Looking for suggestions on 401(k)

[eman resu]

Hello – I found the site about week ago. I have been in a bit of a state ever since: half-excited (to learn) and half-terrified (realizing my savings and knowledge aren't up to snuff). I could really use some advice on how best to use my 401(k).

Wife and I are both 34.  No debt. My 401(k) balance is around 10K ROTH and 35K tax-deferred as it sits. No other retirement accounts.  We have the emergency fund we want, plus additional 12K excess cash (local bank) needing a better home.  Only other asset of substance is our 85K house.

I make $42,000 gross. Contribute 12% to a ROTH 401(k) currently.  Employer matches dollar-for-dollar to 6%.  Here are my options and current allocation. 

         Ticker                   Fund                                           Election                  Exp Ratio
         APORX      AMERCENT SH DUR INFL PROT BD R                0%                      1.08   
         RERCX      AMERICAN FUNDS EUROPACFIC R3            10%                   1.14   
         RGACX      AMERICAN FUNDS GROWTH FND R3          15%                    .98
         RITCX      AMERICAN FUNDS HI-INC TR R3                       0%                   1.03   
         RSLCX      AMERICAN FUNDS SMALLCAP R3              10%                      1.42
         RGVCX      AMERICAN FUNDS US GVT SEC R3                   0%                    .95   
         RWMCX       AMERICAN FUNDS WASH MTUAL R3        15%                      .97
         CSEIX      COHEN & STEERS REALTY INCOME A          8%                    1.25   
         LACAX      COLUMBIA ACORN A                                   20%                    1.10   
         DPRFX      DELAWARE DIVERSIFIED INCOME R              0%                         1.15
         DGAGX      DREYFUS APPRECIATION FUND                      0%                    .97
         NGGIC      FEDERATED CAP PRESERVE                           0%                         1.17   
         IGNAX      IVY GLOBAL NATURAL RESOURCES A        10%                    1.41
         JDBRX      JANUS BALANCED R                                      0%                    1.33
         LAVLX      LORD ABBETT MID CAP STOCK                 12%                    1.13
         PTRRX      PIMCO TOTAL RETURN R                                0%                     1.10

I’m planning to increase my total savings in whatever tax-advantaged vehicles to 20% of gross pay. I am thinking I should max a ROTH IRA each year so that I can use better (cheaper) funds and then contribute the remainder to 401(k), which would still hit the employer match ceiling. 

1)   Does that make sense?
2)   Any suggestions on my current 401(k) allocation? 
3)   Any suggestions on where/how to park the 12K we have in excess cash?   

FWIW, my wife has her own thing going… gov’t pension and 403(b)… so I’m only saving for one in a sense.  I realize that 20% still isn't going to cut it at my income level; it's a starting point...

Thanks so much for your time.  E-

[GreenGuava]

Some questions so we can help you.  Sorry for so many, but they'll help us give you a better look at your portfolio.  It's generally best to treat all of your tax advantaged retirement assets as one large portfolio with multiple accounts.  Reasonable people differ about whether or not to include your taxable investments as part of the portfolio as well.

What's your goal with the extra $12k that's sitting around?  Is it towards retirement?  A house you intend to buy?  Your next car?

When you say $35k in tax-deferred, what do you mean?  Is it in a rollover IRA?  Other 401(k)s?  This 401(k)?  Where are these held?  If they're in old 401(k)s, why haven't you rolled them over?  Do you intend to do so?

Your Roth (minor nitpick:  not ROTH; it's named after a person, not an acronym) IRA - where is it?

What's your risk tolerance?  Desired asset allocation?  A typical one for your age is 25% bonds, 75% stocks - with 30% of those stocks in non-U.S. companies.  Of course, that's just a starting point.

How did you pick those funds for your 401(k) allocation?  Speaking of which, they're terrible (not just your choices - the whole thing) - we'll have to find the least bad and make use of it, and balance the rest in the Roth IRAs you and your wife are holding, along with other things.
(By the way, it looks like you're practicing naive diversification - it's better to diversify by the underlying assets, not by a bunch of mutual funds)

How much is in your Roth 401(k)?

[Recon]

How did you pick those funds for your 401(k) allocation?  Speaking of which, they're terrible (not just your choices - the whole thing)

That might be the most succinct facepunch I've seen in a while!  But yes, some of those expense ratios in particular look pretty ugly.  Glad you are here to get some advice - there are a ton of very knowledgeable people here.

[eman resu]

Hi GreenGuava,

Thanks for reply. Apologies for leaving out so much info and I appreciate your help.

1) 12K is toward retirement. We were considering a move but have decided we're keeping our home for the long haul.

2) The 35K tax-deferred is in the same 401(k). Total balance in 401(k) is 45K.  10K is my Roth contributions.  I have no other tax-advantaged accounts.

3) I don't have a Roth IRA; I was thinking of opening one to get better options than the 401(k) offers.

4) I'm not risk averse.  I was considering 20% bonds / 80% stocks. 30% international.

5)  Naive was a kind way to put it. I've called myself worse the last few days.  Yeah, let's just say I was thinking these funds were "different".

6) My wife doesn't have an IRA currently. She contributes to a 403(b) plan. $100 / wk which is allocated 100% to a TIAA-CREF 2025 targeted fund. 

I would like to open/max an IRA for each us and then contribute up to the employer match on my 401(k).  We can swing that and still put the 100 bucks into her 403(b) each week.

