Author Topic: Advice on 401k contributions  (Read 6419 times)

dinki

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Advice on 401k contributions
« on: June 11, 2015, 10:24:11 AM »
 Right now I'm contributing the max allowed (15%) with an employer match of 3.5% into my 401k plan at work.  My investments have been set to aggressive for the past 15 years.  In fact, I'm buying the same funds as the first day I set up the account.  I know that this could prove dangerous and I should have looked into this years ago but life happens and I'm now working on trying to figure the best things to do with my money.

The company I work for was recently purchased by a larger company.  In January we will be moving to the new company's 401k plan.  The new company has a match at 6%.  I will be looking at options on how to invest this.  What should I look for when choosing what to buy?  Should I be looking for index funds?  Should I continue to contribute at max level or should I only contribute up to the match and then invest the other 9% into a Traditional/Roth IRA with someone like Betterment?  I've recently opened a Betterment taxable account to replace my money market account that was only paying 0.85% interest.

I'm 44 years old and work in a job that I enjoy.  I'm not looking to retire anytime soon but I definitely want to manage my money better than I have now.  Any advice is greatly appreciated.

matchewed

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Re: Advice on 401k contributions
« Reply #1 on: June 11, 2015, 10:37:15 AM »
It all depends on what your future options are. You'll need the paperwork from the new 401k to see what those options will be.

In general you should be putting the maximum pre-tax amount of money that you can into as many of those pre-tax sources as possible (generally traditional 401k and traditional IRA). This leaves you more resilient in the future even if FIRE is not your goal.

Focus on broad index funds with low costs.

Write up an investment policy statement to guide your asset allocation.

Read jlcollinsnh stock series to get a quick education on the what, whys, and how to's for investing.

dandarc

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Re: Advice on 401k contributions
« Reply #2 on: June 11, 2015, 10:38:22 AM »
Hopefully 15% is no longer the max allowed by the plan - larger company could mean better 401K.  Could also mean worse or the same.

There are many factors, but contributing at least enough to get the match is almost never a bad choice.  After that point, you've got to look at the options in the plan, your tax rates, the total amount you want invest each year, and decide.  Then the usual assess your risk tolerance and pick an asset allocation accordingly always applies.

Numbers Man

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Re: Advice on 401k contributions
« Reply #3 on: June 11, 2015, 10:38:56 AM »
Right now I'm contributing the max allowed (15%) ........
The maximum 401(k) contribution allowed is $18k per year. It's not 15% per year unless your employer's plan is limiting your contribution or your income happens to be over $120k per year (120,000 times 15% equals $18,000).

Financial.Velociraptor

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Re: Advice on 401k contributions
« Reply #4 on: June 11, 2015, 10:40:59 AM »
If you don't plan to retire early 15% is a really strong savings rate.  You will get a 6% match so your effective rate is 21%.  You are ahead of probably 99% of Americans on retirement savings. Well done.

Can you let us know which funds your 401k is going to offer?  Sometimes you are allowed fully self directed but it is usually 'style funds' where you check some boxes about your attitudes towards risk and you get assigned a blended portfolio based on your responses. 

Before FIRE, I kept my 401k at 'aggressive' until the day I walked away.  I don't think it is dangerous if you have a long time horizon.

dinki

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Re: Advice on 401k contributions
« Reply #5 on: June 11, 2015, 11:32:23 AM »
Right now I'm contributing the max allowed (15%) ........
The maximum 401(k) contribution allowed is $18k per year. It's not 15% per year unless your employer's plan is limiting your contribution or your income happens to be over $120k per year (120,000 times 15% equals $18,000).

This is a limitation of my employer.  We are allowed to change our level of participation quarterly (I think) and we can only participate at 1%-15%. 

dinki

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Re: Advice on 401k contributions
« Reply #6 on: June 11, 2015, 11:35:23 AM »
Can you let us know which funds your 401k is going to offer?  Sometimes you are allowed fully self directed but it is usually 'style funds' where you check some boxes about your attitudes towards risk and you get assigned a blended portfolio based on your responses. 

Before FIRE, I kept my 401k at 'aggressive' until the day I walked away.  I don't think it is dangerous if you have a long time horizon.

