Author Topic: Advice On What To Do With My 401K??? IRA?  (Read 3299 times)

shade13

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Advice On What To Do With My 401K??? IRA?
« on: August 12, 2014, 06:17:01 PM »
Hey guys, I'm a noob here.

Just found this board today, and was hoping you all could give me some good advice on what to do with my 401K.

The situation -

Basically, the company I worked for was changed out and with that came the question with what to do with my 401K.  The old employer I was with would match my contributions to my 401K.   The new employer I am with does not offer to match.

So I know I shouldn't withdraw my money. 

So that leaves 2 options, roll over to my new employer that doesn't offer to match or open up a traditional IRA.

Which should I do?

I am 31 years old and have 33,000 in funds.

Also, am I wrong in even thinking of opening an IRA if I'm not a "stock market genius"?  Can the "common working man" open up an IRA?  Or is it meant for people with more money.

Sorry for any dumb questions, I'm just very new to all this.

Thanks!

Frankies Girl

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #1 on: August 12, 2014, 06:38:29 PM »
What company (the investment company) is the 401k currently? (like Merrill Lynch, Fidelity, American Funds, Vanguard, etc...)

Do you have a current 401K with the new company? Who do they have it with?


And yes, anyone can open an IRA - it's not hard and as long as you have the minimum amounts for whatever fund you're wanting to buy inside the IRA, it is pretty easy - mostly you can do it online, but you can also call places like Vanguard and do it over the phone. But it may still be in your best interest to invest through your company's 401k even if they don't offer a match (because it's pre-tax money, and it reduces your taxable income, and you have contribution limits of 17,500 for under 55 years of age - way more than IRA contribution limits of 5,500/year).


Definitely do some reading around this forum, and check out the following links to get up to speed on basic investing:

http://jlcollinsnh.com/stock-series/
^ where I learned to stop worrying and love the stock market

http://www.bogleheads.org/
^ a bit more advanced, but tool around in here for ideas too

http://www.bogleheads.org/wiki/Main_Page

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy
^ good place to start too

« Last Edit: August 12, 2014, 06:40:39 PM by Frankies Girl »

dandarc

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #2 on: August 12, 2014, 06:43:07 PM »
Rolling over to the IRA is a good move - you can have your choice of whatever you want in terms of investments, rather than whatever the new company offers.

[Edit - to be clear this next paragraph applies to future contributions, not the funds you already have]
If you're going to save less than $5500 per year, and your employer is not matching, you're probably best off in a traditional or Roth IRA.  If you want to do more than that, then your 401K, even with no match, is probably a good bet - the offerings would have to be pretty terrible to make up for the tax savings.  So that's another 17,500.

shade13

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #3 on: August 12, 2014, 08:32:48 PM »
Hey all, thanks for the quick replies.

Frankies girl - My 401K is currently ING.  The new company's 401K is Principal.  So you're saying that 401K may be a better option then?  I'm not sure really how much money would go into my 401K though.  I dont think it would be anywhere near 17,000.  Probably a lot closer to 5,000.  I know I will probably not be putting 5,000 into my IRA if I get one.

Thanks for the links.  I will read those tomorrow. 

I'm thinking of enrolling into Vanguard.  Can you get like a plan that kinda just lets it do it's own thing?

Dandarc -

I will not be putting more than 5500 back per year.  And I understand that in a rollover, I can start off with one big lump sum correct?  And that doesn't count against the contribution?  Meaning, I can roll over the 33,000, and that doesn't count as my 5,500 limit for this year.

I am confused by your last couple of lines though.

the offerings would have to be pretty terrible to make up for the tax savings.  So that's another 17,500.

Sorry, I'm not sure I follow.

So maybe I could open an IRA account and then open up a 401K account as well?  Or maybe I should just take all the money I wanna save and just put it into an IRA?

dandarc

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #4 on: August 12, 2014, 09:04:03 PM »
You got it - if you want to invest more than the IRA limit the 401k is the place to do it.  Since you are not getting a match there is not an inherent advantage to the 401k over the IRA.

Frankies Girl

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #5 on: August 12, 2014, 09:19:23 PM »
You can't open a 401k - that's a company sponsored plan. You'd be able to open a Traditional or Roth IRA (Traditional is pre-tax, Roth is after tax). Even if you won't be saving the full amount of the maximum, you have the ability to put away much more in a 401K than the IRAs, but you can actually do both.

