Author Topic: My corporate 401K is a dog .. can I open my own 401k?  (Read 4097 times)

LiseE

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My corporate 401K is a dog .. can I open my own 401k?
« on: March 28, 2016, 12:31:54 PM »
I just opened a Personal Capital account and was looking at the fees that I'm paying which are outrageous.  I also have 2 stock funds to chose from .. the rest of the options are targeted retirement funds or bond funds.  I'm currently allocated to the two stock funds but am paying dearly in fees.  My company only matches 50% on the first 5 percent. 

Should I cut back my contribution to take advantage of the company match and start investing elsewhere?  DH and I have been socking it away to our 401K's. We have no other investment assets but hope to be FIRE in 5 years.



mskyle

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #1 on: March 28, 2016, 01:08:58 PM »
Can you give more details about the fees, both the fees on the equity funds and on the target date funds? You only have to keep your money in those funds until you quit that job, the you can roll it over to something better. The fees have to be pretty outrageous to outweigh the tax benefits, especially if you're only keeping the money there for five more years.

Gone Fishing

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #2 on: March 28, 2016, 01:34:28 PM »
Are you eligible for a deductible IRA?

GrOW

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #3 on: March 28, 2016, 02:39:08 PM »
I just opened a Personal Capital account and was looking at the fees that I'm paying which are outrageous. 

Need greater detail on outrageous.

Is it 1.50% outrageous?

Is it 0.50% which is outrageous compared to what you may see for Vanguard Admiral shares at about 0.05%?

Could it be temporarily outrageous like when an annual or quarterly admin fee hit the account and Personal Capital is confused and treats it as a recurring fee?

Something else?

georgicus

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #4 on: March 31, 2016, 03:45:47 AM »
1. Contribute just enough to 401k to maximize the company match.

2. Hopefully that plan offers an index fund option -- that should be your lowest-fee option.  (But with just 5 years to go - a short-term bond fund should have low fees, not the worst thing to do if you are going to withdraw soon after quitting)
 
3. Contribute to IRAs

4. Now start filling up the 401k after you maxed the IRAs

Another thing to consider is just adding to a regular brokerage account.  It is a pain to drain 401ks before you turn 59, which is what I am doing now.  (No problem for current employer's 401k if you turn 55 in or before the year that you quit.)

money_bunny

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #5 on: March 31, 2016, 05:58:16 AM »
Take a look at the fees on the Targeted funds. At my job it's the only way get get bond exposure without paying 0.5% fees.

ender

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #6 on: March 31, 2016, 06:16:21 AM »
Is it 0.50% which is outrageous compared to what you may see for Vanguard Admiral shares at about 0.05%?


This is my scenario. My previous employer had a 0.01% SP500 index fund. Now I'm at something like 0.45% for it and I'm sad :(

Jack

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #7 on: March 31, 2016, 06:27:01 AM »
2. Hopefully that plan offers an index fund option -- that should be your lowest-fee option.  (But with just 5 years to go - a short-term bond fund should have low fees, not the worst thing to do if you are going to withdraw soon after quitting)

Your time horizon is not the day you roll over the account. It is not even the day you start taking distributions. It is your entire life expectancy (or at least, the time you expect to deplete the account to $0, if you plan to do that before you die). Putting 100% of your money in a short term bond fund is only appropriate if you're 90 years old or have a terminal disease or you're about to use it as a down payment on a house or something.



My new employer's 401k sucks too. My "solution" is to suck it up and max it out anyway, but once I get a little seniority I'll start lobbying for better fund choices and/or allowing in-service rollovers.

