Author Topic: Help! Money just sitting there-Smart play for 401k roller(s) into Vanguard?  (Read 407 times)

kilogulf

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I have 3 accounts that are sitting dormant from previous employers and itís making me very antsy to say the least.  My goal is to rollover 1, 2 and 3 into a Vanguard account and get the ball rolling again.  I am 53 years old and embarrassed how far behind I am for retirement and Iím looking for advice on Roth vs Traditional.  Married filing jointly, 25% tax bracket. A recent podcast (Choose FI) says go tax-deferred now and one can figure out how to pay little or no taxes later.  So Iím thinking Traditional IRA.  I also have no idea what to do with my stocks. Thoughts? 

1.Ascensus 401k-$11,263.57
2.Great Western/Empower/Millenium 401k-$2,737.33
3.Guidestone 403b-$40,470.50
4.Stock from previous employer-255 shares @ $13.72=$3,498

Thanks!

kg
Kilo

rugorak

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The 401k/403b's just go into a Rollover IRA account. Probably easiest to just go VTSAX with it all. Vanguard will help you with it all. They'll make it easy. Your previous providers may not.

Is the stock in some sort of retirement plan? If so just do the rollover as well. If not and there is no special vesting time, or whatever else, on it then make sure you have owned all the shares for at least a year (so you pay long term capital gains) and then sell them unless you really feel strongly about the company. If you do then just hold it.

As for what to do now max out whatever 401k/403b you have access to. Then usually a Traditional IRA usually works out best pure math wise, but a Roth has some advantages that you cannot get with a Traditional. Either is better than nothing.

I personally do a Roth just because I can pull out contributions any time. It gives me the mental piece of mind. And that taxes are done forever more. I've got a big emergency fund and so on so I know the math says I should do a Traditional. But the piece of mind keeps me on course overall so the slight less money is worth it to me. To me it is just like the arguments you'll see on whether to pay off a mortgage or or invest into VTSAX, and whether to have 3 or 6 months expenses in your emergency fund.  Both are great options and better than most. But each one has risks and opportunity that you need to be comfortable with.

kilogulf

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Thanks for taking the time to answer, Rugorak.  I'll get on the phone with Vanguard and get all this business under one umbrella.  I have to say though, the idea of a Roth seems very appealing as far as the peace of mind of knowing that I won't have to pay taxes later on.  And a Roth, from what I understand, can be withdrawn from at any time.  I'm still building up my emergency fund at the moment and I don't have the liquid to pay extra taxes right now.  So "Traditional" it is.

I have the actual stock (CLS) certificate from when I left the company which was well over 15 years ago.  The stock was valued at around $90 a share when it was issued to me.  Then March of 2000 happened.  Of course, I was ignorant at the time and knew I would have to pay a ton of taxes if I cashed out, so I just put it in the file cabinet and forgot about it.

kg

Kilo

rugorak

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Thanks for taking the time to answer, Rugorak.  I'll get on the phone with Vanguard and get all this business under one umbrella.  I have to say though, the idea of a Roth seems very appealing as far as the peace of mind of knowing that I won't have to pay taxes later on.  And a Roth, from what I understand, can be withdrawn from at any time.  I'm still building up my emergency fund at the moment and I don't have the liquid to pay extra taxes right now.  So "Traditional" it is.
You can withdraw your contributions at any time. But not any growth. That you have to wait until 59 1/2 (there are a few exceptions but for ease just go with 59 1/2 for growth). And taxes are paid on payroll. So basically if you do a Traditional you will subtract that money from your AGI when you do your taxes. But you would have already paid taxes on them. Since the 401k/403b are pulled out of your paycheck they can adjust your taxes paid right then. Just keep that in mind. Also chances are if the taxes on $5,500 a year are going to make you tight you aren't quite to the $18,000 mark yet on your 401k/403b.

Honestly the taxes shouldn't be a big deal. And if a Roth will get you to be more comfortable with saving go for it. I also liked the Roth for piece of mind. For me the bigger deal is it is kind of a secondary emergency fund. As in I lose my job, get sick, lose health insurance, all at once. I still have 6 months of expenses in a real emergency fund. But the piece of mind knowing I have extra beyond my 6 months is nice. So based on what you have said before I would suggest the following:
1. If you have less than 1 month's expenses in an emergency fund get that much in first (since you are building I am hoping you are past this step).
2. Contribute to 401k/403b up to match. Otherwise you are leaving money on the table.
3. Put excess money into your emergency fund up to 3-6 months of expenses. More if your income is variable or you have some other extenuating circumstances.
4. Pay off high interest debts if you have any.
5. Contribute $5,500 to a Roth (again math wise this is not as good as a Traditional but if the piece of mind helps you it is worth the slightly lower performance).
6. Finish maxing out 401k/403b
7. Once you get here if you still have extra money save/invest in taxable accounts for whatever goals you have. FIRE, a house, whatever.

I have the actual stock (CLS) certificate from when I left the company which was well over 15 years ago.  The stock was valued at around $90 a share when it was issued to me.  Then March of 2000 happened.  Of course, I was ignorant at the time and knew I would have to pay a ton of taxes if I cashed out, so I just put it in the file cabinet and forgot about it.
I'd transfer this to Vanguard as well. Then you can just hang on to it or sell it, but manage it with the rest of your investments. They do not charge for you to add something to your account that you have the certificate for. But if/when you go to sell you'll pay a $7 commission (unless you have over a million invested with them across all your accounts).

kilogulf

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Again, thanks for taking the time to reply, Rugorak.  I find myself between #3 and #4 on your list at the moment.  In a nutshell, I'm 53 years old and have to turn $60k into enough for retirement.  I plan on working until I no longer can....say, 20 more years.  If I plug $60k into a compound calculator with $0 contributions at 6% gets me $192k.  Contributions of $500 a month gets me around $413k.  Not much to get excited about.  So it will become a game of keeping my living expenses extremely low as well as my income which should bring my tax rate down.  That also gives me 20 years to have the mortgage paid off if not sooner.  That's my thinking anyway.

Of course, I would be much more comfortable with a retirement figure of around $1.2 and I would love to see that in about 15 years.  :-)
Kilo

rugorak

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Keep positive. You are ahead of a lot of people. I have relatives in their mid 60's with less who want to retire now. And they spend more than they make as it is.

The big thing is even if you head down this path and stumble along the way you will be so much better off than you would have been otherwise. Just an emergency fund by itself makes life so much easier. And if you can keep your expenses low it will be relatively easy to do everything else. And you may see higher growth over your time. I've been seeing higher than 6% over the last decade. In which case every extra bit you can get in now will help.

Also on a side note, since you are over 50 you can make catch up contributions. So you can contribute up to $6,500 to an IRA (Roth or Traditional) and $24,000 into a 401k - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
So take advantage of those if you can. If not just work towards it.

startingsmall

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This is probably a stupid question, but how do you know what portion of your Roth is contribution that could be withdrawn? I'm sure I probably should have some idea of that, but I've had the account for >20 yrs so I don't know how much I've contributed. Is that info available somewhere on the Vanguard website?

rugorak

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You can easily see for the current and previous tax years. So the next best thing is to look at the account history. You'll have to parse out the contributions. Even then I am not sure how far back you can go so you may not be able to see it all. You may be able to request it from them.

And also what you can withdraw depends on your circumstances. Here are the official IRS rules - https://www.irs.gov/publications/p590b/ch02.html

And here is the Mad Fientist article about making early withdrawals from retirement accounts - http://www.madfientist.com/how-to-access-retirement-funds-early/