I am not familiar with either of the companies that you have your past and current 401K accounts with, so hopefully someone that is will chime in.

Generally, you look for the lowest expense ratio fund in your 401k that matches up the best with your AA (asset allocation). Basically, you're saving pre-tax income (a big plus) and you can save way more in a 401k than in a traditional/Roth IRA. In doing the pre-tax income right out of your paycheck, you're lowering your actual income that is counted for tax purposes - and that could mean dropping you down into a lower tax bracket (another plus). This may not be a huge deal in your case if you're already in a low taxable bracket, but they are two good reasons to continue with a 401k even if you don't get a match or have less than stellar choices available in your plan.  So that's why even if you have blah choices available and no matching... in regards to what Dandarc was talking about.

I would suggest rolling your old 401k into an rollover IRA at someplace like Vanguard (you can call them up and ask them for how to do this - they should be able to walk you through the steps). At the very least, you have that in your complete control and can choose whatever funds you'd like (you're not locked into the 401k choices). You'll need to do some basic research (links above and below for help!) decide on your investment policy statement and what your AA should be, take your time and learn what you need to feel comfortable, and then make your moves. You can totally do this - I came into this knowing almost nothing just about a year and a half ago, and it's scary how easy some of this stuff can be (it doesn't have to be complicated - definitely read the JLCollins stock series) Good luck!!


http://www.bogleheads.org/wiki/Investment_policy_statement
http://www.bogleheads.org/wiki/Asset_allocation

shade13

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #6 on: August 13, 2014, 08:02:46 AM »
You got it - if you want to invest more than the IRA limit the 401k is the place to do it.  Since you are not getting a match there is not an inherent advantage to the 401k over the IRA.

But there is an advantage of IRA over 401K?

You can't open a 401k - that's a company sponsored plan. You'd be able to open a Traditional or Roth IRA (Traditional is pre-tax, Roth is after tax). Even if you won't be saving the full amount of the maximum, you have the ability to put away much more in a 401K than the IRAs, but you can actually do both.

I am not familiar with either of the companies that you have your past and current 401K accounts with, so hopefully someone that is will chime in.

Generally, you look for the lowest expense ratio fund in your 401k that matches up the best with your AA (asset allocation). Basically, you're saving pre-tax income (a big plus) and you can save way more in a 401k than in a traditional/Roth IRA. In doing the pre-tax income right out of your paycheck, you're lowering your actual income that is counted for tax purposes - and that could mean dropping you down into a lower tax bracket (another plus). This may not be a huge deal in your case if you're already in a low taxable bracket, but they are two good reasons to continue with a 401k even if you don't get a match or have less than stellar choices available in your plan.  So that's why even if you have blah choices available and no matching... in regards to what Dandarc was talking about.

I would suggest rolling your old 401k into an rollover IRA at someplace like Vanguard (you can call them up and ask them for how to do this - they should be able to walk you through the steps). At the very least, you have that in your complete control and can choose whatever funds you'd like (you're not locked into the 401k choices). You'll need to do some basic research (links above and below for help!) decide on your investment policy statement and what your AA should be, take your time and learn what you need to feel comfortable, and then make your moves. You can totally do this - I came into this knowing almost nothing just about a year and a half ago, and it's scary how easy some of this stuff can be (it doesn't have to be complicated - definitely read the JLCollins stock series) Good luck!!


http://www.bogleheads.org/wiki/Investment_policy_statement
http://www.bogleheads.org/wiki/Asset_allocation



The new employer actually already opened a 401K account for me.  I have just not elected to have a percentage of my pay dedicated to going there yet.  I wanted to see what my other options were.

I guess what it comes down to is what option works best?

Rolling over my 401K into a 401K that doesn't match?

Or

Rolling my money into a IRA?  Which stands to gain the most?

Also, I did some calculations and figured up there would be no way that I am contributing to the 5500 limit.  So...with that being said?  What direction should I go?

I guess I'm just nervous to jump head first into an IRA account and then not know what I'm doing and lose money.  Even with the provided links, I'm afraid that I will make a bad decision somewhere and lose my savings.

