Author Topic: High Fee 401k  (Read 5097 times)

willkp23

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High Fee 401k
« on: April 09, 2015, 06:43:43 AM »
My company has a 401k through Fidelity and it has a bunch of funds with the lowest being an .9 to 1% Expense Ratio.   Some of the funds are decent around the 1% ratio.   My question is should I focus more on my wifes 401k (she has great funds through Vanguard, mostly index funds) and lower mine to the minimum or should I continue to invest in these funds with a 1% expense ratio?   Just wondering what your thoughts are.   

Will

misschedda

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Re: High Fee 401k
« Reply #1 on: April 09, 2015, 06:49:41 AM »
If you won't be saving enough to max out both of them, then I would do as you suggest and funnel more money into your wife's. Of course you should still contribute enough to yours to get the match if there is one.

Scandium

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Re: High Fee 401k
« Reply #2 on: April 09, 2015, 07:09:24 AM »
I would do this order:
Wife's to get employer match
Yours to get employer match
Max wife's
Max yours

Of course maxing both should be the goal. 1% isn't great, bu not terrible either. And the tax savings is still worth it by a large margin. And if you change jobs you can roll this to vanguard so the more you have in there the better!

One wrinkle is that you have to be sure that she will stay your wife forever.. I'll leave that up to you.

willkp23

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Re: High Fee 401k
« Reply #3 on: April 09, 2015, 07:25:42 AM »
I appreciate the advice.   It will be difficult because I make 3X what she makes and we get paid differently so it will be a challenge from that perspective.   For the last part, she will be my wife forever!

frugalnacho

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Re: High Fee 401k
« Reply #4 on: April 09, 2015, 07:33:06 AM »
I would expand upon scandium's advice and say that if eligible you should fund your IRA accounts before you max out your 401k.  Be wary about the ER listed in either of your 401ks, there may be additional management fees on top of the ER listed for the fund.  My 401k has a 1.2% fee off the top, so even if I put it in a fund with a 0% ER my ER is still 1.2%.  I would much rather cut that middle man out and invest directly with vanguard.  Of course once the IRA space is filled up it is still beneficial to use a mediocre 401k plan because the tax advantages usually out weigh the bullshit high ER.

revised order:
Wife's to get employer match
Yours to get employer match
Max you and your wife's IRA
Max wife's
Max yours

willkp23

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Re: High Fee 401k
« Reply #5 on: April 09, 2015, 08:53:38 AM »
Sounds perfect, I will start making some changes.   Thanks for your help!

Scandium

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Re: High Fee 401k
« Reply #6 on: April 09, 2015, 09:20:08 AM »
If you pool your income and bills it shouldn't matter if her paycheck is $8 and yours is much higher. Of course she might still in find this a bit unpleasant.. Just tell her it's "optimal" :)

Only issue with an IRA is if you make too much and need to do a back door roth. Then you don't want a balance in any IRA, as it will cause taxes.

frugalnacho

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Re: High Fee 401k
« Reply #7 on: April 09, 2015, 09:28:53 AM »
If you pool your income and bills it shouldn't matter if her paycheck is $8 and yours is much higher. Of course she might still in find this a bit unpleasant.. Just tell her it's "optimal" :)

Only issue with an IRA is if you make too much and need to do a back door roth. Then you don't want a balance in any IRA, as it will cause taxes.

...well, if she makes less than $18k it will be impossible to max her 401k. 

TheAnonOne

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Re: High Fee 401k
« Reply #8 on: April 09, 2015, 09:35:30 AM »
If you pool your income and bills it shouldn't matter if her paycheck is $8 and yours is much higher. Of course she might still in find this a bit unpleasant.. Just tell her it's "optimal" :)

Only issue with an IRA is if you make too much and need to do a back door roth. Then you don't want a balance in any IRA, as it will cause taxes.

...well, if she makes less than $18k it will be impossible to max her 401k.

My SO makes 40-50k but they limit her to 30% of her pay, thus she cannot max hers despite us making several times that combined...

LordSquidworth

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Re: High Fee 401k
« Reply #9 on: April 09, 2015, 09:37:52 AM »
My company has a 401k through Fidelity and it has a bunch of funds with the lowest being an .9 to 1% Expense Ratio.   Some of the funds are decent around the 1% ratio.   My question is should I focus more on my wifes 401k (she has great funds through Vanguard, mostly index funds) and lower mine to the minimum or should I continue to invest in these funds with a 1% expense ratio?   Just wondering what your thoughts are.   

Will

Can you do an in serivce distribution?

willkp23

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Re: High Fee 401k
« Reply #10 on: April 10, 2015, 08:44:51 AM »
She makes around 40k per year so I changed her contributions to about 60% (make up for the earlier part of this year).   Just waiting to see if her company will allow her to put that much into her 401k.   I made some changes yesterday and downgraded mine to 5% as well so I would get the match. 

willkp23

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Re: High Fee 401k
« Reply #11 on: April 10, 2015, 08:45:39 AM »
If you pool your income and bills it shouldn't matter if her paycheck is $8 and yours is much higher. Of course she might still in find this a bit unpleasant.. Just tell her it's "optimal" :)

Only issue with an IRA is if you make too much and need to do a back door roth. Then you don't want a balance in any IRA, as it will cause taxes.

