Author Topic: Company 401k question  (Read 2434 times)

FIplease

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Company 401k question
« on: February 29, 2016, 01:36:27 PM »
My company provides a Vanguard 401k, but I'm limited by the rules of the account too contributing a 10% max per paycheck deduction. So about 450$ a month. My employer doesn't match, but they do contribute 5% based on my annual income. So roughly at the moment between paycheck deduction and employer contribution, about 10k annually.  I was planning on just letting my employer add their 5% and ignore its otherwise. Figured Id max out an IRA annually and put the rest into personal account / Mutual funds. I plan to retire in 10 years. I understand the benefit of a 401k tax wise. But not being able to max out the 401k, Is that limiting the benefit of the 401k? Would the 10% better off just going into my taxable account? 

iamlindoro

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Re: Company 401k question
« Reply #1 on: February 29, 2016, 02:00:40 PM »
In the absence of being able to max the 401(k), especially with good options, you should contribute to the max that you are permitted by your plan/employer.  You should *also* max your IRA.  It's not an either-or question, because it sounds like your income is such that you won't hit the phase-out for the IRA deduction.

I'll turn the question around-- what advantage do you think you would realize by ignoring the 401(k) and putting it in taxable instead?
« Last Edit: February 29, 2016, 02:04:10 PM by iamlindoro »

FIplease

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Re: Company 401k question
« Reply #2 on: February 29, 2016, 02:21:15 PM »
In the absence of being able to max the 401(k), especially with good options, you should contribute to the max that you are permitted by your plan/employer.  You should *also* max your IRA.  It's not an either-or question, because it sounds like your income is such that you won't hit the phase-out for the IRA deduction.

I'll turn the question around-- what advantage do you think you would realize by ignoring the 401(k) and putting it in taxable instead?

Good point. I don't often see much here on Tax Sheltered Annuity 403(b) plan, I have one available to me, Its up too %75 paycheck deduction, but my employer doesn't match or contribute. I read up on a tax sheltered annuity plan and again was questioning if that would be good for ER? Any thoughts?

iamlindoro

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Re: Company 401k question
« Reply #3 on: February 29, 2016, 02:35:29 PM »
What are your investment options in the 403(b)?  Generally speaking, 401(k) and 403(b) plans work similarly, but the 403(b) plans often have inferior investment options.

The 403(b) can be rolled over into a Traditional IRA, too, which gives you access to Roth IRA laddering, so you have early retirement options there, too.

If allowed by your employer, you might allow them to contribute to the 401(k), max your Traditional IRA, then contribute to the 403(b) yourself up to the max (or to the maximum you are able).  Note: A lot depends on how good or bad the options are in the 403(b), I'm not advising this without more research.

The game plan in that case (in early retirement) would be to roll both the 401(k) and 403(b) into IRAs, then start Roth ladders.

FIplease

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Re: Company 401k question
« Reply #4 on: February 29, 2016, 03:04:58 PM »
What are your investment options in the 403(b)?  Generally speaking, 401(k) and 403(b) plans work similarly, but the 403(b) plans often have inferior investment options.

The 403(b) can be rolled over into a Traditional IRA, too, which gives you access to Roth IRA laddering, so you have early retirement options there, too.

If allowed by your employer, you might allow them to contribute to the 401(k), max your Traditional IRA, then contribute to the 403(b) yourself up to the max (or to the maximum you are able).  Note: A lot depends on how good or bad the options are in the 403(b), I'm not advising this without more research.

The game plan in that case (in early retirement) would be to roll both the 401(k) and 403(b) into IRAs, then start Roth ladders.

Both accounts are currently in the Vanguard managed program, I put them in the program before I knew anything.
Ill have to take them out the program before I can see my options.
I had been investing this way before MMM and stopped to get out of debts and lower expenses. Now I ready to contribute.
These are the current investments per plan, again Vanguard managed. I dont know if this is any indication too you in anyway right off the bat?
You're saying once I take them out of the program I should be able to change funds but will be limited? They both have a 80/20 mix.
Regardless I shouldn't ignore these plans and view them as an asset.

