Author Topic: What to do with my 401(k)  (Read 2119 times)

caracarn

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What to do with my 401(k)
« on: May 15, 2017, 01:45:14 PM »
So I am going to finally be eligible for my 401(k) as of 7/1 at my employer and I just got off the phone with the investment professional that manages out plan because the questions I was asking HR could not answer.   At this point all I asked was they offer VBTLX but they did not offer VTSAX and I was hoping they might add in the future.  Our plan is administered by Voya and I guess they at not able to get VTSAX for some reason.  Instead they offer VFIAX, among other.  The full list is below:

Voya Fixed Account
PIMCO Income Fund - Institutional Class
AB Global Bond Fund - Class Z
VanguardŽ Total Bond Market Index Fund - Admiral Shares
VanguardŽ High-Yield Corporate Fund - Admiral Shares
VanguardŽ Target Retirement 2010 Fund - Investor Shares
VanguardŽ Target Retirement 2020 Fund - Investor Shares
VanguardŽ Target Retirement 2030 Fund - Investor Shares
VanguardŽ Target Retirement 2040 Fund - Investor Shares
VanguardŽ Target Retirement 2050 Fund - Investor Shares
VanguardŽ Target Retirement 2055 Fund - Investor Shares
VanguardŽ Target Retirement 2060 Fund - Investor Shares
VanguardŽ Target Retirement 2015 Fund - Investor Shares
 VanguardŽ Target Retirement 2035 Fund - Investor Shares
VanguardŽ Target Retirement 2045 Fund - Investor Shares
VanguardŽ Target Retirement Income Fund - Investor Shares
VanguardŽ Target Retirement 2025 Fund - Investor Shares 
VYŽ T. Rowe Price Capital Appreciation Portfolio - Class R6
VanguardŽ Value Index Fund - Admiral Shares
VanguardŽ 500 Index Fund - Admiral Shares
American Funds AMCAP FundŽ - Class R-6
DFA Real Estate Securities Portfolio - Institutional Class
Janus Triton Fund - Class N Shares
VanguardŽ Mid-Cap Growth Index Fund - Admiral Shares
VanguardŽ Small-Cap Value Index Fund - Admiral Shares
Franklin Utilities Fund - Class R6
Victory Sycamore Established Value Fund - Class R6
VanguardŽ Mid-Cap Index Fund - Admiral Shares
VanguardŽ Small-Cap Index Fund - Admiral Shares
American Funds EuroPacific Growth FundŽ - Class R-6
American Funds Capital Income BuilderŽ - Class R-6
American Funds New World FundŽ - Class R-6

They include 30 basis points of management fees for both Voya and this guys firm as a "wrapper" around the fees for the funds, so VFIAX for example will cost me 0.35% in the 401(k) instead of 0.05%.  This seems to be by lowest cost option but obviously is not as fully covered as VTSAX.

So my questions:
  • Since I want to just do as close the the Bogle two-fund portfolio as possible, can I achieve that was VBTLX and VFIAX or would you recommend something else?
  • My company does not require anything to get their "match".  I can invest 0% and get the 3% they put in plus our profit sharing.  Given that the fees are higher, would I be better off just not contributing to the 401(k) and just adding to my IRA or is the tax savings worth the extra 0.30% fee on everything?  This is where I'm not as well versed with the math and need the help of the MMM gurus.

To help answer the questions, I'm in the higher tax brackets (33%).

Thanks!

Petey B

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Re: What to do with my 401(k)
« Reply #1 on: May 15, 2017, 02:00:25 PM »
I'd use VBTLX for bonds and mimic the total market using the small, mid, and large cap funds available to you.  Check this Bogleheads Wiki link: https://www.bogleheads.org/wiki/Approximating_total_stock_market

Considering the high tax bracket, I'd max the 401k despite the +0.30% management fee.

Curious to read what others have to say...

chasesfish

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Re: What to do with my 401(k)
« Reply #2 on: May 15, 2017, 02:10:28 PM »
I'd just suck it up and do the simple option:  Max the 401k and put it all in the Vanguard S&P 500 fund.

