Author Topic: Bad 401k options  (Read 3074 times)

mr_hertzl

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Bad 401k options
« on: February 16, 2017, 05:27:49 PM »
I have a 401k from my employer with a matching of 50% of up to 6% of my salary. I like the idea of the matching, but the fees for the mutual funds I can choose from are quite bad. The best options are index funds that track the S&P (fee 0.07%), Russell midcap (0.2%), Russell 2000 (0.23%) and MSCI EAFE (0.17%). The rest are 0.5% and up, some even way up. From what I've seen, Vanguard has some well diversified stocks and bonds ETFs for 0.05%-0.15%.

I'm new to the US, so I'm not very familiar with what I can do with the 401k. I understand that if I contribute to another 401k, it means that I give up my employer's matching (is that true?). In this case, can I contribute to two 401k-s: my employer's, where I would contribute 6% of my salary, in order to get the matching, and another one, where I would contribute the rest?

Are there any other ways to deal with the high fees?

lost_in_the_endless_aisle

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Re: Bad 401k options
« Reply #1 on: February 16, 2017, 05:47:45 PM »
From what I've seen posted on here, those are not bad fees at all for a 401k. Yes, it's a little more than a Vanguard account would be but just look around at some other threads where the lowest fees run 0.7% and go north of 2%.

MDM

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Re: Bad 401k options
« Reply #2 on: February 16, 2017, 06:10:21 PM »
I understand that if I contribute to another 401k, it means that I give up my employer's matching (is that true?).
You can't contribute to "another" 401k, so...
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...can I contribute to two 401k-s: my employer's, where I would contribute 6% of my salary, in order to get the matching, and another one, where I would contribute the rest?
No.

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Are there any other ways to deal with the high fees?
Yes.  Buy a bottle of your favorite beverage and toast yourself for having very low 401k fees.

See also To 401k or not to 401k? That is the question.

mr_hertzl

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Re: Bad 401k options
« Reply #3 on: February 16, 2017, 06:16:32 PM »
Ok, thank you both for the reality check. I guess I'll go and get a glass of my favorite beverage.

With This Herring

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Re: Bad 401k options
« Reply #4 on: February 16, 2017, 08:27:24 PM »
If your 401(k) is offering 0.07% ER on an S&P 500 index, that's fine.  Vanguard's ER for it is 0.05%, so you're not far off.  Drink up!  :)

I'm new to the US, so I'm not very familiar with what I can do with the 401k. I understand that if I contribute to another 401k, it means that I give up my employer's matching (is that true?). In this case, can I contribute to two 401k-s: my employer's, where I would contribute 6% of my salary, in order to get the matching, and another one, where I would contribute the rest?

Okay, so I think I know where you are getting mixed up.

Here's how it works (and I will state it as plainly as I can, probably repeating some things you know, to avoid confusion):
Your employer offers a 401(k).  That's great!  Now, there is another type of retirement fund to which you can contribute on your own.  You set it up at the mutual fund company or broker of your choice.  It is called an IRA.  Your employer has nothing to do with it; your employer doesn't need to know it exists.  Usually, you can contribute to the 401(k) via your employer AND contribute to the IRA on your own.  HOWEVER, if your adjusted gross income* crosses certain thresholds AND you are currently able to contribute to a 401(k), contributions you can make to IRAs become limited.

*Adjusted gross income (AGI) is NOT your salary, but it is your income from salary and other sources after adjustments for various deductions.  So you might have a salary of $80,000 but an AGI of only $70,000.

IRS Announces 2017 Pension Plan Limitations
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Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions.  If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)    Here are the phase-out ranges for 2017:
  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000, up from $61,000 to $71,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, up from $98,000 to $118,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000, up from $184,000 and $194,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000.  For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000.  The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

mr_hertzl

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Re: Bad 401k options
« Reply #5 on: February 26, 2017, 08:42:09 PM »
Thanks, herring. I know I (might) have some IRA options, and that this is not related to my employer, but my question was indeed about 401k accounts, since it appears that in my situation this is the best option. I'll just go with what my employer offers. Thank you for the info about IRA, that's a good place for me to start reading from.