessively conservative to me, but if that is what you're comfortable with and not higher risk, then there doesn't seem to be any problems there.

You might want to consider a refi though, I'm currently refinancing my 30 year to a 15 year and I've locked in a 2.5% rate with 1.5 points. Obviously you'd have to run the numbers to see if it works out for you (and the numbers go against refinancing the faster you pay it off).

Also, unless you expect to need the HSA money quickly, I'd be putting most of it into investments if you have decent options for that in your plan.

Personally, I don't believe in "stock picking" for 99.999% of investors, a low fee ETF tracking the broad market is, in my opinion, a much better option for almost everyone with regards to risk vs reward. I leave stock picking to traders who do it full time and other people who get paid to do so (as if it's their actual job, they have the time and education to do it "right".... and most of them still won't out-perform an S&P 500 index fund).

Finally, there is absolutely no way I'd have $45k sitting in cash at your age while working unless it was sitting there to be used for a particular reason. I'd have most of that in a brokerage account earning money instead of sitting in a checking account or savings account losing buying power to inflation.

That's my take on your snapshot and how I would do things differently. I'm sure other people likely have different opinions.

 

[bode316]

I'll agree, it's conservative now..... but I wasn't a few weeks back... I just think we are going to have a little pull back in the market.

The reason I have 45k in cash is I sold some stock grants recently, but I may use it to pay off the car loan, I am still mad at myself for that purchase.... but live and learn.

 

[EvrClrx311]

Wow, amazing numbers at your age!

Only comment... personally, I also think you're sitting too conservatively with 40% of your retirement in cash and bonds (caveats follow). If you were planning to retire in the next 5 years that would make sense... however for the longer term horizon you're muting the power of compounding. If that's a short term thing, then you're attempting to time the market... which is typically a disaster in terms of long term perspectives.

Over a 32 year horizon (taking you to 65) equities have always returned between 6-9% real rate of return (it's pretty remarkable how consistent that is). You can bet on a cash/bond mix to be half or less then that. Give or take a percentage in each direction... when looking at that long term horizon you're going to see something like 7.5% (somewhere between 6.5-8.5%) return from an all stocks/equities mix and about a 5.5% (somewhere between 5-6%) return from the stock/bond/cash mix you currently have

The difference between a long term 7.5% real rate of return (inflation adjusted) and a 6% one brings your $450,000 to 4.5MM vs. 2.5MM

The part I may be missing is that you're planning to retire and pull from this account a lot sooner than 65... but if the majority of your 401K will remain invested until you're 65, then I'd recommend not having any of it in cash until you're within a decade of calling it quits. Certainly not $135,000 in cash as your update indicates - Cash is just a guaranteed net loss of inflation (a negative 3% return a year), whether it be a day, a month or a year held. Also there is almost no risk of stocks under performing bonds on a 20+ year period of time. However, if the fluctuations of the account would cause a panic in the short term, then bonds can help to reduce any anxiety of that. Studies have all shown that reactions (buying and selling) based on the market winds, is really what sinks people in the long run. Humans are just hard wired, all of us, to get this wrong. We buy high and sell low when we adjust our strategies based on performance of the market.

That said, peace of mind is a powerful thing... just seems the cash/bond mix may be pulling wind from the sails unnecessarily at this point in your accumulation phase. Best of luck to you! I'm sure you'll reach the 7 digits before 40

If it helps... my long term strategy is to move a bit more conservatively (10-20% moving to bonds) only once I've achieved the 1MM mark. I'm putting around $52,000 a year into retirement... so even if I have a down year I've conditioned myself to recognize it as a positive because I'm then buying at a discount! The power of the tidal forces of an accounts growth don't really dwarf the contributions until they get much higher. At that point I'd be concerned about the fluctuations (the downward ones) and wanting to mute them. I should get to the 1MM mark at about the age of 41. Until then I see no point to be in anything other than equities

 

[dsp0725]

Just wanted to give an update and get a report card... been a long time since i posted.. almost 4 years!

Stats - Married 10 years, 2 kids - 33 years old
401k-450K, 60% stocks 20% bonds, done very well, and just recently sold 20% of stocks and held in cash..
Roth IRA 100k, got lucky with Under Armour Stock.. bought it at $14, split 3 times.. 70% stock holding...
College Savings- 24k, 12 for each kid
Cash on hand 45k
HSA- 2500 all cash(just started this last year.. but max this out and will continue)

Wife
401k- 20k (Stay at home mom for the past 4 years. kids)

Debts- Home 140k (@3.75 interests.... 15 year note, have 11 years left, but wanting to pay off earlier)
Car- 30k (Still kicking myself over this.... but planning on paying this off this within the next 12 months)
No other debts, house valued at 295k in a fast growing area, plan is to have all debts paid in the next 3-5 years... working at it.. once paid off, plan to start using it as a rental house or buy another house and rent it..

Just want a report card on where I need to improve/suggestions.

Nice numbers! If you don't mind me asking, what's your salary and occupation?

 

[bode316]

Salary is 150k, max Roth out, put up 15% into 401k and company matches dollar for dollar up to 14%.. I've paid off the car, So now only the house is left to knock down, which is around 135 or so.

 

[DrRoy]

I'll agree, it's conservative now..... but I wasn't a few weeks back... I just think we are going to have a little pull back in the market.

Trying to time the market will just work against you. If I had been trying to time, I would have gotten out before the election. That would have cost me big from missing the rally. Then I would have waited for a pull back to get back in, which hasn't happened much and I would also have gotten wrong. Just pick your desired AA and stick with it.

 

[target2019]

I'll agree, it's conservative now..... but I wasn't a few weeks back... I just think we are going to have a little pull back in the market.

The reason I have 45k in cash is I sold some stock grants recently, but I may use it to pay off the car loan, I am still mad at myself for that purchase.... but live and learn.

I see that you went more conservative, before November. Then used cash to pay off the car loan. I see nothing wrong with either choice. Car loans can be avoided in the future, given your income.

Do you have faith in your Asset Allocation?