Fund number    Fund    Quantity    Price    Current balance    Current investment mix
TSA
0223    Vanguard FTSE Social Index Fund Institutional Shares    21.124    $12.44    $262.78    4.25%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    50.030    $43.66    $2,184.31    35.35%
0581    Vanguard International Growth Fund Admiral Shares    31.022    $60.93    $1,890.17    30.59%
0559    Vanguard PRIMECAP Fund Admiral Shares    2.376    $96.30    $228.81    3.70%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    126.140    $10.81    $1,363.57    22.07%
0867    Vanguard Value Index Fund Institutional Shares    8.141    $30.59    $249.03    4.03%
         Total balance    $6,178.67    100.00%


401K

0223    Vanguard FTSE Social Index Fund Institutional Shares    61.417    $12.44    $764.03    4.14%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    53.319    $43.66    $2,327.90    12.62%
0581    Vanguard International Growth Fund Admiral Shares    84.987    $60.93    $5,178.26    28.08%
0559    Vanguard PRIMECAP Fund Admiral Shares    26.577    $96.30    $2,559.36    13.88%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    315.635    $10.81    $3,412.01    18.50%
0867    Vanguard Value Index Fund Institutional Shares    112.355    $30.59    $3,436.93    18.64%
0521    Vanguard Wellington Fund Admiral Shares    12.331    $61.94    $763.78    4.14%
Total balance    $18,442.27    100.00%

iamlindoro

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Re: Company 401k question
« Reply #5 on: February 29, 2016, 03:20:52 PM »
Both accounts are currently in the Vanguard managed program, I put them in the program before I knew anything.
Ill have to take them out the program before I can see my options.
I had been investing this way before MMM and stopped to get out of debts and lower expenses. Now I ready to contribute.
These are the current investments per plan, again Vanguard managed. I dont know if this is any indication too you in anyway right off the bat?
You're saying once I take them out of the program I should be able to change funds but will be limited? They both have a 80/20 mix.
Regardless I shouldn't ignore these plans and view them as an asset.

Fund number    Fund    Quantity    Price    Current balance    Current investment mix
TSA
0223    Vanguard FTSE Social Index Fund Institutional Shares    21.124    $12.44    $262.78    4.25%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    50.030    $43.66    $2,184.31    35.35%
0581    Vanguard International Growth Fund Admiral Shares    31.022    $60.93    $1,890.17    30.59%
0559    Vanguard PRIMECAP Fund Admiral Shares    2.376    $96.30    $228.81    3.70%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    126.140    $10.81    $1,363.57    22.07%
0867    Vanguard Value Index Fund Institutional Shares    8.141    $30.59    $249.03    4.03%
         Total balance    $6,178.67    100.00%


401K

0223    Vanguard FTSE Social Index Fund Institutional Shares    61.417    $12.44    $764.03    4.14%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    53.319    $43.66    $2,327.90    12.62%
0581    Vanguard International Growth Fund Admiral Shares    84.987    $60.93    $5,178.26    28.08%
0559    Vanguard PRIMECAP Fund Admiral Shares    26.577    $96.30    $2,559.36    13.88%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    315.635    $10.81    $3,412.01    18.50%
0867    Vanguard Value Index Fund Institutional Shares    112.355    $30.59    $3,436.93    18.64%
0521    Vanguard Wellington Fund Admiral Shares    12.331    $61.94    $763.78    4.14%
Total balance    $18,442.27    100.00%

Well, this doesn't tell us what all your options are if you manage them yourself, but the good news is that your 403(b) appears to have great options since it's run through Vanguard.  403(b)s are frequently offered by insurance companies, which is why investment options are typically worse than the 401(k) (which are more commonly offered by investment/fund companies).  However, this is not the case for you and your options look pretty darn good for both the 401(k) and 403(b). We can't know for sure without knowing what all your fund options are, but what we see here is a very good sign.

So, provisionally, in your shoes I would do whatever you have to do to get the employer contribution to the 401(k)(which if I read you correctly, sounds like "nothing"), contribute to max your tIRA, then contribute to the 403(b) up to the max.  If you get all the way there, then contribute to taxable accounts.  This order of contribution will allow you maximum tax advantage, maximum matching, and the option to roll any accounts into IRA when you leave the employer.

Important note: I'm just a guy on the internet.  The right thing to do for *you* depends on your personal goals.  The above would work well for me because my goal is to minimize taxes while working, and retire as early as possible.  That may not be your goal.  If you *do* want to retire early, and you followed this advice, you'd need to learn about the Roth IRA ladder (to get these funds out in early retirement) and you'd need to make a plan for your living expenses in the first five years of early retirement (you'll understand why this is once you understand the Roth IRA ladder- see the sticky post about how to get your funds out of retirement accounts early in this subforum).

