Author Topic: 401(k) Advise Request  (Read 1819 times)

Amourdevin

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401(k) Advise Request
« on: July 20, 2016, 07:11:12 AM »
In my (fairly new) quest to maximise 'stache growth I have turned with new eyes to evaluate my 401(k) and am hoping to be able to get some advise from those of you here who are far more experienced than I.
My employer provides a 401(k) through Principal with a 50% match up to 6%. I am currently investing 10% all of which has been from the beginning in the Principal LifeTime 2050 Fund because I didn't know any better than to throw everything into something aggressive when I was starting my very first job with benefits. The plan administrative services fee is 0.41% and the 2050 fund has fees of 0.92%, and once I put those numbers together I felt a little bit gutted. The funds with the lowest fees (0.31%) are Principal Global Investors LargeCap S&P 500 Index, MidCap S&P 400 Index, and SmallCap S&P 600 Index. The Vanguard options are PRIMECAP Inv Fund at 0.40% and Vanguard Windsor II Investor fund at 0.34%.
So. My questions are: should I move everything to one or more of the lower-fee options (my guess is yes) if so which ones would you recommend if you have experience with any of them and should I decrease my current percentage to 6% so as to get the full company match and divert the other 4% somewhere else. I don't know if I can set up that 4% in another pre-tax option or if I would just need to increase my post-tax movement into my Vanguard account which is in VTSMX and VBINX.
Any and all advise would be greatly appreciated, and of course if you need more info from me I am happy to provide.

seattlecyclone

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Re: 401(k) Advise Request
« Reply #1 on: July 20, 2016, 09:48:55 AM »
If you want to approximate something like a total market index (such as VTSAX), buy the large cap, mid cap, and small cap funds in an 80/10/10 ratio.

Even with fees as high as your plan has, the tax savings on the 401(k) are usually worthwhile, especially if you don't plan to remain in the same job for a decade or more. However if you can't afford to max out both your 401(k) and an IRA (and an HSA, if you have a qualifying health plan), start with 401(k) up to the match, then HSA, then IRA, then finally go with 401(k) contributions past the match.

Amourdevin

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Re: 401(k) Advise Request
« Reply #2 on: November 18, 2016, 08:58:09 AM »
So would you say that the better option would be to switch over to the 80/10/10 of the index funds to get the necessary aggression whilst maximizing returns via the lowest fees that I can get? When I queried the broker, attempting to get some semi-useful information (knowing that I would have to go hunting in the dreck to find any useful nuggets) they were basically entirely useless but did let slip that in 2017 there is going to be a fee-leveling scheme put in place that would likely decrease my fees by about 0.2% if I stayed in the target date but would likely cause a slight increase in fees if I went to the index funds. My current hypothesis (the broker refused to say) is that the index funds would still be the cheaper choice, but if any of you think otherwise I would be happy to hear it. Until the. Timer. Entioned the fee leveling I didn't even know there was revenue sharing on my investment choice (much less what revenue sharing was) so my learning curve here has been steep.

Amourdevin

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Re: 401(k) Advise Request
« Reply #3 on: November 29, 2016, 01:33:14 PM »
Another question on the same topic! Is there a way that I can transfer money from my 401k to an IRA pre-tax without penalty, even though I am nowhere near retirement age? I would love to move some of the money from the Principal 401k to a Vanguard IRA.

seattlecyclone

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Re: 401(k) Advise Request
« Reply #4 on: November 29, 2016, 02:20:06 PM »
You can transfer 401(k) money to an IRA tax-free, but this is generally only an option after you leave the company. You don't need to retire, you just need to go work somewhere else. ;-)

MustacheAndaHalf

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Re: 401(k) Advise Request
« Reply #5 on: November 29, 2016, 05:26:24 PM »
After hitting the 6% point (max match), I'd suggest opening an IRA.  An IRA opened at Vanguard lets you buy Vanguard funds, instead of the costly options in your 401(k) plan.

On morningstar's website, they list Vanguard Total Stock market as being:
71.4% large cap,  19.3% mid cap,  9.4% small cap.
So if you wanted to buy in the market proportions, you could use those.  Or you could use 80% large cap and 20% small cap and probably get rather close.

At some future point when you leave this company, you'll want to roll your 401(k) into an IRA somewhere else (like Vanguard) so you can change the fund options.  Being charged 1% per year is quite a drag on performance.  Unfortunately while you're employed there, I think the 401(k) needs to remain where it is.

Amourdevin

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Re: 401(k) Advise Request
« Reply #6 on: November 29, 2016, 06:33:27 PM »
So is the only way to transfer money away from my 401k without tax issues before I hit 59.5 to change jobs? That seems really shitty to me, and also a pretty piss-poor reason to go job hunting. My mother told me that I should do an in-kind transfer, which she said she did with her 401k; she had a check from her 401k that she mailed to Vanguard to transfer the entire balance - is that something only a person of a certain age can do?
I have no plans to change jobs before retirement, which is admittedly strange in this day and age. I have my dream job with almost entirely fantastic coworkers, and the potential pay increase by moving would not be significant based upon what I know of the salary ranges in my field. There is the possibility of my going to talk with one of the 401k board members for my company to try and point out how high the fees are but I am uncertain of the potential results of such a conversation.

DavidAnnArbor

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Re: 401(k) Advise Request
« Reply #7 on: November 29, 2016, 08:30:22 PM »
There is the possibility of my going to talk with one of the 401k board members for my company to try and point out how high the fees are but I am uncertain of the potential results of such a conversation.

Yes have that conversation. Yes you have to leave the company before transferring out the 401k to a traditional IRA, or to another 401k of a new company you work for.