Author Topic: New job, new 401k  (Read 1327 times)

Mr. Metal Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Location: Midwest
New job, new 401k
« on: September 24, 2018, 07:53:34 PM »
I recently got a job that offers a 401k with 8% match. My previous job didn't have anything so I did IRA/HSA with low cost index funds. Easy peasy. The 401k is with American funds. I believe there is also no vesting period. Will have to double check. The lowest fund appears to be 1.39%. Am I better off putting the rest of my money in a taxable account?

Pictures off the phone just weren't cutting it. Scanned and made a PDF.
« Last Edit: September 24, 2018, 08:03:56 PM by Mr. Metal Mustache »

theolympians

  • Stubble
  • **
  • Posts: 151
Re: New job, new 401k
« Reply #1 on: September 24, 2018, 11:45:31 PM »
 For me, it was easiest to set it and forget it. I maxed mine out. The expense fees maybe high, but your account will be growing tax deferred for decades. You will be able to sell funds within the account with no penalty (provided the funds stay within the account).

The other option is to take the match and throw the rest into a Roth IRA.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3000
Re: New job, new 401k
« Reply #2 on: September 25, 2018, 01:36:14 AM »
So you invest $1000, and your company matches that with $1000 (or $250 or $500).  How long does it take those expense ratios to eat through +25% or +50% of extra money?

Even an expense ratio that's 1.2% higher takes a very long time to overcome a company match.  And with a +50% or +100% match, you might retire first.  The company match is always valuable.

The funds with the worst expense ratios are still equity mutual funds.  They will still tend to beat other investments like cash, so I'd go with the lower expense ratio choice in your 401(k) plan.

Most people don't stick with the same job for that many years, so when the time comes to change jobs, you can also change your 401(k) into an IRA and make your own choices.

In the meantime, ask your 401(k) department uncomfortable questions.  Like if they have to act in your best interest, why can you only pick 1.3% expense ratio funds instead of Vanguard funds - and Vanguard also offers retirement plans for every size of company.

I've noticed the companies that don't seem to care about expense ratios tend to be smaller - and probably haven't had a lawyer look at their legal exposure from only offering high expense ratio funds (which might be a breach of their fiduciary duty to plan participants).

terran

  • Magnum Stache
  • ******
  • Posts: 3113
Re: New job, new 401k
« Reply #3 on: September 25, 2018, 05:18:31 AM »
Good match, terrible funds. Certainly contribute enough to get the match.

See https://www.bogleheads.org/wiki/401%28k%29#Expensive_or_mediocre_choices -- basically it comes down to being a function of the fees, how long you plan to stay, and your tax bracket.

Also see https://www.bogleheads.org/wiki/How_to_campaign_for_a_better_401%28k%29_plan

wheezle

  • 5 O'Clock Shadow
  • *
  • Posts: 94
Re: New job, new 401k
« Reply #4 on: September 25, 2018, 05:48:46 AM »
The other option is to take the match and throw the rest into a Roth IRA.
I think this is your best option here. Never give up that match, but also, those expense ratios are stupid.

Mr. Metal Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Location: Midwest
Re: New job, new 401k
« Reply #5 on: September 25, 2018, 06:10:54 AM »
I have a meeting with week and plan to ask those uncomfortable questions. Hopefully something will happen. It is a smaller newer company... So, it could be one of those deals. If all else fails looks like my best option is RWMBX @ 1.39% or RFNBX @ 1.4% Thinking I may just get match and dump rest elsewhere.

terran

  • Magnum Stache
  • ******
  • Posts: 3113
Re: New job, new 401k
« Reply #6 on: September 25, 2018, 07:02:11 AM »
I have a meeting with week and plan to ask those uncomfortable questions. Hopefully something will happen. It is a smaller newer company... So, it could be one of those deals. If all else fails looks like my best option is RWMBX @ 1.39% or RFNBX @ 1.4% Thinking I may just get match and dump rest elsewhere.

What's your federal and state tax bracket and how long do you expect to stay with this employer? Based on the rule of thumb in the first link I posted, even in the 12% bracket in a no income tax state you'd have to stay there more than 13 years before it would make sense to forgo the tax deduction.

Mississippi Mudstache

  • Handlebar Stache
  • *****
  • Posts: 2160
  • Age: 36
  • Location: Danielsville, GA
    • A Riving Home - Ramblings of a Recusant Woodworker
Re: New job, new 401k
« Reply #7 on: September 25, 2018, 12:16:47 PM »
I have a meeting with week and plan to ask those uncomfortable questions. Hopefully something will happen. It is a smaller newer company... So, it could be one of those deals. If all else fails looks like my best option is RWMBX @ 1.39% or RFNBX @ 1.4% Thinking I may just get match and dump rest elsewhere.

I'm with a small company as well (6 people total). I'm very lucky to have a boss who reads MMM (and recommends it to his employees) so needless to say our 401k is with Vanguard. So, just because the company is small doesn't mean they have to use a 401k provider that charges outlandish fees. Perhaps after you've had a chance to get settled into the new job, you could diplomatically suggest that they look into better options.

 That said, at the very minimum, you should contribute enough to guarantee that you max out the company match (as others have noted). Then save as much as possible in IRAs and an HSA (if that's an option for you), then whatever is left after that can be funneled into the 401k.

Mr. Metal Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Location: Midwest
Re: New job, new 401k
« Reply #8 on: September 25, 2018, 09:26:41 PM »
I have a meeting with week and plan to ask those uncomfortable questions. Hopefully something will happen. It is a smaller newer company... So, it could be one of those deals. If all else fails looks like my best option is RWMBX @ 1.39% or RFNBX @ 1.4% Thinking I may just get match and dump rest elsewhere.

What's your federal and state tax bracket and how long do you expect to stay with this employer? Based on the rule of thumb in the first link I posted, even in the 12% bracket in a no income tax state you'd have to stay there more than 13 years before it would make sense to forgo the tax deduction.

I read the links, thank you they were very helpful even a good way to approach on asking for change. I would be in the 12% and somewhere between 6% - 8% for state.... Unsure of timeline at this point but estimate 2 - 5 years.