Then write your congressman and ask the IRA limit to be increased for individuals.  You can put $18,000 away in a 401k and a lot less in a regular IRA.  The tax savings is worth that irritating fee

caracarn

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Re: What to do with my 401(k)
« Reply #3 on: May 15, 2017, 02:11:37 PM »
I'd use VBTLX for bonds and mimic the total market using the small, mid, and large cap funds available to you.  Check this Bogleheads Wiki link: https://www.bogleheads.org/wiki/Approximating_total_stock_market

Considering the high tax bracket, I'd max the 401k despite the +0.30% management fee.

Curious to read what others have to say...

Thanks for that link.  It looks like the 5th or 6th example down has funds that are contained in my options and let's me handle that mix.  At times I wonder if something like the difference between the one with the Mid-Cap at 4% versus just using the large and small is worth the extra mix.

On the tax savings, the math I understand would be that I am still going to get the 33% tax savings of putting into the 401(k), (so $333 on every $1,000 into my 401(k)) which certainly seems worth it even though I'm paying an extra $3 in fees, but just not sure if I'm understanding the math right.  Seems straightforward, but just looking for an sanity check.

caracarn

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Re: What to do with my 401(k)
« Reply #4 on: May 15, 2017, 02:16:19 PM »
Yes, still worth it to have 18k sheltered in a traditional 401k with 0.35% in fees.  Not sure I'd even bother with the midcap/smallcap funds.  You could keep it super simple and just set your allocation between VFIAX and BVTLX.  The dividends are slightly higher on VFIAX vs VTSAX, so it's nice to have that in the tax shelter.  That may even make VFIAX vs VTSAX superior when considered inside a 401k.  In an after-tax account the two funds are very close in performance over time, but it seems VTSAX is slightly better.

Since you're in a high tax bracket, you likely do a lot of investing in after tax accounts as well, so buy your VTSAX there.

Do I need to be aware of what the employer will put in with the $18K, or can I put in $18K myself regardless of what the employer adds?  This is the first year I'd really be able to have done that after cutting some expenses so never needed to be clear on that before.

NoraLenderbee

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Re: What to do with my 401(k)
« Reply #5 on: May 15, 2017, 02:43:17 PM »
Yes, still worth it to have 18k sheltered in a traditional 401k with 0.35% in fees.  Not sure I'd even bother with the midcap/smallcap funds.  You could keep it super simple and just set your allocation between VFIAX and BVTLX.  The dividends are slightly higher on VFIAX vs VTSAX, so it's nice to have that in the tax shelter.  That may even make VFIAX vs VTSAX superior when considered inside a 401k.  In an after-tax account the two funds are very close in performance over time, but it seems VTSAX is slightly better.

Since you're in a high tax bracket, you likely do a lot of investing in after tax accounts as well, so buy your VTSAX there.

Do I need to be aware of what the employer will put in with the $18K, or can I put in $18K myself regardless of what the employer adds?  This is the first year I'd really be able to have done that after cutting some expenses so never needed to be clear on that before.

You can put in $18K yourself. The employer match does not count toward that limit.

ZiziPB

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Re: What to do with my 401(k)
« Reply #6 on: May 15, 2017, 02:44:27 PM »
I have some money in a Stable Value Fund that my plan offers - I use that instead of a bond fund.  Current yield is 2.43% with no downside risk.  Have you looked at the Voya Fixed Account as an option?  What is the yield on that? 

https://www.bogleheads.org/wiki/Stable_value_fund
« Last Edit: May 15, 2017, 02:46:38 PM by ZiziPB »

caracarn

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Re: What to do with my 401(k)
« Reply #7 on: May 15, 2017, 02:54:34 PM »
I have some money in a Stable Value Fund that my plan offers - I use that instead of a bond fund.  Current yield is 2.43% with no downside risk.  Have you looked at the Voya Fixed Account as an option?  What is the yield on that? 

https://www.bogleheads.org/wiki/Stable_value_fund

1.35% but it can vary with a guarantee of 1%.

ZiziPB

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Re: What to do with my 401(k)
« Reply #8 on: May 15, 2017, 04:53:55 PM »
How about just using one of the vanguard target funds?  How expensive are they in your plan?

caracarn

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Re: What to do with my 401(k)
« Reply #9 on: May 16, 2017, 11:51:06 AM »
How about just using one of the vanguard target funds?  How expensive are they in your plan?

They are about .1% more costly and they tend to flow much too heavy in bonds for my investment allocation.  I am using 85%/15% and I have all the bonds in my IRA at this point, so I was planning on being 100% stocks in this 401(k).