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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: jlkpony7 on May 17, 2017, 10:44:45 AM

Title: Rollovers, savings, and retirement funds – what do I do first?
Post by: jlkpony7 on May 17, 2017, 10:44:45 AM
Ummm… this thing on...? 

Total noob here.  I’ve been reading MMM for a few weeks now and am really enjoying learning as much as I can from this community. Ya’ll are so smart!

I think I’m ready  now to ask my first question(s). Gulp.

For a quick background, I pasted and abbreviated my introduction I wrote a few weeks back below:
My husband (47) and I (37) are "late bloomers" in the financial knowledge arena, so I'm trying to learn as much as I can and choose our financial strategy/investments sensibly. My husband is in K-12 and I am in higher education, so we are not what I consider to be "high earners" in the area where we live—but we are comfortable, earning about $130k combined.

Our debt is a 3 years-til-payoff car loan of $13k and a $217k mortgage (home value is approx. $325k).

My question(s):
We have a hodge podge of retirement savings from old jobs and e-savings, much of which needs to be consolidated and grown and I'm not sure where I should start. We both currently are paying into mandatory pension plans—and will be each "vested" beginning in 2018–meaning we will get some (TBD) pension amount based on years of service and average of highest salaries.

Beyond our mandatory pensions, we have the following:

•   1 403b from a prior job = $23k in it
•   1 Simple IRA = $3800 in it
•   1 out of state pension (my husbands) that is not vested and has $22k in it not earning a dang thing.
•   $14k in savings – it’s honestly our “catch-all” pot we have for emergencies and occasional family travel.

I took the step of getting a free consultation with a financial advisor recently (affiliated with my institution’s retirement plans) and he suggested I roll everything I have in my name to my current institution’s 403b plan and then make contributions pre-tax directly out of my paycheck to it. I believe I could also roll my Simple IRA into it. Then he suggested rolling my husband’s $22k into a traditional IRA. Then he said we should start each funding Roth IRA’s and eventually, begin funding a taxable investment account.

For the IRA’s, I’ve been looking at Betterment or Vanguard, but am not exactly sure on which one may be better.

Our savings is currently in a regular old savings account, so doesn’t earn much. Should I just keep dumping money into it or is there something else I can safely do to put it to work for me?

Sooo…if you were me – what would you do?  Follow the financial guy’s advice or do something different? What happens if I leave my job in the next couple of years? Which is better – Betterment or Vanguard?

AHHHH this is so new it kind of makes my head spin and I'm afraid I'm going to make a mistake and we will both be working until we're 90.  Analysis paralysis in full effect over here, ha.

Title: Re: Rollovers, savings, and retirement funds – what do I do first?
Post by: Laura33 on May 17, 2017, 11:16:48 AM
So my first advice is to tackle one thing at a time.  You have plenty of time -- you don't need to do everything today.

First things first:  focus on your current savings before you worry about what to do with all the stuff you saved in the past.  This starts with making sure that you are contributing the appropriate amount to your retirement accounts through work.  If that isn't currently set up to make automatic contributions out of each paycheck, that is #1.

Then do you plan any ongoing post-tax savings?  If so, set up a brokerage account.  Don't get caught up in which brokerage house -- they all offer the same basic stuff by different names.  What matters is the underlying fees on the funds you are looking at:  lower is better, big time.  For that reason, most people here advocate for Vanguard (and that is where I also have my money).  You can open an account and have them make regular monthly withdrawals from your checking account.  [Note:  don't worry yet about IRA, Roth, etc.  This is just to get you going -- you can move some of the money to a Roth or IRA later on if you want -- the important thing is to get the monthly savings started.] 

Once you do that, now is the time to decide if you want to (or can) open a traditional IRA or a Roth.  There are income limits on each, and whether you want to open one depends on how much you want to/are able to save and how much you want to put away pre-tax vs. post-tax.  Only you can answer this question.  If you decide you want to open one of these vehicles, well, hey, you have a Vanguard account set up!  You can just call them up and ask them to walk you through setting up a tIRA/Roth!  You can fund it from your existing post-tax Vanguard account, or you can have them take that money every month from your checking account.

Now you have your current investment plan set up -- you have your retirement savings going monthly into your 403(b) plan, you have any post-tax savings going into your Vanguard account, and you have any tIRA/Roth savings going into a separate account at Vanguard.  Yay!  Pause, have a refreshing beverage, celebrate.  Breathe.

OK.  NOW you can start to think about what to do with all of those old accounts!  See, you didn't have to worry about them right away, because they can just sit happiy wherever they are until you get around to it!  So here again, tackle one at a time.  Figure out what you can roll over into what (e.g., you cannot rollover "regular" savings into an IRA -- and you don't want to roll over an IRA into a "regular" account because then you'll have to pay taxes and penalties!).  Again, the companies you are dealing with can help you with this.  Your advisor is correct that some 403(b) plans will allow you to roll in money from old retirement accounts, so if you want everything consolidated in one place, that would be the easiest option (that's what I did).  OTOH, if your 403(b) plan has high fees and a poor selection of funds, why would you want to put more into it?  In that case, you can take those old IRAs and other pre-tax funds and just roll them into your IRA at Vanguard (so, per above, pick up the phone and call, or hop on the computer -- the intimidation factor is 100x greater than the actual difficulty involved in doing this).

Don't worry about the savings account.  Anything that is going to give you noticeably higher returns is also going to come with a lot more volatility.  The important part here is to just keep as small an amount here as you legitimately need for your emergency funds/recurring expenses, and to throw any other pre-tax savings at your Vanguard account.  (FWIW, all of my Vanguard stuff is in the Vanguard Total Stock Market Index -- 401(k), post-tax, etc.  But just pick the lowest-cost broad-based index fund available through your provider and forget about it).

Finally:  don't worry about changing jobs.  If you change, you may have 3 options: (1) leave your retirement funds where they are (which is fine if they allow it and you like the options); (2) roll them into your new employer's 403(b) (which is fine if they allow it and you like the options); or (3) roll them into your own traditional IRA at Vanguard (which is a great choice if (1) and (2) don't work for some reason).

Good luck!  You can do this!
Title: Re: Rollovers, savings, and retirement funds – what do I do first?
Post by: jlkpony7 on May 17, 2017, 02:58:19 PM
Thank you. Its fair to say that I've looking at how much more/better everyone else is doing on this site and feel the need to do it ALL right now. :)

Breaking it down into steps like this makes it less overwhelming.

OK - I'll set up the 403b for withdrawals at work, followed by getting a brokerage account in order, then deal with rollovers/IRA's, etc.
I'll leave our e-savings where it is -- when we get to $20k or so in the Fall -- I'll leave that to sit for when its needed and start making larger deposits into our brokerage account.

Thank you again for your calm and kind advice!

Title: Re: Rollovers, savings, and retirement funds – what do I do first?
Post by: Laura33 on May 18, 2017, 06:26:10 AM
Thank you. Its fair to say that I've looking at how much more/better everyone else is doing on this site and feel the need to do it ALL right now. :)

Yeah, that's dangerous.  But keep in mind, you are seeing a moment in time here, and it's a different "moment" for everyone.  You're just starting; I've been doing this for decades (as have most of the people who will respond to a plea for help like this).  We've just had a lot more time to figure out the basics -- and are happy to pass along advice so you don't need to make the same mistakes we did!  :-)

Tl;dr:  Everyone here was just starting out at some point.  The important thing is that you are here and doing it!