New job - what to do with my paltry retirement acct from old job?

[superone!]

Hi Everyone! I'm going to get around to writing a real case study soon-- but I have a quick(ish) question.

I just accepted a job offer that comes with a big pay bump (I know--don't increase cost of living!!)...but also a big commute. I have very little savings, and about 23K in student loan debt, no real emergency fund. 

Old job was about $34,000/year gross - new job will be $60,000/gross. New job has a 401k that I can't start contributing to until after working there for at least 90 days. In the meantime, I'll be saving for a new (to me) car and paying down debt with the 12% that I will eventually put into the 401k. (I posted about my situation earlier here: http://forum.mrmoneymustache.com/ask-a-mustachian/low-earning-moustachian-living/ -- that was pre the new job offer!)

I have a 457 plan (like a 403b for govt workers) from my old job that has about $3200 in it. When I leave the job in 2 weeks I can withdraw it with no penalty and just pay taxes on it, so, I'm trying to decide what to do with it. Options are:

1) Leave it where it is. It's in a managed account, has earned 7.7% over the last year. I won't be able to continue to deposit into it and I'll have to leave it there until I'm 65 (in 34 years)

2) Roll it into a traditional or Roth IRA

3) Pull it out and put it in a vanguard acct. Thus preserving some liquidity and thinking of it as an emergency emergency fund--until I get my shit together and have something built up with savings from the new job, then just treat it as my investment account

4) Pull it out and pay down my higher interest student loan - (2 loans: ~$18,000 @6.8% *ouch!* and ~$5000@3.2%) I could put $3000 towards the 18K loan.

5) Pull it out and put it towards a new car. I currently own a (sweet) 1977 mercedes benz diesel with under 110k miles on it. I get around 30mpg, but my new commute is going to be almost 30 miles each way, so I think I need a higher MPG car. Thinking about selling my classic beauty for a 2005-2008 Prius or similar. My car is probably worth about 5K, maybe more for the right buyer, add the 3K from the retirement acct and I could probably swing that. My current car is in great condition, but I only use it on the weekends (I bike to work now--going to miss my commute!), and I feel like it is a crime to put 60 miles a day on a classic, plus I could use the gas savings. And if I'm spending that much time in the car, air conditioning would be nice, not gonna lie.

So mustachians, thoughts?

[gimp]

- Roll it into a traditional IRA. Don't take it out and pay taxes on it.

- Work on that 18k loan asap. I'd balance between tax advantaged accounts and paying off that loan.

- I'd keep your current car and drive it. If you're totally against driving a classic into the ground, you could sell it and get a used car, yeah.

After taxes, you should be able to get ~20k more a year at this new job. If you were to put half towards your 18k loan and half into a 401k once it becomes available, you'd probably be doing quite well.

[TomTX]

Hm. Can you roll other stuff into the 457 after you separate? I know I can roll in now while I am active.

457 is nice because of the withdrawal flexibility. If you RE, it's a lot less hassle. If the expenses are low and you can roll in later, I would strongly consider leaving it active.

[superone!]

I'm 99% sure I can't keep adding into the 457 after I leave, otherwise I'd definitely keep it and keep contributing. I have a call in to triple check this, and I'll report back if I'm wrong. I love the advantages of a 457 compared to an IRA. And I'm really happy with the 7.7% return I'm getting.

My tax obligations on my current income are quite low, though obviously that is changing with the new job, this is why I'm thinking that if I want to take it out and put it somewhere where it isn't hanging in space, now is the time to do it.

And yeah, paying off that 18K loan is my top priority, especially in the 3 months or so that I am ineligible to start a 401k at the new job. Then I plan to divide the extra money in 3 piles - regular savings (emergency fund), 401K and the 18k loan.

Thank you for the advice!

[JGB]

The market has been growing tremendously over the last few years. A 7.7% return during this time is actually quite low. By comparison, my index funds grew on the order of 30% over the last year alone.

What are the holdings for this fund? And the expense ratio? Those two things are key for evaluating its usefulness as an investment.

[superone!]

The market has been growing tremendously over the last few years. A 7.7% return during this time is actually quite low. By comparison, my index funds grew on the order of 30% over the last year alone.

What are the holdings for this fund? And the expense ratio? Those two things are key for evaluating its usefulness as an investment.

Wow! 30%! I (probably obviously) know very little about the market and I'm just learning about investing, but that sounds crazy high to me. Good for you!