My wife is awesome, she lets me do what we want with our income, we pool everything together and she is more frugal than I am.

willkp23

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Re: High Fee 401k
« Reply #12 on: April 10, 2015, 08:46:01 AM »
My company has a 401k through Fidelity and it has a bunch of funds with the lowest being an .9 to 1% Expense Ratio.   Some of the funds are decent around the 1% ratio.   My question is should I focus more on my wifes 401k (she has great funds through Vanguard, mostly index funds) and lower mine to the minimum or should I continue to invest in these funds with a 1% expense ratio?   Just wondering what your thoughts are.   

Will

Can you do an in serivce distribution?

What is that?

willkp23

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Re: High Fee 401k
« Reply #13 on: April 10, 2015, 08:47:14 AM »
I would expand upon scandium's advice and say that if eligible you should fund your IRA accounts before you max out your 401k.  Be wary about the ER listed in either of your 401ks, there may be additional management fees on top of the ER listed for the fund.  My 401k has a 1.2% fee off the top, so even if I put it in a fund with a 0% ER my ER is still 1.2%.  I would much rather cut that middle man out and invest directly with vanguard.  Of course once the IRA space is filled up it is still beneficial to use a mediocre 401k plan because the tax advantages usually out weigh the bullshit high ER.

revised order:
Wife's to get employer match
Yours to get employer match
Max you and your wife's IRA
Max wife's
Max yours

Would you still max my 401k before going to the Roths?   I was going to do low fee Vanguard funds in the Roth's before increasing mine to max.   I also liked the Roth idea because I can withdraw money if I needed it (not gains)  Thanks!
« Last Edit: April 10, 2015, 08:48:47 AM by willkp23 »

Scandium

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Re: High Fee 401k
« Reply #14 on: April 10, 2015, 08:53:07 AM »
I would expand upon scandium's advice and say that if eligible you should fund your IRA accounts before you max out your 401k.  Be wary about the ER listed in either of your 401ks, there may be additional management fees on top of the ER listed for the fund.  My 401k has a 1.2% fee off the top, so even if I put it in a fund with a 0% ER my ER is still 1.2%.  I would much rather cut that middle man out and invest directly with vanguard.  Of course once the IRA space is filled up it is still beneficial to use a mediocre 401k plan because the tax advantages usually out weigh the bullshit high ER.

revised order:
Wife's to get employer match
Yours to get employer match
Max you and your wife's IRA
Max wife's
Max yours

Would you still max my 401k before going to the Roths?   I was going to do low fee Vanguard funds in the Roth's before increasing mine to max.   I also liked the Roth idea because I can withdraw money if I needed it (not gains)  Thanks!
I would max your 401k before I did roth, as I like to lower my tax. It's an immediate 28% gain, or whatever your tax rate is. I would do roth last.

That is assuming you do roth and not traditional, since the latter would be deductible. If you are below the income cutoff.

matchewed

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Re: High Fee 401k
« Reply #15 on: April 10, 2015, 08:58:30 AM »
Also something not mentioned. Talk to your HR department or, if you've got the channel for discussion, higher management. Explain that you'd like more low fee options in the 401k. If a simple conversation is waved off solicit the other employees. If enough people want the change it can happen.

frugalnacho

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Re: High Fee 401k
« Reply #16 on: April 10, 2015, 09:25:51 AM »
Well he said he makes 3x what his wife makes and she makes about 40k, so they should be around 160k combined.  If they both max their 401k that should bring them down to 122k, which is still too high to contribute to a tIRA.  But given that high income I would just say max both of your 401ks.  Then max both your roth IRAs.  Then start dumping money into a taxable account. 

willkp23

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Re: High Fee 401k
« Reply #17 on: April 10, 2015, 10:39:05 AM »
Well he said he makes 3x what his wife makes and she makes about 40k, so they should be around 160k combined.  If they both max their 401k that should bring them down to 122k, which is still too high to contribute to a tIRA.  But given that high income I would just say max both of your 401ks.  Then max both your roth IRAs.  Then start dumping money into a taxable account.

Actually I meant 2/1.   I make around 84k per year and she makes around 40k and our mortgage is paid off.  I'm trying to get my savings built back up as we just paid the house off, but I want to put money somewhere aside so I can upgrade our home further down the line if we need to or just have some travel money.   I definitely will be engaging my HR department as I haven't done that yet.   

frugalnacho

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Re: High Fee 401k
« Reply #18 on: April 10, 2015, 11:13:22 AM »
Well he said he makes 3x what his wife makes and she makes about 40k, so they should be around 160k combined.  If they both max their 401k that should bring them down to 122k, which is still too high to contribute to a tIRA.  But given that high income I would just say max both of your 401ks.  Then max both your roth IRAs.  Then start dumping money into a taxable account.

Actually I meant 2/1.   I make around 84k per year and she makes around 40k and our mortgage is paid off.  I'm trying to get my savings built back up as we just paid the house off, but I want to put money somewhere aside so I can upgrade our home further down the line if we need to or just have some travel money.   I definitely will be engaging my HR department as I haven't done that yet.

In that case I believe your 401k contributions come off the top of your income, so $36k to both accounts would leave you with $88k AGI, which means you could both contribute to a tIRA further reducing your AGI to $77k.