Question - contributing to IRA and taxes

[dude]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

[dude]

Forget it -- just found the answer.  Bottom line is we make too much money (i.e., wife has a work plan and our MAGI is too high to take a deduction). Oh well, guess she's just got to continue to get screwed by her employer plan provider (Nationwide).

[nereo]

Have your wife lodge a respectful complaint with the HR department about the lack of any low-cost index fund options.  Often someone with no financial experience chooses the plans based on what the broker (Nationwide in this case) recommends to them, and that's that.

[Franklin]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

You had the right answer though if your MAGI was below the threshold.

[MDM]

Check To 401k or not to 401k? That is the question. for a similar discussion.

If you make too much for a tIRA, a Roth IRA would still be better than a taxable account.

[dude]

Check To 401k or not to 401k? That is the question. for a similar discussion.

If you make too much for a tIRA, a Roth IRA would still be better than a taxable account.

Yeah, we squeezed under the threshold last year and were able to each fully fund Roth IRA's. I don't think that will be the case this year, though we'll probably be able to fund a portion (i.e., we won't pass the phase-out).

[dude]

Have your wife lodge a respectful complaint with the HR department about the lack of any low-cost index fund options.  Often someone with no financial experience chooses the plans based on what the broker (Nationwide in this case) recommends to them, and that's that.

Haha!  Believe me, I have suggested this!  Problem is, SHE is basically the HR department!  The company is owned by three principal partners, and one of them, for whatever reason, got sold on their current plan.  I've given her the ammunition to push for change, but she's been reluctant.

[NoStacheOhio]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

If those are the only fees, you're still better off contributing to the plan. 1.04% is high for an index fund, but there are MUCH worse fees out there.

[mskyle]

Also, remember that as soon as your wife leaves that job, she can move roll that money over to a Vanguard IRA or whatever. If she's planning on staying with this company until retirement, high fees can become a big problem... if she's leaving in a couple of years, the tax savings are definitely worth taking the 1% hit.

[dude]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

If those are the only fees, you're still better off contributing to the plan. 1.04% is high for an index fund, but there are MUCH worse fees out there.

That's for the cheapest fund option!  Many of the other funds have far higher expenses ratios than the Vanguard 0.05%, many in the 1+% range, on top of which is the 0.99% management fee!  It's ridiculous.

[dude]

Also, remember that as soon as your wife leaves that job, she can move roll that money over to a Vanguard IRA or whatever. If she's planning on staying with this company until retirement, high fees can become a big problem... if she's leaving in a couple of years, the tax savings are definitely worth taking the 1% hit.

Well, I'm hoping she can stay in this job another 11 years!  That is, until she's 55, when she'll have penalty-free access to her 401k.  Of course, if she doesn't, then there's the 72t option.

[mskyle]

Also, remember that as soon as your wife leaves that job, she can move roll that money over to a Vanguard IRA or whatever. If she's planning on staying with this company until retirement, high fees can become a big problem... if she's leaving in a couple of years, the tax savings are definitely worth taking the 1% hit.

Well, I'm hoping she can stay in this job another 11 years!  That is, until she's 55, when she'll have penalty-free access to her 401k.  Of course, if she doesn't, then there's the 72t option.

Yeah, but what if she got a better job and worked there until she was 55? Is there a good reason to stay at this particular job? Crappy retirement offerings and partners who make dumb decisions are perfectly good reasons to at least look around, in my opinion.

[NoStacheOhio]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

If those are the only fees, you're still better off contributing to the plan. 1.04% is high for an index fund, but there are MUCH worse fees out there.

That's for the cheapest fund option!  Many of the other funds have far higher expenses ratios than the Vanguard 0.05%, many in the 1+% range, on top of which is the 0.99% management fee!  It's ridiculous.

So only buy the cheap Vanguard fund in that account, and diversify in other, less expensive, accounts.

