Author Topic: Vangaurd 401k questions - first timer  (Read 3887 times)

Morpheus

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Vangaurd 401k questions - first timer
« on: February 27, 2016, 09:22:34 PM »
Hello fellow mustachians,

I'm 30 years old , and about to open my first retirement plan (about time, right?).
My employer offers 25% match, and so I want to max out that benefit.
The 401k provider is Vangaurd (I also have personal investing account with them)

Since it's my first time dealing with 401k decisions I have a few questions:
- Will Vanguard automatically stop withdrawing money from my salary once the contribution hits the 18K limit within a calendar year?

- I want to make sure that I understand the terms: assume annual salary is 120K (=10K pretax per month), and I've chosen SALARY DEFERRAL
=50%, then first month 5K will be deducted from my pretax paycheck, same goes for the second and third month (15K in 401k so far), and at the fourth month only 3K will be deducted (the portion that completes to 18K) from now on $0 will be duducted from my paycheck to 401k.
Is that calculation correct?

- Contribution allocation - how to decide?
My first instinct was to go 100% for "Target Retirement 2045 Trust II" (as I'm expecting to be 60 years old in 2046)
The list of options is quoted below

Any advice/insight will be much appreciated!
Thanks.

Quote
All-in-one Target Date Funds

Target Retire Inc Tr II           —   1471   Balanced Fund (Stocks and Bonds)   
Target Retire 2010 Tr II   —   1472   Balanced Fund (Stocks and Bonds)   
Target Retire 2015 Tr II   —   1473   Balanced Fund (Stocks and Bonds)   
Target Retire 2020 Tr II   —   1474   Balanced Fund (Stocks and Bonds)   
Target Retire 2025 Tr II   —   1475   Balanced Fund (Stocks and Bonds)   
Target Retire 2030 Tr II   —   1476   Balanced Fund (Stocks and Bonds)   
Target Retire 2035 Tr II   —   1477   Balanced Fund (Stocks and Bonds)   
Target Retire 2040 Tr II   —   1478   Balanced Fund (Stocks and Bonds)   
Target Retire 2045 Tr II   —   1479   Balanced Fund (Stocks and Bonds)   
Target Retire 2050 Tr II   —   1480   Balanced Fund (Stocks and Bonds)   
Target Retire 2055 Tr II   —   1489   Balanced Fund (Stocks and Bonds)   
Target Retire 2060 Tr II   —   1693   Balanced Fund (Stocks and Bonds)   

Domestic Equities
Columbia Mid Cap Vl Trt A                   —   6086   Domestic Stock Fund   
Fidelity® Contrafund®                   FCNTX   0603   Domestic Stock Fund   
Neuberger Berman Socially Rspns Inst   NBSLX   O671   Domestic Stock Fund   
TRP US Sm Cap Val Eq Tr D                   —   6060   Domestic Stock Fund   
Vanguard Equity Income Fund Adm   VEIRX   0565   Domestic Stock Fund   
Vanguard Extended Mkt Index Inst   VIEIX   0856   Domestic Stock Fund   
Vanguard Inst Index Fund Inst           VINIX   0094   Domestic Stock Fund   
Vanguard Mid-Cap Growth Fund           VMGRX   0301   Domestic Stock Fund   

Fixed Income
Vanguard Prime Money Market Adm   VMRXX   0066   Short-Term Reserves   
BlackRock High Yield Bond K           BRHYX   8561   Bond Fund   
Dodge & Cox Income                           DODIX   0387   Bond Fund   
PIMCO Foreign Bond (USD-Hedged) I   PFORX   1427   Bond Fund   
Vanguard Total Bond Mkt Index Inst   VBTIX   0222   Bond Fund   

International
American Funds New World R6           RNWGX   S523   International Stock Fund   
Vanguard Tot Intl Stock Ix Inst           VTSNX   1869   International Stock Fund   
William Blair Instl International Gr   WBIIX   D051   International Stock Fund   

Specialty & Sector Investments
PIMCO All Asset All Authority Inst           PAUIX   8058   Balanced Fund (Stocks and Bonds)   
T. Rowe Price Global Technology                   PRGTX   3111   Specialty Stock Fund   
Vanguard Materials Index Fund Adm           VMIAX   5481   Specialty Stock Fund   
Vanguard REIT Index Fund Adm                   VGSLX   5123   Specialty Stock Fund   
« Last Edit: February 27, 2016, 09:25:36 PM by Morpheus »

MDM

  • Senior Mustachian
  • ********
  • Posts: 11133
Re: Vangaurd 401k questions - first timer
« Reply #1 on: February 27, 2016, 11:18:00 PM »
- Will Vanguard automatically stop withdrawing money from my salary once the contribution hits the 18K limit within a calendar year?
That is a question for whoever runs your payroll system - probably not Vanguard.  Good question to ask, along with...