But on the flip side, I feel like an IRA is a better option compared to a 401K that the company doesn't match.

But you all would know the answer to that better than me.

Cromacster

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #7 on: August 13, 2014, 08:14:21 AM »
Rolling over my 401K into a 401K that doesn't match?

I would roll my old 401k into an IRA.  Much more freedom with what you can do with your money.

But there is an advantage of IRA over 401K?

They both have their positives and negatives.  401k allows you to contribute more (17,500), but it is entangled in an employer sponsored plan.

The IRA allows you to contribute 5,500 (tax deductible) and you can choose where it goes.

The best option is to max both.


matchewed

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Re: Advice On What To Do With My 401K??? IRA?
« Reply #8 on: August 13, 2014, 08:16:06 AM »
You got it - if you want to invest more than the IRA limit the 401k is the place to do it.  Since you are not getting a match there is not an inherent advantage to the 401k over the IRA.

But there is an advantage of IRA over 401K?

You can't open a 401k - that's a company sponsored plan. You'd be able to open a Traditional or Roth IRA (Traditional is pre-tax, Roth is after tax). Even if you won't be saving the full amount of the maximum, you have the ability to put away much more in a 401K than the IRAs, but you can actually do both.

I am not familiar with either of the companies that you have your past and current 401K accounts with, so hopefully someone that is will chime in.

Generally, you look for the lowest expense ratio fund in your 401k that matches up the best with your AA (asset allocation). Basically, you're saving pre-tax income (a big plus) and you can save way more in a 401k than in a traditional/Roth IRA. In doing the pre-tax income right out of your paycheck, you're lowering your actual income that is counted for tax purposes - and that could mean dropping you down into a lower tax bracket (another plus). This may not be a huge deal in your case if you're already in a low taxable bracket, but they are two good reasons to continue with a 401k even if you don't get a match or have less than stellar choices available in your plan.  So that's why even if you have blah choices available and no matching... in regards to what Dandarc was talking about.

I would suggest rolling your old 401k into an rollover IRA at someplace like Vanguard (you can call them up and ask them for how to do this - they should be able to walk you through the steps). At the very least, you have that in your complete control and can choose whatever funds you'd like (you're not locked into the 401k choices). You'll need to do some basic research (links above and below for help!) decide on your investment policy statement and what your AA should be, take your time and learn what you need to feel comfortable, and then make your moves. You can totally do this - I came into this knowing almost nothing just about a year and a half ago, and it's scary how easy some of this stuff can be (it doesn't have to be complicated - definitely read the JLCollins stock series) Good luck!!


http://www.bogleheads.org/wiki/Investment_policy_statement
http://www.bogleheads.org/wiki/Asset_allocation



The new employer actually already opened a 401K account for me.  I have just not elected to have a percentage of my pay dedicated to going there yet.  I wanted to see what my other options were.

I guess what it comes down to is what option works best?

Rolling over my 401K into a 401K that doesn't match?

Or

Rolling my money into a IRA?  Which stands to gain the most?

Also, I did some calculations and figured up there would be no way that I am contributing to the 5500 limit.  So...with that being said?  What direction should I go?

I guess I'm just nervous to jump head first into an IRA account and then not know what I'm doing and lose money.  Even with the provided links, I'm afraid that I will make a bad decision somewhere and lose my savings.

But on the flip side, I feel like an IRA is a better option compared to a 401K that the company doesn't match.

But you all would know the answer to that better than me.

Roll the 401k into an IRA. It gives greater options for your money to follow your financial plan. Any money rolled into a new 401k would be limited to the options outlined in the 401k and could be restrictive or less conducive to your investment plan. The match is not a factor in a 401k rollover as an employer will never match a rollover.

If you're truly concerned about money loss then when you rollover to an IRA put it in a money market or cash reserve fund. Then get a reading and edumacating yourself. Re-read what has been provided to you, then read it again, then read it again, then read it and take notes and ask questions. Either ask the questions here or seek out answers. After you've done those things come up with an investment policy statement and invest your money accordingly within the IRA you now have and have let sit there. At worst you lose out on small amount of gains. At best a massive crash happens while you're researching and you have a great opportunity to start your investment. :) You may lose some money but you won't lose all your money. If you did you'd better have some guns, ammo, and seeds.