MustacheAndaHalf

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #8 on: March 31, 2016, 06:40:03 PM »
If you run the math, stocks do better in the short-term in taxable than in a 401k plan.  The 401k plan will get taxed at ordinary income tax rates, while stock held over a year gets a tax advantage.  As a simple example:
$1000 invested in 401k and doubles.  The $1000 growth is taxed at 25% upon withdrawal.
$1000 invested in taxable, in stock fund and doubles.  The $1000 growth is taxed at 15% upon withdrawal.
(Both assume the median tax bracket of 25% ordinary, 15% long-term capital gains)

Which leads to my conclusion: keep the company match (free money!), then invest in taxable.  Not only will you have a good tax rate, but if you want to retire 10 years early you can pull the money out without dealing with a retirement plan.

Vanguards and Lentils

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #9 on: March 31, 2016, 07:14:17 PM »
If you run the math, stocks do better in the short-term in taxable than in a 401k plan.  The 401k plan will get taxed at ordinary income tax rates, while stock held over a year gets a tax advantage.  As a simple example:
$1000 invested in 401k and doubles.  The $1000 growth is taxed at 25% upon withdrawal.
$1000 invested in taxable, in stock fund and doubles.  The $1000 growth is taxed at 15% upon withdrawal.
(Both assume the median tax bracket of 25% ordinary, 15% long-term capital gains)

Which leads to my conclusion: keep the company match (free money!), then invest in taxable.  Not only will you have a good tax rate, but if you want to retire 10 years early you can pull the money out without dealing with a retirement plan.

I think this is incorrect - it is nearly always better to max out the tax-advantaged accounts before moving on to taxable. The $1000 in your second scenario is post-tax money, hence he/she presumably had to earn $1333 first, which after being taxed 25%, became $1000. So a fair comparison would have $1333 being contributed to the 401(k), then doubling to $2666 and finally being taxed.

Scenario 1: Start with $1333, put in 401(k), grows to $2666, withdraw and pay 25% income tax. So you end up with $2000.
Scenario 2: Start with $1333, pay $333 income tax leaving $1000, invest in taxable account, grows to $2000, pay $150 in capital gains tax. So you end up with $1850.
« Last Edit: March 31, 2016, 07:16:10 PM by supermatthew »

kpd905

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #10 on: March 31, 2016, 07:18:36 PM »
Can you list every fund you are offered with the corresponding expense ratio?

JZinCO

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #11 on: March 31, 2016, 08:25:07 PM »
If you run the math, stocks do better in the short-term in taxable than in a 401k plan.  The 401k plan will get taxed at ordinary income tax rates, while stock held over a year gets a tax advantage.  As a simple example:
$1000 invested in 401k and doubles.  The $1000 growth is taxed at 25% upon withdrawal.
$1000 invested in taxable, in stock fund and doubles.  The $1000 growth is taxed at 15% upon withdrawal.
(Both assume the median tax bracket of 25% ordinary, 15% long-term capital gains)

Which leads to my conclusion: keep the company match (free money!), then invest in taxable.  Not only will you have a good tax rate, but if you want to retire 10 years early you can pull the money out without dealing with a retirement plan.

I think this is incorrect - it is nearly always better to max out the tax-advantaged accounts before moving on to taxable. The $1000 in your second scenario is post-tax money, hence he/she presumably had to earn $1333 first, which after being taxed 25%, became $1000. So a fair comparison would have $1333 being contributed to the 401(k), then doubling to $2666 and finally being taxed.

Scenario 1: Start with $1333, put in 401(k), grows to $2666, withdraw and pay 25% income tax. So you end up with $2000.
Scenario 2: Start with $1333, pay $333 income tax leaving $1000, invest in taxable account, grows to $2000, pay $150 in capital gains tax. So you end up with $1850.
  To pile on: http://forum.mrmoneymustache.com/taxes/trad-ira-vs-taxable-returns-post-tax/msg1025747/

MustacheAndaHalf

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Re: My corporate 401K is a dog .. can I open my own 401k?
« Reply #12 on: March 31, 2016, 10:47:53 PM »
supermatthew - You're right, that wasn't a comparable example with one initial point being after tax and the other being the same amount before tax.