I just checked the fund and my return rate is now up to 8.1%...not quite 30% but I'm just happy it is making more than my student loan is costing me (6.8%). I pay 0.6% annually for the management of the fund, which is diversified like this:

U.S. Stock
DFA US Large Cap Value Instl   $481.59   15.0%   
Vanguard Institutional Index   $675.59   21.1%   
Vanguard Mid-Cap Index Instl   $322.01   10.0%   
Vanguard Small-Cap Index Instl   $451.71   14.1%   
International/Global Stock
DFA Global Equity Port Instl   $160.20   5.0%   
DFA International Value Instl   $381.93   11.9%   
Vanguard Total Intl Stock Idx   $478.02   14.9%   
Vanguard International Growth   $253.92   7.9%   
Total                                             $3,204.97       100.0%   
 
Since it is a managed account these percentages are actively changed at least quarterly depending on fund performance. The first year of the management was free (so I'm not currently paying the 0.6% fee) but I'm coming up on one year of having the account, so I will have to start paying it soon if I keep it open.

I want to get into investing and open a vanguard account on my own, but I'm balancing that with the real need to pay down the student loan debt.
I'm thinking I shouldn't just leave $3200 floating around in an account that I can't keep adding to, but maybe I'm wrong about that if the funds are performing well? (Not that they seem to be performing that well in comparison to a 30% return!)

[myDogIsFI]

You might be able to roll it into the 401k at your new job and simplify your life.  I don't know anything about 457s, but it sounds like you can roll it into a traditional IRA, and many 401k plans accept traditional IRA rollovers.

[Gin1984]

You might be able to roll it into the 401k at your new job and simplify your life.  I don't know anything about 457s, but it sounds like you can roll it into a traditional IRA, and many 401k plans accept traditional IRA rollovers.

Depends on what kind of 457 she/he has, governmental vs non, if that can be done.

[Gin1984]

Oh that reminds me, you can pull from this at 55, not 65.

[superone!]

You might be able to roll it into the 401k at your new job and simplify your life.  I don't know anything about 457s, but it sounds like you can roll it into a traditional IRA, and many 401k plans accept traditional IRA rollovers.

Depends on what kind of 457 she/he has, governmental vs non, if that can be done.

I'm moving from a public sector (city government) job to a private sector job. I was hoping I could just roll it over into the 401K, but I thought there is a small window after I leave employment for me to choose what to do with the account? I can't even open my new 401K until 3 months after I start the new job. But yes, that would be the easiest option, if it is even possible. I don't even know how to figure this kind of thing out, despite feeling like I've read all of the info I can about the 457. The literature/FAQs make it seem like everyone just stays with the same job or at least the same public sector employment for 40+ years...I haven't found a lot on the rules when you leave employment...

I know very little when it comes to any kind of retirement account--I'm sure it is something I should have been learning about, but I was very head-in-the-sand-denial about my finances all through grad school (though still pretty frugal--just in denial about my future/saving needs), and it's only in the last year that I've had a "real" job, opened this account, and gotten serious about things like (early!) retirement.

[Gin1984]

You might be able to roll it into the 401k at your new job and simplify your life.  I don't know anything about 457s, but it sounds like you can roll it into a traditional IRA, and many 401k plans accept traditional IRA rollovers.

Depends on what kind of 457 she/he has, governmental vs non, if that can be done.

I'm moving from a public sector (city government) job to a private sector job. I was hoping I could just roll it over into the 401K, but I thought there is a small window after I leave employment for me to choose what to do with the account? I can't even open my new 401K until 3 months after I start the new job. But yes, that would be the easiest option, if it is even possible. I don't even know how to figure this kind of thing out, despite feeling like I've read all of the info I can about the 457. The literature/FAQs make it seem like everyone just stays with the same job or at least the same public sector employment for 40+ years...I haven't found a lot on the rules when you leave employment...

I know very little when it comes to any kind of retirement account--I'm sure it is something I should have been learning about, but I was very head-in-the-sand-denial about my finances all through grad school (though still pretty frugal--just in denial about my future/saving needs), and it's only in the last year that I've had a "real" job, opened this account, and gotten serious about things like (early!) retirement.

So, if you are at a government job, yes you can move it in to your 401k or IRA, so I'd recommend you do and pay down your debt with the money you would normally saving for retirement.  Leave the money all ready saved, saved,

[JGB]

I'm moving from a public sector (city government) job to a private sector job. I was hoping I could just roll it over into the 401K, but I thought there is a small window after I leave employment for me to choose what to do with the account?

When my wife and I left the federal government, we were pretty much told that we had a similarly small window for our contributions to their retirement/pension plan. Now, 3 years later, my wife is in the process of getting her money moved over to her TSP (similar to 401k). There is a chance that the small window is how long they prefer you to wait, not how long you are allowed to wait.