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[Piecake]

So my employer will match half my 401(k) up to 3%.
So I put in 6% and they'll add 3% to that.

They mentioned something about having to stay with them for 6 years before I get 100% of the money when/if I leave. I didn't understand what that meant. So I could pay into the 401(k), not stay for six years, and they can take money away?

Anyway is 9% 401(k) and 5% pension good for retirement?
Read the OP but am still very confused. I'm naive when it comes to this stuff. I'm 21.

Just to reiterate what Randolph said about the benefits of investing early, I think this graph shows it quite clearly.

Even the person who invested the least beat out the person who started investing late, and he invested 100k more than her. The earlier you start and the more money you invest, the less money that you will actually need to put towards retirement over your lifetime.

 

[simplayer]

Y'all with the per period matching, do you work for large or small companies, does the match go into company stock or into your general allocations.

My gut says smallish companies, no company stock.

Current company is quite large, previous was fairly large. Match contributions just go into my general allocations.

I don't beleive there's any vesting period for actually being able to keep the match either. Just the typical, work here get 2 years get 75% of up to 6%, 5 years full matching

Actual stock RSUs are a 4 year vesting period

 

[giga]

Y'all with the per period matching, do you work for large or small companies, does the match go into company stock or into your general allocations.

My gut says smallish companies, no company stock.

Large company. General allocation.

 

[GhaleonEB]

Y'all with the per period matching, do you work for large or small companies, does the match go into company stock or into your general allocations.

My gut says smallish companies, no company stock.

I work for a very large company, that does one better than the match. They deposit money into the retirement account each January based on the employee's annual income the prior year. (Gross income + bonuses * contribution % for the year.) They do this instead of a match; it now hits the Vanguard S&P500 index. It's kind of awesome (and as they frequently point out, is very uncommon.) Even employees who don't contribute to the 401k have something decent after a couple decades.

 

[Randolph Freelander]

Well, aren't ya'll just blowing my unresearched theory out of the water.

I hate it when that happens.

 

[Cyan]

I work for a very large company, that does one better than the match. They deposit money into the retirement account each January based on the employee's annual income the prior year. (Gross income + bonuses * contribution % for the year.) They do this instead of a match; it now hits the Vanguard S&P500 index. It's kind of awesome (and as they frequently point out, is very uncommon.) Even employees who don't contribute to the 401k have something decent after a couple decades.

Wow, that's interesting. That's almost more like a self-directed pension.

 

[simplayer]

tl;dr version: There might be, but it's arguably small and might not be worth it for you, given that you are maxing your accounts (I assume you mean the full IRS limit for both), though it would give you more investment freedom than you might have otherwise.

Thanks for the info, something for me to chew on.

I'll go through the numbers more, but it may be easier for me to keep it getting directly deducted from my paycheck than to budget out the gain from switching to Roth, hm....

 

[iamblades]

Quite frankly, I've always been suspicious of our own understanding of economics. The model that global economies will consistently keep growing into the future (regardless of whether our population starts shrinking, the amount of natural resources we have left, weather phenomena changes, wars, etc..) seems hokey to me. But guess that's a whole different topic.

It's a misunderstanding to think that you need overall economic growth to make money in stocks.

It is certainly helpful, but Japan hasn't had economic growth for decades, and it remains profitable to own stocks in Japan. Not as profitable as the US, but certainly profitable.

Growth isn't what is important, profit is. A company can be highly profitable while not growing and companies have lost great sums of money trying to grow.

Owning profitable assets over a long time is the surest way to making money there is, and it is one of the primary criticisms of capitalism by anti capitalists, that capital seems to magnetically attract more capital, even during shitty economic times.

The tricky is in knowing that your assets are profitable. Index funds work on the assumption, based on the history of the stock market, that the vast majority of companies will turn a profit over time(as rational people don't continue to do business if they are losing money). This works over any decently long period, but you may run into some stretch of apocalyptically bad economic times where most companies lose money for a significant stretch of time.

You can go more conservative, by picking only the very largest blue chip stocks with impeccable track records of being a recession proof business, like say, Coca-Cola. People will almost assuredly drink Coke if the economy turns to shit, and Coke will almost assuredly make a small marginal profit on each of those billions of transactions. The downside of course is that Coke doesn't have all that much space to grow their brand, but profit is profit.

