Author Topic: 40 year old newbie with a 150K in the 401k.  (Read 2726 times)

jfunkdelicious

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40 year old newbie with a 150K in the 401k.
« on: February 27, 2017, 07:53:44 PM »
Hey Everyone,

I just got turned on to Mr. Money Mustache and have been devouring all the information here as well as the posts here in the forums.  I think I've fallen victim to over information stimulation.  So I'm giving myself up to the experts here... I have a 150K sitting in a 401k from a previous employer.  Based on what I'm reading here it looks like rolling a 401k into an IRA and buying Vanguard index funds are the way to go... or at least I think so. 

Here's my question -  I have a 150K sitting in a 401k that I have to roll somewhere due to my previous employer closing down shop.  Is the play an IRA with Vanguard Index funds or should I just give it to Wealthfront / Betterment.  Or maybe there's something else I could do that I'm not thinking of.  I don't have an investment strategy at all.. I'm slowly figuring that out but I feel like I should do something with this money.  Maybe a better question is - if you were me, what would you do?

Additional info about me:

 - I'm a set it and forget it kind of investor.
 - I own two rental properties - both positive cash flow combines $1500/month
 - I have 50K in capital 360 savings account
 - I have zero stocks, bonds, etc..
 - I make $200K/year.

Feel free to direct me to a particular post, book recommendations, or an article that is explained elsewhere.  I'm fascinated by what I'm reading here and everyone's knowledge base but I think I've digested too many thoughts, options, etc... and now my heads spinning.


Thanks in advance for any thoughts / advice.

-J
« Last Edit: February 27, 2017, 09:03:00 PM by jfunkdelicious »

NoStacheOhio

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #1 on: February 28, 2017, 07:26:29 AM »
http://jlcollinsnh.com/stock-series/

Basically, I would recommend rolling over the 401k now, and you can decide on allocation later.

You have a few options.

1. If your current employer offers a good 401k (low fees, good fund choices), you should be able to roll the money into that plan.

2. If you don't want to do that, rolling to a traditional IRA is painless and is NOT a taxable event. The money will sit in cash/cash equivalent until you invest it.

3. Rolling to a Roth IRA IS a taxable event, and is probably a bad idea. You will owe income tax on the full conversion amount in addition to your regular taxes.

No matter what you do, make sure you do a qualifying rollover (direct to custodian if you can) so you don't get hit with the penalty. If they mail you a check, it needs to be deposited in a qualifying account within a certain number of days (I don't remember off-hand).

jfunkdelicious

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #2 on: February 28, 2017, 10:53:48 AM »
Thanks much for your thoughts.  Really appreciate your thoughts.  You're validating the direction that I'm leaning in terms of rolling it over to a traditional IRA.

Thanks again!

-J

tomtom

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #3 on: February 28, 2017, 11:29:11 AM »
I'm by far no expert but would consider going with Vanguard low cost funds and keep it as a 401k.  200k salary is quite impressive.  And I imagine your 2 rentals are paid off considering your pulling $1500/month?

dandarc

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #4 on: February 28, 2017, 11:35:30 AM »
Something to consider at your income - Backdoor Roth IRA.  If you're inclined to contribute to a Roth IRA, but you're over the contribution limit, you can use the back door.  So if you want to do that, you should roll to current employer's 401K if it has decent funds available and allows the funds to be rolled in. 

If you have any traditional IRA money, you're not going to be able to do a backdoor Roth IRA (technically, you can, but it won't work out the way you expect) without first moving the money to a 401K or similar.  Pro-ration on the conversion is a gotcha there.

bryan995

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #5 on: March 01, 2017, 08:17:24 AM »
Any conversion to ROTH now, would be taxable at current rate, no?  Best to wait until ER when salary/taxes are lower to convert. Can then start a ROTH pipeline.

NoStacheOhio

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Re: 40 year old newbie with a 150K in the 401k.
« Reply #6 on: March 01, 2017, 08:21:59 AM »
Any conversion to ROTH now, would be taxable at current rate, no?  Best to wait until ER when salary/taxes are lower to convert. Can then start a ROTH pipeline.

(Mega)Backdoor is different. You're converting after-tax contributions in the same year they were made. If you hold cash or do the conversion shortly after making the contribution, there's no gain, therefore no additional tax to be paid.