Author Topic: Should I ditch my 401k?  (Read 5866 times)

Jags4186

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Should I ditch my 401k?
« on: May 05, 2014, 06:54:02 PM »
Hello all,

Quick financial summary:

I am 28 years old and I max out my 401k contributions:
I currently have 120k in my 401k
I receive a 5% match as long as I contribute 1%
I do not get any further match for contributing more than 1%

The question is...should I stop investing besides for the match in my 401k?

Right now I am 100% invested in an S&P index fund with a .53% expense ratio. All other funds have 1.5%+ expense ratios.

Should I ditch this and focus on taxable account savings with VTSAX?

My salary is $67000 and I should get about 15-20k bonus.

Is the advantage of the tax savings worth paying all those fees?


Joel

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Re: Should I ditch my 401k?
« Reply #1 on: May 05, 2014, 07:01:54 PM »
Why would you not want to take full advantage of the taxes that you can defer?

$120k is a very small amount of retirement savings. That only produces approximately $5,000 per year in earnings ($120k * 4%), all of which would be at a 0% marginal tax rate upon retirement. You need well over $1 million before the tax deferred accounts are not a better deal than other accounts.

wtjbatman

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Re: Should I ditch my 401k?
« Reply #2 on: May 05, 2014, 07:11:08 PM »
The tax benefits of maxing out your 401k far outweigh the .53% expense ratio of that fund you're invested in. Unless there's a specific reason you want the money to be more easily accessible (and there ARE ways to access money in a 401k/IRA before age 59.5), say you want to park the money in a taxable fund while saving up for a house, you should stay the course. After all, what's half a percent in fees when you're going to have to pay taxes on dividends and capital gains in that taxable account?

Jags4186

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Re: Should I ditch my 401k?
« Reply #3 on: May 05, 2014, 07:12:50 PM »
In case anyone is wondering, here are my 401k options:



Hartford Index Hls Ib
Large Cap    $119,511.83    3,043.337    100.00 %   %


AllianceBernstein Disc Val R
Mid Cap    $0.00    0.000    0.00 %   %


AllianceBernstein Int Value R
International/Global    $0.00    0.000    0.00 %   %


American Funds Europac Growth R1
International/Global    $0.00    0.000    0.00 %   %


American Funds Gr Fd Of Amer R1
Large Cap    $0.00    0.000    0.00 %   %


Blackrock Equity Dividend R
Large Cap    $0.00    0.000    0.00 %   %


Eaton Vance Large-Cap Value R
Large Cap    $0.00    0.000    0.00 %   %


Federated Kaufmann R
Mid Cap    $0.00    0.000    0.00 %   %


Fixed Account
Stable Value/Money Market    $0.00    0.000    0.00 %   %


Goldman Sachs Government Inc R
Bond    $0.00    0.000    0.00 %   %


Invesco Real Estate R
Specialty    $0.00    0.000    0.00 %   %


Ivy Global Natural Resources R
Specialty    $0.00    0.000    0.00 %   %


Ivy Science And Technology R
Specialty    $0.00    0.000    0.00 %   %


MFS Utilities R2
Specialty    $0.00    0.000    0.00 %   %


Oppenheimer Gold And Spec Min N
Specialty    $0.00    0.000    0.00 %   %


Oppenheimer Main St Sm & MD Cp N
Small Cap    $0.00    0.000    0.00 %   %


Pimco Real Return R
Bond    $0.00    0.000    0.00 %   %


Pimco Total Return R
Bond    $0.00    0.000    0.00 %   %


Putnam High Yield Advantage R
Bond    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2010 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2015 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2020 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2025 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2030 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2035 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2040 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %

The Hartford Targ Retire 2045 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


The Hartford Targ Retire 2050 R3
Asset Allocation/Balanced    $0.00    0.000    0.00 %   %


Thornburg International Value R3
International/Global    $0.00    0.000    0.00 %   %

ch12

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Re: Should I ditch my 401k?
« Reply #4 on: May 05, 2014, 07:21:56 PM »
Why would you not want to take full advantage of the taxes that you can defer?



My salary is $67000 and I should get about 15-20k bonus.


Definitely max out your 401k, contribute to your Roth IRA, and save in normal investment accounts.

Read http://www.madfientist.com/retire-even-earlier/

Bonus point for reading http://blog.personalcapital.com/financial-planning-2/average-american-pay-no-taxes/

foobar

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Re: Should I ditch my 401k?
« Reply #5 on: May 05, 2014, 07:35:33 PM »
You can tend to live with the fees. Figure you will be leaving their in 10year any way. Figure 17k at 2% = 340 per year in cost. Thats not much compared to the 4k in tax savings.  When you start seeing the 5% loads in addition to the fees is when I really need to run the math.

In 401(k) with expensive funds I tend to hold my nose and pick the best of the group. I don't know all of your funds but when I looked up the REIT (category that you can not hold in taxable), the fee sucks but the performance is ok. Yeah it sucks that you lose 1k in compared to investing in the vanguard fund, but the performance is still acceptable.  It is pretty offensive though to have to pay .5 for a s&p 500 index fund these days.

