Author Topic: Question Regarding Investment Order and 401ks  (Read 1369 times)

RePatriot

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Question Regarding Investment Order and 401ks
« on: July 10, 2017, 05:24:18 PM »
I'm very new to this, so please be gentle.  DW and I have been solid savers, and after relocating back to the US, we are trying to establish good investment habits.

I've opened and plan on maxing a tIRA and HSA this year.  My new job as a Texas charter school teacher also offers a 401k.  There is no match and I don't have a full view of the funds available, but from what I've seen it seems like the rates are expensive with a lot of fees attached.  As well, I've read a lot about whole stock market investing and it seems like most of the funds are managed and largely inconsistent with my plan for a three fund portfolio. 

As far as I can tell, I'm not eligible for 457 or 403b plans right now.  Ultimately my question boils down to this: If my 401k options suck but I don't want to be limited to HSA+IRA contributions, do I bite the bullet and eat the fees, or do I have options?


bender

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Re: Question Regarding Investment Order and 401ks
« Reply #1 on: July 10, 2017, 05:42:21 PM »
investigate the options in the 401k, there may be something good hiding in there.  Depending on your total household income (marginal rate), you're still likely better off investing in the 401k to save on taxes now.  Even if the fund is charging 1% or more.

List out the funds available and their expense ratio here and we can advise.

MDM

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Re: Question Regarding Investment Order and 401ks
« Reply #2 on: July 10, 2017, 08:53:34 PM »
Ultimately my question boils down to this: If my 401k options suck but I don't want to be limited to HSA+IRA contributions, do I bite the bullet and eat the fees, or do I have options?
See To 401k or not to 401k? That is the question. for some thoughts on this.

RePatriot

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Re: Question Regarding Investment Order and 401ks
« Reply #3 on: July 11, 2017, 05:47:19 PM »
Ultimately my question boils down to this: If my 401k options suck but I don't want to be limited to HSA+IRA contributions, do I bite the bullet and eat the fees, or do I have options?
See To 401k or not to 401k? That is the question. for some thoughts on this.

I will come back to this once I can gather more info.  I am currently having issues logging in to the benefits system.

It seems that one big factor is my timeline at this job.  If I plan on leaving in 5-7 years, then is it better to just suck up the fees in the short term for the tax benefits?  I can then roll over that 401k into my tIRA and choose my own funds from there?

JohnWC

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Re: Question Regarding Investment Order and 401ks
« Reply #4 on: July 11, 2017, 07:38:37 PM »
I've opened and plan on maxing a tIRA and HSA this year.  My new job as a Texas charter school teacher also offers a 401k.  There is no match

No match? I've heard enough to recommend you open your own IRA or Roth IRA. If there's no match you just eliminated the #1 reason to contribute to a 401k. We'll get back to this.

If my 401k options suck but I don't want to be limited to HSA+IRA contributions, do I bite the bullet and eat the fees, or do I have options?
You can lobby congress for increased limits on IRA contributions :D - I really don't know all your details, but one way to do it is open an IRA, fund it to the max, and invest it using your "three fund portfolio" strategy. If you're not satisfied with the $5500 individual limit you have a variety of additional options. The 401k limit is $18k/yr if you're under 50 so you could put the difference in the 401k and eat the fees just to take advantage of the higher contribution limit. Strangely enough there are strategies for over-funding life insurance policies which go beyond death benefit to pay out in retirement as well as provide guarantees re: injury/disability - without knowing what the fees are like in the 401k it's hard to say how this compares. Chances are the LI strategy will be pricier than the 401k for providing the guarantees.

So what are the 401k fees? What are some of the funds they want to use?

MDM

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Re: Question Regarding Investment Order and 401ks
« Reply #5 on: July 11, 2017, 08:06:43 PM »
If I plan on leaving in 5-7 years, then is it better to just suck up the fees in the short term for the tax benefits?  I can then roll over that 401k into my tIRA and choose my own funds from there?
Yes and yes.

RePatriot

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Re: Question Regarding Investment Order and 401ks
« Reply #6 on: July 13, 2017, 07:28:20 PM »
Firstly, thanks to all you who have responded and shared your wisdom.

Here are a few of the index fund offerings, the cheapest available (most others climbing above 1%):

State St S&P 500 Indx Cl I (SS5N) Large Cap Blend       0.65%
AmerCent Eqty Grth A (ACEG) Large Cap Blend             0.92%

Now, a few other things that are fishy here.  Each of these funds have lower fees from their respective brokerages.  I'm assuming the differences are being pocketed by the 401k sponsor.  Second this fee is included in the disclosure:

"The net asset charge for the plan as of the date this document was prepared was 0.50%" in reference to the Investment Options Charge, a really shiny title for the sliding scale of fees depending on how much is invested across the company's plan.

If I am reading these fees correctly, Id be paying 1.15% for an S&P 500 tracking fund, not including any other hidden fees assessed by the sponsor?  I am very new to this job, but that kind of robbery makes me want to speak with the fiduciary and see what can be done about changing.  Or is this a common level of theft?

MDM

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Re: Question Regarding Investment Order and 401ks
« Reply #7 on: July 13, 2017, 08:27:41 PM »
If I am reading these fees correctly, Id be paying 1.15% for an S&P 500 tracking fund, not including any other hidden fees assessed by the sponsor?  I am very new to this job, but that kind of robbery makes me want to speak with the fiduciary and see what can be done about changing.  Or is this a common level of theft?
Unfortunately not uncommon.

See also How to campaign for a better 401(k) plan - Bogleheads.