I wish I could look at them now but sadly this will not roll out until some time in November.  I'm still curious to see opinions on how to pick the funds and if index funds are even an option.

I don't know what's considered a long time horizon.  I'm about 20 years away from the traditional retirement age of 65 though I know this has been pushed back to some unknown age in recent years.

matchewed

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Re: Advice on 401k contributions
« Reply #7 on: June 11, 2015, 11:52:40 AM »
Can you let us know which funds your 401k is going to offer?  Sometimes you are allowed fully self directed but it is usually 'style funds' where you check some boxes about your attitudes towards risk and you get assigned a blended portfolio based on your responses. 

Before FIRE, I kept my 401k at 'aggressive' until the day I walked away.  I don't think it is dangerous if you have a long time horizon.

I wish I could look at them now but sadly this will not roll out until some time in November.  I'm still curious to see opinions on how to pick the funds and if index funds are even an option.

I don't know what's considered a long time horizon.  I'm about 20 years away from the traditional retirement age of 65 though I know this has been pushed back to some unknown age in recent years.

20 year is long enough. The difficulty is when it starts getting 10, 5, 1 year out. Your risks increase as your time to starting withdrawing from your assets nears.

Aphalite

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Re: Advice on 401k contributions
« Reply #8 on: June 11, 2015, 12:30:40 PM »
dinki, there are websites that tell you what some Public companies offer in their 401ks, give brightscope.com a try first, see if your company is listed on there

dinki

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Re: Advice on 401k contributions
« Reply #9 on: June 11, 2015, 12:42:48 PM »
dinki, there are websites that tell you what some Public companies offer in their 401ks, give brightscope.com a try first, see if your company is listed on there

Thanks for this!  I was able to see both my current and my future employer's 401k information, but I'm not sure how to find what funds are offered.  I do see more information on my current than I do for my future.  Current lists number of investment options (16) and the top three but the future does not list these at all.

dinki

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Re: Advice on 401k contributions
« Reply #10 on: June 18, 2015, 08:51:49 AM »
I'm looking more into the fees I'm paying with my current 401k.  One of the funds (AGTHX) lists this under Fees and Expenses:

Quote
Fees:
Annual Management Fees  0.28%
Other Expenses  0.14%
Service 12b-1  0.24%

Expense Ratio:
Fund   0.66%
Lipper Large-Cap Growth Funds Average 1.19%

Are the items listed in fees above a breakdown of the parts of Expense Ratio or are they in addition to ER?  Am I paying 0.66% annually or am I really paying 1.32%?

Smokeydave

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Re: Advice on 401k contributions
« Reply #11 on: June 18, 2015, 09:10:28 AM »
Do you pay the load on agthx in your 401k?  It I 5.75% if you buy it retail.

dinki

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Re: Advice on 401k contributions
« Reply #12 on: June 18, 2015, 09:19:57 AM »
I can't say for certain and I'm not sure where to find that information.  It doesn't say on my statement.  The full fund name is 'American Funds Growth Fund of America A' .  Here's a link to the fund information https://www.americanfunds.com/individual/pdf/shareholder/mfgeprx-005_gfap.pdf   . I'm guessing yes?

dinki

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Re: Advice on 401k contributions
« Reply #13 on: June 18, 2015, 09:31:28 AM »
Also, I used Mint and looked at the price I paid for this fund and divided it by it's current value over a five year period and found the return to be 10.64%, but when I look at my statement it lists the five year return of the fund (in general I guess) as 13.31%.  Is this difference due to fees I've paid?

Smokeydave

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Re: Advice on 401k contributions
« Reply #14 on: June 18, 2015, 09:56:39 AM »
Sounds like you need to check in to it.  I was sold agthx years ago as a low fee fund.  And it is.  But the load was never explained.  When I became more aware/involved with my finances i dumped it and never looked back.

dinki

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Re: Advice on 401k contributions
« Reply #15 on: June 18, 2015, 09:58:32 AM »
Sounds like you need to check in to it.  I was sold agthx years ago as a low fee fund.  And it is.  But the load was never explained.  When I became more aware/involved with my finances i dumped it and never looked back.

Where do I go to find out?