Thanks again!  E-

[eman resu]

Hi cnp318 -  Face punch, ha!   Yeah, I'm really glad I'm here too.  Thanks  E- 

[GreenGuava]

1) 12K is toward retirement. We were considering a move but have decided we're keeping our home for the long haul.

Good decision.  We'll end up putting $11k into a Roth IRA - you can open it at Vanguard;  $5.5k will be for your wife and 45.5k for you.  If you want to do this soon, put it in a money market account or a target date fund - we'll move it later (as in, soon) to take advantage of it.  Save the other $1k and, on January 2, put it into one of the Roth IRAs to begin your 2014 contributions.

4) I'm not risk averse.  I was considering 20% bonds / 80% stocks. 30% international.

A good asset allocation. 

5)  Naive was a kind way to put it. I've called myself worse the last few days.  Yeah, let's just say I was thinking these funds were "different".

That's actually the term for what you were doing:  "naive diversification" is when you try to diversify your investments across overlapping funds.

6) My wife doesn't have an IRA currently. She contributes to a 403(b) plan. $100 / wk which is allocated 100% to a TIAA-CREF 2025 targeted fund. 

How much is in there?  Do the two of you want to treat your retirement investments as one big portfolio for the two of you or would you prefer to go it individually?  If her 403(b) is going to be part of the couple's portfolio, can I get a list of the fund choices there, too (along with tickers and expense ratio - just like you listed to start the thread)?

I promise this will end with me suggesting a portfolio that does the best we can with what you have available to you to achieve your desired asset allocation.

I would like to open/max an IRA for each us and then contribute up to the employer match on my 401(k).  We can swing that and still put the 100 bucks into her 403(b) each week.

If they're with TIAA-CREF, this is going to be a better plan than advancing your 401(k) until every other tax-advantaged option is maxed out.

[eman resu]

Hi again GreenGuava,

Can't thank you enough for sticking with me.  I finally convinced my wife that this process requires her involvement. So, she and I are in this together now; she let me into her files and turns out she HAS an IRA after all.  No contribution currently. It is approx. 15K split evenly between Putnam's Absolute Return 500-A (PJMDX) and Absolute Return 700-A  (PDMAX) with exp ratios 1.15 and 1.31, respectively.

The 403(b) balance is approx. 15K also - all in TIAA-CREF Lifecycle 2025 (TCLFX) with exp ratio .88%.  Contribution $100/wk as posted above. For the 403(b), it looks like she can contribute to one of four different annuity product providers (TIAA-CREF, ING, Metlife, VALIC ) or to Fidelity mutual funds as a 403(b)7 account.   It appears it is just a directed salary deduction and she has free reign to do business with these vendors based on whatever they offer?  I'll be damned if I can find a list of funds. I scheduled a meeting with her "adviser" at employer for mid-August (earliest available!) to figure this out.

Understood on using 11K of the 12K on-hand to max the IRAs for 2013. I like what I see at Vanguard.

More thanks your way... E-

[GreenGuava]

Hi again GreenGuava,

Can't thank you enough for sticking with me.

Happy to help.  It's one of my favorite topics to talk about, but trying to discuss it with IRL friends can cause problems.

I finally convinced my wife that this process requires her involvement. So, she and I are in this together now; she let me into her files and turns out she HAS an IRA after all.  No contribution currently. It is approx. 15K split evenly between Putnam's Absolute Return 500-A (PJMDX) and Absolute Return 700-A  (PDMAX) with exp ratios 1.15 and 1.31, respectively.

Gaaaah... you might want to see if there's a back-load on those, and if not, consider moving the money in-kind to Vanguard after you set up your new (2013) IRAs there.  They'll help walk you through the process of an in-kind transfer;  essentially, going forward, it will be like the money's been at Vanguard the whole time (no tax consequences to the move, although Putnam might charge you a small fee for the transfer;  you'll more than make it up with reduced costs when you're at Vanguard).

Before you start your new IRAs, check to see how much (if any) she contributed to this IRA in 2013.

But... definitely plan to move it;  those expense ratios are more than 4x what you should even consider paying outside of an employer account.

The 403(b) balance is approx. 15K also - all in TIAA-CREF Lifecycle 2025 (TCLFX) with exp ratio .88%.  Contribution $100/wk as posted above. For the 403(b), it looks like she can contribute to one of four different annuity product providers (TIAA-CREF, ING, Metlife, VALIC ) or to Fidelity mutual funds as a 403(b)7 account.   It appears it is just a directed salary deduction and she has free reign to do business with these vendors based on whatever they offer?  I'll be damned if I can find a list of funds. I scheduled a meeting with her "adviser" at employer for mid-August (earliest available!) to figure this out.

TIAA-CREF is known for some good funds, and if they have Fidelity available, see if you can find any funds with "Spartan" in the name.  Those tend to have good choices.

My new 403(b) is similar, with varying vendors.

Understood on using 11K of the 12K on-hand to max the IRAs for 2013. I like what I see at Vanguard.

More thanks your way... E-

Cool.  When you get back, and we have the full menu of choices and how much money is in each place, we'll put together a portfolio for you that takes advantage of the strengths of each account (and tries to, as best it can, avoid the weaknesses of the same)

[eman resu]

Gaaaah...

Ha, that made me a little sad.   

I'll post back once 403(b) options known and summarize accounts a little less scattered-ly. 

Thanks and thanks. E-