[dude]

So my wife's work 401k sucks.  For the privilege of investing in Vanguard's S&P 500 Index, she has to fork over 0.99% in addition to Vanguard's 0.05%.  I've long been aware of the advice to "contribute up to the max match in your employer's 401k, then put the rest in an IRA."  Question is, how does this work vis-à-vis taxes?  In the 401k, pre-tax dollars are contributed, but for the IRA it would have to be post-tax dollars, so there must be a tax deduction or offset when we file taxes?  Anybody familiar with how this works?

If those are the only fees, you're still better off contributing to the plan. 1.04% is high for an index fund, but there are MUCH worse fees out there.

That's for the cheapest fund option!  Many of the other funds have far higher expenses ratios than the Vanguard 0.05%, many in the 1+% range, on top of which is the 0.99% management fee!  It's ridiculous.

So only buy the cheap Vanguard fund in that account, and diversify in other, less expensive, accounts.

That's precisely what I've done!  But her 401k, because of her max contributions year in and year out, comprises the bulk of her retirement savings (60%), so it sucks to see that 1% getting lopped off the top year after year.  Fuckers.

[ender]

Can she do an in-service rollover?

[dude]

Can she do an in-service rollover?

Hmmm, don't know.  Any tips on where to find info on such a thing?

[Paul der Krake]

Can she do an in-service rollover?

Hmmm, don't know.  Any tips on where to find info on such a thing?

It would be in the plan documents that must be made available to both employees and filed with the federal government. It's doubtful that your horrendous plan allows it, as such a provision lets money leak out of the plan- not exactly what the custodian wants to happen.

Unless your wife is willing to bring up the issue with the partners and change jobs, there's probably nothing you can do.

[NoStacheOhio]

That's precisely what I've done!  But her 401k, because of her max contributions year in and year out, comprises the bulk of her retirement savings (60%), so it sucks to see that 1% getting lopped off the top year after year.  Fuckers.

There are people on here stuck in plans with 5% front loads, plus transaction fees, plus maintenance fees.

[Need2Save]

Can she do an in-service rollover?

Hmmm, don't know.  Any tips on where to find info on such a thing?

It's typically age 59.5 for in-service withdrawals but check her plan docs. Since it sounds like your wife is in her 40's based on your prior responses, she is unlikely to use this as an option to get money out of the plan while still working there.  You may want to arm her with information about companies who have recently been sued by their 401k participants for excessive fees and not doing anything to mitigate or reduce them.  The Supreme Court's decision in 2015 regarding Edison has reinforced the right by employees to sue plan administrators who use high-fee products when cheaper versions are available.   I'm not encouraging your wife to sue them, but perhaps this HR person doesn't realize that she could be personally held liable as a Fiduciary of the plan?     

[NoStacheOhio]

Can she do an in-service rollover?

Hmmm, don't know.  Any tips on where to find info on such a thing?

It's typically age 59.5 for in-service withdrawals but check her plan docs. Since it sounds like your wife is in her 40's based on your prior responses, she is unlikely to use this as an option to get money out of the plan while still working there.  You may want to arm her with information about companies who have recently been sued by their 401k participants for excessive fees and not doing anything to mitigate or reduce them.  The Supreme Court's decision in 2015 regarding Edison has reinforced the right by employees to sue plan administrators who use high-fee products when cheaper versions are available.   I'm not encouraging your wife to sue them, but perhaps this HR person doesn't realize that she could be personally held liable as a Fiduciary of the plan?   

Rollovers and withdrawals are different, some plans allow participants to rollover into a qualified account (like an IRA) while still employed, regardless of age.

[dude]

She confirmed -- no in-service rollovers.  Fuckers.

[ender]

She confirmed -- no in-service rollovers.  Fuckers.

Bummer.

Though this makes me wonder if my company allows them, our SP500 is something like 0.5% fee and that's fairly small but... more than vanguard! :)

[Bojack]

Even though some plans may allow in-service rollovers of employER based sources prior to age 59.5 (it's not common but it does happen), salary deferrals (401k contributions) are not included. The most common exception is a hardship withdrawal, which can generally only be for certain reasons. Even then, only deferrals, not the earnings on those deferrals, can be distributed. There would also be a 10% early withdrawal penalty on a hardship distribution.