Smokeydave

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Re: Advice on 401k contributions
« Reply #16 on: June 18, 2015, 10:22:04 AM »
I'm no expert.  I hope a savy investor type jumps in to give better advise. But I would start by calling your 401k provider.  HR is usually clueless.  I never could see the load going out either.  You could look in The plan info for agthx to see what load is paid in your 401k.  I notice American funds lists the 5.75% as the max load so maybe there is a discount in your plan.

Aphalite

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Re: Advice on 401k contributions
« Reply #17 on: June 18, 2015, 10:45:37 AM »
Class A funds are *normally* front load funds

http://www.morningstar.com/funds/XNAS/AGTHX/quote.html

If that's the one, then yes, you paid a 5.75% load upfront, which lowered your return - explains the difference

1) 13.31% with load (start at 9,425) minus 1.32% fees (doesn't seem like the 13.31% includes the fees)
2) 10.64% on $10000   
             (1)             (2)
Yr1 10,538.50     11,064.00
Yr2 11,783.55     12,241.21
Yr3 13,175.69     13,543.67
Yr4 14,732.31     14,984.72
Yr5 16,472.83     16,579.10
« Last Edit: June 18, 2015, 10:49:10 AM by Aphalite »

Scandium

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Re: Advice on 401k contributions
« Reply #18 on: June 18, 2015, 10:50:39 AM »
I can't say for certain and I'm not sure where to find that information.  It doesn't say on my statement.  The full fund name is 'American Funds Growth Fund of America A' .  Here's a link to the fund information https://www.americanfunds.com/individual/pdf/shareholder/mfgeprx-005_gfap.pdf   . I'm guessing yes?

We used to have that in our 401k. I called the provider and they told me we don't pay the load. So I'd suggest you call whoever manage that for you. Although since you're switching soon not much point. I believe the ER was 0.66%

If your new plan has index funds, yes go with those. Once you get it post the list of funds here and people will chime in. Max 15% is weird, I've never heard of that. Hopefully they get rid of that silly rule.

forummm

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Re: Advice on 401k contributions
« Reply #19 on: June 18, 2015, 10:52:25 AM »
Right now I'm contributing the max allowed (15%) ........
The maximum 401(k) contribution allowed is $18k per year. It's not 15% per year unless your employer's plan is limiting your contribution or your income happens to be over $120k per year (120,000 times 15% equals $18,000).

This is a limitation of my employer.  We are allowed to change our level of participation quarterly (I think) and we can only participate at 1%-15%. 

Wow, that really sucks. Unless you make $120k+. Weird that they won't let you max out with a lower salary. I've never heard of that before. And you're sure there's not a "dollar amount" option? My employer lets us set either a percentage or a set dollar amount that comes out of each paycheck.

frugalnacho

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Re: Advice on 401k contributions
« Reply #20 on: June 18, 2015, 11:13:09 AM »
Right now I'm contributing the max allowed (15%) ........
The maximum 401(k) contribution allowed is $18k per year. It's not 15% per year unless your employer's plan is limiting your contribution or your income happens to be over $120k per year (120,000 times 15% equals $18,000).

This is a limitation of my employer.  We are allowed to change our level of participation quarterly (I think) and we can only participate at 1%-15%. 

Wow, that really sucks. Unless you make $120k+. Weird that they won't let you max out with a lower salary. I've never heard of that before. And you're sure there's not a "dollar amount" option? My employer lets us set either a percentage or a set dollar amount that comes out of each paycheck.

Numerous people in these forums have said the exact same thing about their 401k plans - the company arbitrarily restricts them to a certain percentage of their salary.  It's a stupid rule that doesn't even make.  I would petition HR to change it on the basis that it makes no sense and is none of their business how much you want to contribute (so long as it's under the IRS limit).

dinki

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Re: Advice on 401k contributions
« Reply #21 on: June 22, 2015, 10:25:28 AM »
I did finally manage to find some information on the new plan.  The new employer also allows for up to 80% contribution.   The match is 1:1 up to 6%.  Here's the funds included:



Any suggestions?  I see a couple of index funds but one of them (WFILX) has a frontload of 5.75% but the other does not (WFIRX).