Quote
...Is that calculation correct?
...and, does your employer do a "true-up" (google   401k true-up   to find out why you should ask)?

Quote
- Contribution allocation - how to decide?
My first instinct was to go 100% for "Target Retirement 2045 Trust II" (as I'm expecting to be 60 years old in 2046)
The short answer: probably reasonable to get you started.

The longer answer:
1) Check the fund fees charged by your 401k.
2) If you go with a Target fund, choose it based on the stock/bond ratio you want, not the date in the name.
3) Go through the Investment Policy Statement exercise to determine the stock/bond ratio you want.


Ursus Major

  • Stubble
  • **
  • Posts: 157
  • Location: Silicon Valley, CA
Re: Vangaurd 401k questions - first timer
« Reply #2 on: February 27, 2016, 11:34:04 PM »
My employer had the 401k with Vanguard and - yes - Vanguard will automatically stop the withdrawal, once you hit the pre-tax ceiling.

However that doesn't necessarily shine all your problems, because of your employer matches each pay period and you hit the ceiling too soon, you will miss out on the company match for those pay periods that you're not contributing.

I haven't picked a Target Retirement Fund myself, but from what I vaguely remember their glidepath from stocks to bonds it's less stock-heavy than offerings from other fund companies. I don't know, if that bothers you, but it would bother me. One easy way to compensate for that is to pick a fund with a later retirement date, say 2050 or 2055.

If you're a bit more hands-on with your investments, you could allocate yourself and then rebalance annually, but picking a target-date retirement fund is a great way to get started.

Morpheus

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Vangaurd 401k questions - first timer
« Reply #3 on: February 27, 2016, 11:44:26 PM »
@MDM, @Ursus Major, Thank you.

I found this in the info sheet, regarding the matching policy:
"For every $1 you contribute, The company contributes $0.25 to your account. This contribution is made every pay period."

Does that mean that the answer to my second question is (probably), yes ?

Ursus Major

  • Stubble
  • **
  • Posts: 157
  • Location: Silicon Valley, CA
Re: Vangaurd 401k questions - first timer
« Reply #4 on: February 28, 2016, 01:39:23 PM »
@MDM, @Ursus Major, Thank you.

I found this in the info sheet, regarding the matching policy:
"For every $1 you contribute, The company contributes $0.25 to your account. This contribution is made every pay period."

Does that mean that the answer to my second question is (probably), yes ?
The answer to your 2nd question is probably "yes", but I'm not sure that this helps you. From your company's matching policy that you quoted you'll need to spread out your contribution over aol pay periods to get the full match.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8746
  • Location: Fayetteville, NC
Re: Vangaurd 401k questions - first timer
« Reply #5 on: February 28, 2016, 01:55:55 PM »
I would decide the stock/bond percentages you want and just buy them as separate funds rather than use the target funds.  If I remember, the target funds charge more for doing something that simple for yourself.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11133
Re: Vangaurd 401k questions - first timer
« Reply #6 on: February 28, 2016, 04:14:45 PM »
I found this in the info sheet, regarding the matching policy:
"For every $1 you contribute, The company contributes $0.25 to your account. This contribution is made every pay period."
If there is no "...up to the first X% of salary" in that matching policy, you are all set because there is no need for a true-up.  Otherwise, see the 401k true-up articles.

Morpheus

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Vangaurd 401k questions - first timer
« Reply #7 on: March 02, 2016, 08:53:15 PM »
Thanks!

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8746
  • Location: Fayetteville, NC
Re: Vangaurd 401k questions - first timer
« Reply #8 on: March 02, 2016, 10:16:27 PM »
I found this in the info sheet, regarding the matching policy:
"For every $1 you contribute, The company contributes $0.25 to your account. This contribution is made every pay period."
If there is no "...up to the first X% of salary" in that matching policy, you are all set because there is no need for a true-up.  Otherwise, see the 401k true-up articles.

He should check regardless.  Most people do not actually think precisely enough to write down rules that actually mean what they want those rules to mean.


 

Wow, a phone plan for fifteen bucks!