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Learning, Sharing, and Teaching => Investor Alley => Topic started by: FluffyBubbles on November 16, 2014, 03:14:53 PM

Title: How to invest in my companies new 401k?
Post by: FluffyBubbles on November 16, 2014, 03:14:53 PM
My company just started a 401k plan, and I'm trying to figure out the best way to invest in it.

Some background on the 401k plan: The plan was set up by Morgan Stanley advisors and only offers managed funds by American Funds. Net fees range from 1.3% - 1.7%, my likely choice would probably just be a target date fund at 1.56%. The plan allows both traditional and Roth contributions. There is no planned employer matching. However, what has been thrown around is a possible profit share with the plan, which would be distributed to individuals based on their relative share of the funds in the account (so if my contributions consisted of 5% of total funds at time of profit share, I'd receive 5% of the total profit share). I'd put it at 50/50 chance of a profit share being disbursed. It also has a 6 year vestment period at 20% per year (not rolling).

Background on me: I'm 23 and took a job @ $46,000/yr 6 months ago after graduating with Bachelors degree. Was given raise to $51,000 at 3-month review. Now managing 2 employees and expect both a raise and a small (.5%-2%) equity share at my next review in February (my owner/CEO was the one who told me to expect it, so that's pretty solid). So I'm well into the 25% tax bracket already as a single filer.

A few questions I have:
(1) Without any guaranteed employer contribution, is the plan still worth it?
(2) Should I make traditional or Roth contributions?
(3) With individual funds having similar or higher fees, is there any reason not to go with a target date fund?

Thanks Mustachians!

Title: Re: How to invest in my companies new 401k?
Post by: wtjbatman on November 16, 2014, 03:50:09 PM
1) Yes
2) At 25% tax rate? Traditional. At 15% tax rate? Probably still traditional. But maybe Roth. Can't really go wrong either way.
3) Without knowing exactly what funds are available, if they range from 1.3 to 1.7% and the Target Date Fund is 1.56%, the TD fund is as good of a choice as any, and better than most.