switching jobs and 401(k) advice

[FINeophyte]

Hello,

I would appreciate anyone's thoughts or suggestions for the following situation.

I am switching to a new employer in two weeks, and I am not quite sure what to do regarding investment options. My new employer offers a 401(k) plan with Fidelity, but the "kicker" is that it is all based upon employee contributions. In other words, there is no "employer match" to the 401(k). Also, the options within the plan appear to be weak (i.e., not much variety and pretty high mutual fund account fees).

Here is some additional background that may or may not be useful. With my previous employer I have a SEP-IRA with total funds of $179k. I also have a ROTH-IRA with roughly $36k. And lastly, I have my own individual investments (post tax) with Vanguard with index funds to a tune of about $172k.

My goal is to be FI in approximately 5-8 years. My current annual living expenses after taxes total to about $20k. My after tax income is approximately $62k, which would allow me to save roughly $44k per year to contribute to any investments (i.e., either personal or thru work).

So any thoughts or ideas based on the above scenario? Should I skip the company 401(k), again there is no employer match and the funds don't appear to be very attractive? Would I be better off converting the SEP-IRA into an Individual IRA, assuming this is possible?

Thanks in advance for any direction or suggestions that might be provided.

Warm regards,
FIN

[Frankies Girl]

Are you absolutely sure you don't have any decent fund choices? I have Fidelity and had the Spartan total market index fund in my 401k, and there are many others outside of the Spartan series that are pretty good choices (not as good, but still decent). 

http://www.bogleheads.org/wiki/Fidelity
Check this out to see if you have any of these funds that are equivalent to the Vanguard and there are some other suggestions as well that might be available.

I would probably still put into a 401k mostly to reduce my taxable income, and any investing is better than nothing... but if you do have the option to do a traditional IRA instead that allows you more freedom in investment choices, I'd probably go with that. I just wouldn't throw out the ability to do pre-tax contributions all together.

[FINeophyte]

Thank you your suggestions. They provide me with enough encouragement to look more in depth at the Fidelity funds. From what I can tell, you were right. There are a few decent options and I am considering the following three: 1) Spartan 500 Index Fund, 2) Spartan US Bond Index Fund, and 3) Spartan International Index Fund.

I also agree with your point about taking advantage of the pre-tax 401(k) investment options. I'm leaning towards maxing out my annual contributions of $17.5k broken down into the three funds noted above.

I guess my next question or decision to research is if I should consolidate and move my SEP-IRA investments over to the 401(k) assuming that this is possible and doesn't trigger any negative penalties or tax consequences. My SEP-IRA stuff is with some expensive funds with Franklin-Templeton.

Thanks,
FIN

[the fixer]

Not all 401(k)s will accept IRA rollovers. You can still transfer the SEP-IRA to a different company like Vanguard or Fidelity. Ditto with the Roth to get access to lower cost investments.

For an old employer retirement plan it's almost always a better idea to roll it over into a traditional IRA at a low-cost brokerage. There are only two exceptions I can think of. First, if you have access to a retirement plan (either the old one or new one) that provides better investment options than you can get on your own, keep as much as you can in that plan. Sadly, such 401(k) plans are rare. The second exception is if your old plan does not have very much money in it and you don't have a pre-existing traditional IRA, but your SEP-IRA has a significant balance so this doesn't apply to you.

[rubybeth]

I can second the Spartan 500 Index Fund. Fidelity also has what they call a cash management account that can function as a checking account, and that's how I've used it for years (they reimburse all ATM fees, you can deposit checks with their app, etc.). I think this is going to be really handy when I quit working to pull investment income directly from the IRA or taxable investments and have funds immediately.