And for what it is worth, that is a horrible 401(k). I can't believe anyone thinks adding a natural resources fund or science&tech (or pretty much any sector fund) is a great idea. Those things just lead to performance chasing.


Hello all,

Quick financial summary:

I am 28 years old and I max out my 401k contributions:
I currently have 120k in my 401k
I receive a 5% match as long as I contribute 1%
I do not get any further match for contributing more than 1%

The question is...should I stop investing besides for the match in my 401k?

Right now I am 100% invested in an S&P index fund with a .53% expense ratio. All other funds have 1.5%+ expense ratios.

Should I ditch this and focus on taxable account savings with VTSAX?

My salary is $67000 and I should get about 15-20k bonus.

Is the advantage of the tax savings worth paying all those fees?

mm31

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Re: Should I ditch my 401k?
« Reply #6 on: May 06, 2014, 12:27:12 AM »
tax-advantaged space is precious. Use it all before going taxable.

milesdividendmd

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Re: Should I ditch my 401k?
« Reply #7 on: May 06, 2014, 12:46:49 AM »
I agree that Leaving your money in the 401(k) is probably the way to go, but I would run some number. Mad scientist has some really nice demonstrations on The power of tax-deferred savings here:

http://www.madfientist.com/retire-even-earlier/

But seeing a  list of funds such as what you're offered through your 401(k) makes me furious!

If there's one thing that people of all political persuasions should agree on (as long as they are not employed by Wall Street) it's that retirement money should be portable.

Why should you have to pay 0.5% for a S&P 500 fund when you can get the exact same thing for 0.05% from Vanguard! The only person winning in this equation is the plan administrator who is either pocketing money from the expensive funds that he's chosen, or so misinformed that he should not be making these choices.

One of the best things about HSA accounts releative to 401ks is portability.  So if you have an HSA, I would Max that out prior to filling up my 401(k).

Alexi.

Jags4186

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Re: Should I ditch my 401k?
« Reply #8 on: May 06, 2014, 07:12:28 AM »
Unfortunately we do not have an HSA we have an HRA...which I suppose is great if you get sick and need something as its free, but being as I can't use it for the dentist and I have no prescriptions it is worthless.

Also just to reiterate, I wasn't saying withdraw from my 401k, just back off to get the match.  I'd be contributing around 5k a year with match that way.  But I see how having tax advantages outweighs the silliness of the funds offered.

On another note, when I truly "get serious" about saving for a downpayment, I guess the first place to back off is the 401k!   
« Last Edit: May 06, 2014, 07:16:05 AM by Jags4186 »

ch12

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Re: Should I ditch my 401k?
« Reply #9 on: May 06, 2014, 06:11:16 PM »
I agree that Leaving your money in the 401(k) is probably the way to go, but I would run some number. Mad scientist has some really nice demonstrations on The power of tax-deferred savings here:

http://www.madfientist.com/retire-even-earlier/


Great minds think alike - love how the same MadFIentist post is in here twice.

Mr. Frugalwoods

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Re: Should I ditch my 401k?
« Reply #10 on: May 06, 2014, 06:50:02 PM »
Those funds really do stink but the tax savings are worth it.

I know nothing about your company.  But is it possible that you could start the conversation with HR about getting better fund options.  While some HR departments are filled with unhelpful people, plenty of other HR professionals just don't realize that their fund options are not good for employees.  I'm sure you can't get things changed immediately but you could start.  And think of how much money you'd save your coworkers!

Jags4186

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Re: Should I ditch my 401k?
« Reply #11 on: May 07, 2014, 02:07:11 PM »
I work for a medium sized company.  I have spoke with HR (they manage our plan) a few times about this...the response is typically "i've reached out to the plan people but they haven't gotten back to me".  Seems like I'm the only one concerned about it.

The worst answer I've gotten is "our fixed out pays a guaranteed 3% which is why our fees on everything else are high".  My answer has always been...who cares about the fixed account.  Ditch it and get us better options.  It was only 6 months ago we had an index fund at all!!  That was the "big change" for 2014.

LuckyMe

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Re: Should I ditch my 401k?
« Reply #12 on: May 07, 2014, 03:32:44 PM »
I would continue investing in the S&P fund and perhaps add a bond fund like the Pimco Total Return down the road.  0.53% is not a terrible ER - I have seen worse.  A VTSAX in a taxable fund wouldn't perform as well as 401k.  You'd be buying shares using after-tax dollars and pay capital gains every year on dividends to boot.  You'd miss out on the tax-free growth that your 401k would provide.  If/when you leave your current job, you could then open an IRA at Vanguard and rollover your 401k into lower cost funds there.

You may want to look into opening a Roth IRA to invest after-tax dollars if you wish to limit how much you contribute to your 401k.

Jags4186

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Re: Should I ditch my 401k?
« Reply #13 on: May 07, 2014, 03:55:45 PM »
Thanks. I already max out my Roth. I guess I just suffer through the crappy 401k

TomTX

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Re: Should I ditch my 401k?
« Reply #14 on: May 08, 2014, 07:26:56 PM »
Does your plan allow any kind of in-service rollovers? Not a huge number of plans do, but it is possible. If yours does, just periodically roll over most of it to a Vanguard IRA.