Author Topic: Wife's New Job and 401K  (Read 4655 times)

WFUDEAC

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Wife's New Job and 401K
« on: January 22, 2013, 07:06:36 PM »
My wife just got a new job and her 401K option is no option at all. The plan and all its investments are picked by the company. You're either in or out; no individual investment options. There is no company match (because it would decrease the year-end bonus pool) so not giving up free money by not participating. Average annual return of the plan over the past 18 years is 6.65%.

So should we participate in the plan for the tax deferral? Or just contribute to a taxable account? I really don't like the idea of not having control of my investments.

I become eligible for my job's 401K in March and plan to max it out plus get the 6% company match. We will also both max out our Roth IRAs. We'll likely be in the 25% tax bracket, unless we both max out our 401Ks then we might just squeeze into the 15%. We live in PA so our 401K contributions are taxed at the state level (3.07%) and tax-free upon withdrawal (assuming we still live in PA, which not sure if will be the case or not).

TheDude

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Re: Wife's New Job and 401K
« Reply #1 on: January 22, 2013, 08:38:30 PM »
Wow that sucks. I would view your wifes 401k as a last resort. So investments would go in this order IRA (or Roth) > your 401k > wife's 401k. That mean you could put in 5500 + 5500+ 17500 before you should decide on hers 401k. Its up to you if you would rather pay the tax now or later. I assume you have decided you will pay now since you are investing in a ROTH. If this is true then I would invest in taxable account rather than you wifes 401k.

Another Reader

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Re: Wife's New Job and 401K
« Reply #2 on: January 22, 2013, 09:04:58 PM »
In your wife's shoes, I would consider what this apparently indifferent attitude about the 401(k) implies about the general treatment of the employees.  Go into the job with an open mind, but keep an eye on the employer's overall approach to employee satisfaction and well-being.

RoseRelish

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Re: Wife's New Job and 401K
« Reply #3 on: January 23, 2013, 05:35:06 AM »
+1 Another Reader. May have other issues at this company.

And @ TheDude: i'd say the 401k with a 6% match would be the first choice for retirement savings, then a Roth or IRA.

jrhampt

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Re: Wife's New Job and 401K
« Reply #4 on: January 23, 2013, 09:32:23 AM »
If it turns out that you are able to get into the 15% bracket by maxing out the 401ks, it still might be worth it to do so.  Keep in mind that when your wife leaves this company, she can roll over her 401k into an account where she will have more options.

TheDude

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Re: Wife's New Job and 401K
« Reply #5 on: January 23, 2013, 10:23:56 AM »
Widerhaken is right it should be 401k Match > IRA > rest of 401k. Sorry

COguy

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Re: Wife's New Job and 401K
« Reply #6 on: January 23, 2013, 03:50:15 PM »
Another thing to consider is what the options you are being forced into.  They might be good.  I believe that all 401k plans must disclose all costs.  If you don't mind sharing, what are the assets of the plan invested in and what are the costs associated with the plan?  I think that with that information, this question is easier to answer.

James

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Re: Wife's New Job and 401K
« Reply #7 on: January 23, 2013, 07:44:14 PM »
Another thing to consider is what the options you are being forced into.  They might be good.  I believe that all 401k plans must disclose all costs.  If you don't mind sharing, what are the assets of the plan invested in and what are the costs associated with the plan?  I think that with that information, this question is easier to answer.


I agree with this, look at the plan on really find out what the option is before saying it's "no option at all".  If the fees are low and the risk is low, then 6.65% is really not bad.  I would agree with using her 401k after fully funding the other three options, but you might do very well fully funding her 401k as well.  Also, what are the options for pulling the money out of the 401k eventually?  I would hope you can pull the money to a standard IRA when you wife leaves the company, at which point you can control the investing going forward from there (and maybe earlier?).  An initial 25% savings followed by compounding 6.65% return with eventual control in your hands doesn't sound bad as long as fees and risks are relatively low.

WFUDEAC

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Re: Wife's New Job and 401K
« Reply #8 on: January 24, 2013, 06:40:32 PM »
As of 10/31/2011 the asset allocation was 75% Equity, 10% Long-term debt, and 15% Short-term debt. Yes the information we were given is 15 months old. The investments are spread across 23 funds + cash equivalent (6.39%). I recognize some names eg. PIMCO Bond Funds, Dodge & Cox International Stock and T. Rowe Price REIT, but otherwise seems "exotic" actively managed funds which means high expense ratios. Under management fees for both 2010 and YTD 2011 is a big fat zero, but I cannot believe this to be true. No expense ratios for the funds listed in the report either. It all seems very fishy, maybe not be a standard 401K plan because it would seem to me that these guys could get sued for violation of fiduciary duties as the fund trustees pretty easily.

We'll start maxing out my 401K come March and then reassess around September if we want to participate in her company plan.

COguy

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Re: Wife's New Job and 401K
« Reply #9 on: January 25, 2013, 10:05:38 AM »
There should be expenses disclosed if you want you can see if you can get more info otherwise you should be able to press for it:

See this info on the law effective July 31, 2012:

http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/DisclosingParticipantFees.aspx

If it were me, hearing what you have said, I would avoid the 401k at your wife's job for a while and make sure to max out 2 traditional IRAs (or Roth if you are in the 15% or below bracket).  Save the rest in taxable accounts in low expense, low turnover stock funds (VTSAX is one of the best) or something else that you know about (rental house, paid off house, Ibonds, savings account, etc...)

On a side note, the funds you mentioned are not terrible, but not great either.  A single allocation for all people in a plan seems silly to me as everyone has different risk tolerances.  As for 23 funds+ cash...well that is just stupid.  I am always appalled to hear people who get paid to manage money for a living don't understand that after about 4-7 funds the benefit of adding more funds all but disappears.   Of course I am sure they are just getting kickbacks or something. 

I hope that makes sense.  feel free to ask me to clarify