FIplease

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Re: Company 401k question
« Reply #6 on: March 02, 2016, 12:57:29 PM »
Both accounts are currently in the Vanguard managed program, I put them in the program before I knew anything.
Ill have to take them out the program before I can see my options.
I had been investing this way before MMM and stopped to get out of debts and lower expenses. Now I ready to contribute.
These are the current investments per plan, again Vanguard managed. I dont know if this is any indication too you in anyway right off the bat?
You're saying once I take them out of the program I should be able to change funds but will be limited? They both have a 80/20 mix.
Regardless I shouldn't ignore these plans and view them as an asset.

Fund number    Fund    Quantity    Price    Current balance    Current investment mix
TSA
0223    Vanguard FTSE Social Index Fund Institutional Shares    21.124    $12.44    $262.78    4.25%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    50.030    $43.66    $2,184.31    35.35%
0581    Vanguard International Growth Fund Admiral Shares    31.022    $60.93    $1,890.17    30.59%
0559    Vanguard PRIMECAP Fund Admiral Shares    2.376    $96.30    $228.81    3.70%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    126.140    $10.81    $1,363.57    22.07%
0867    Vanguard Value Index Fund Institutional Shares    8.141    $30.59    $249.03    4.03%
         Total balance    $6,178.67    100.00%


401K

0223    Vanguard FTSE Social Index Fund Institutional Shares    61.417    $12.44    $764.03    4.14%
0871    Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares    53.319    $43.66    $2,327.90    12.62%
0581    Vanguard International Growth Fund Admiral Shares    84.987    $60.93    $5,178.26    28.08%
0559    Vanguard PRIMECAP Fund Admiral Shares    26.577    $96.30    $2,559.36    13.88%
0850    Vanguard Total Bond Market Index Fund Institutional Plus Shares    315.635    $10.81    $3,412.01    18.50%
0867    Vanguard Value Index Fund Institutional Shares    112.355    $30.59    $3,436.93    18.64%
0521    Vanguard Wellington Fund Admiral Shares    12.331    $61.94    $763.78    4.14%
Total balance    $18,442.27    100.00%

Well, this doesn't tell us what all your options are if you manage them yourself, but the good news is that your 403(b) appears to have great options since it's run through Vanguard.  403(b)s are frequently offered by insurance companies, which is why investment options are typically worse than the 401(k) (which are more commonly offered by investment/fund companies).  However, this is not the case for you and your options look pretty darn good for both the 401(k) and 403(b). We can't know for sure without knowing what all your fund options are, but what we see here is a very good sign.

So, provisionally, in your shoes I would do whatever you have to do to get the employer contribution to the 401(k)(which if I read you correctly, sounds like "nothing"), contribute to max your tIRA, then contribute to the 403(b) up to the max.  If you get all the way there, then contribute to taxable accounts.  This order of contribution will allow you maximum tax advantage, maximum matching, and the option to roll any accounts into IRA when you leave the employer.

Important note: I'm just a guy on the internet.  The right thing to do for *you* depends on your personal goals.  The above would work well for me because my goal is to minimize taxes while working, and retire as early as possible.  That may not be your goal.  If you *do* want to retire early, and you followed this advice, you'd need to learn about the Roth IRA ladder (to get these funds out in early retirement) and you'd need to make a plan for your living expenses in the first five years of early retirement (you'll understand why this is once you understand the Roth IRA ladder- see the sticky post about how to get your funds out of retirement accounts early in this subforum).

Thanks So Much! Im working on getting my account out of Vanguards Managed Program.
I had a few other question, As I am Married. My wife doesn't have any employee option yet... She is almost out out of school (Debt Free!) She works, but part time. We file taxes jointly. My question, is it beneficial to open her up an tIRA too? Is that double the deduction?

iamlindoro

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Re: Company 401k question
« Reply #7 on: March 02, 2016, 01:56:54 PM »
Thanks So Much! Im working on getting my account out of Vanguards Managed Program.
I had a few other question, As I am Married. My wife doesn't have any employee option yet... She is almost out out of school (Debt Free!) She works, but part time. We file taxes jointly. My question, is it beneficial to open her up an tIRA too? Is that double the deduction?

You are welcome!

Yes, she can open an tIRA, and yep, double the deduction (caveats apply, if your combined income gets high enough eventually the deduction phases out, but it sounds like you are good).  Enjoy!