 

[lastflowers]

Most large caps match once annually. At least from all the research I've done. I just figured it was all the same (from the corporate's perspective, it doesn't make sense to match on a pay period basis).

The two companies I've worked for match during the pay period.

Microsoft
Edpr/horizon wind energy

My dad is matched pay period, he works for the government though as a professor and its a 401b (or something...).

 

[Pastry]

I have a question for y'all. I contribute max to my Roth IRA and the max amount that my company matches to my 401k. My extra money I set into a money market account for an eventual down payment on a house. I plan on being a homeowner in around 3 years but I don't know what to do with the money I'm saving until then. Should I keep it in my money market or transfer it to something riskier? I'm only getting an interest rate of .15% with my money market but it's as safe as can be. Advice?

 

[RumblingRosco]

-

 

[Laekon]

Only you can decide if you want to do something with risk or not. Just like with your retirement account over the course of history its a fairly safe bet but you never know.

If you want to play it safe look into I bonds sold by the treasury. Right now the interest rate is 1.48% and they seem a better deal than any money market, CD, or savings account I could find. I have some of my emergency fund invested in them.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

 

[Piecake]

Yea, I wouldnt recommend either a stock or bond fund if your timetable is 3 years. Bond funds can definitely go down during that period, while buying a 3 year CD will lock you into a positive interest rate for that time. The only downside is that you are stuck with that CD for 3 years and can't sell it beforehand without severe penalties (if at all - kinda guessing on this).

If you really need to invest in a stock/bond fund to earn the necessary money for a down payment, your only real option is to be highly flexible when you buy that house. 3 years and we are in a market downturn? Well, you better wait until that market goes up to buy that house.

 

[Chris R]

So new year means its tax time. I had a few questions related to retirement stuff. I have a SEP plan through work and contributed to a Roth IRA.

My contribution limit to the Roth IRA is still $5,500 even though I've "contributed" to the SEP plan correct?

And how exactly do deductions work with SEP/Roth IRA contributions? I just want to make sure I'm not leaving any money on the table when I'm done.

 

[PflargBlarg]

So, I have enough saved now to make another ETF buy worthwhile. The plan was to buy into one of the US Total Market funds that I suggested for canadians a while back. My problem is that the CAD is a sack of crap right now with 84 cents to the USD. The forex is going to be killer.

Should I wait or just go for it? Who knows when it's going to get back to something reasonable.

 

[percephone]

So, I have enough saved now to make another ETF buy worthwhile. The plan was to buy into one of the US Total Market funds that I suggested for canadians a while back. My problem is that the CAD is a sack of crap right now with 84 cents to the USD. The forex is going to be killer.

Should I wait or just go for it? Who knows when it's going to get back to something reasonable.

Why not buy a US Total market Fund from the TSE? VUN.TO for example.

 

[Dr. Feel Good]

So I have a dumb question about 401k that I could really use GAF's help on...

I took a new job recently and had about $15K in vested 401k with my previous employer. I received a notice in the mail saying that I could either have this rolled over into a traditional IRA or paid directly as a lump sum with 20% of the taxable amount being witheld and sent to the IRS as income tax withholding to be credited to my taxes...

Basically I'm curious what's the best option here. If I received in cash I would end up reinvesting into either safe, stable investments or possibly even stock. Is that a dumb thing to do? For long term planning does it make more sense to simply roll over to an IRA?

Thanks for anyone's help on this.

 

[Cyan]

If I received in cash I would end up reinvesting into either safe, stable investments or possibly even stock.

Then there's absolutely no reason not to roll it into an IRA. The only reason you'd want to cash out a 401k is if you desperately needed the cash.

 

[Dr. Feel Good]

Then there's absolutely no reason not to roll it into an IRA. The only reason you'd want to cash out a 401k is if you desperately needed the cash.

Wouldn't I have more control though and potential for better gain (although higher risk)? I want to build an actual portfolio but haven't taken the initiative to put money aside to do it really and this would be a good chance to do it.

(and it's true I could use an influx of about ~$2k at this point in time, but not for anything time sensitive or debt related)

 

[clav]

Wouldn't I have more control though and potential for better gain (although higher risk)? I want to build an actual portfolio but haven't taken the initiative to put money aside to do it really and this would be a good chance to do it.

You'll have more control if you roll over to an IRA since you're not limited to your employer's 401K choices.

 

[Piecake]

Wouldn't I have more control though and potential for better gain (although higher risk)? I want to build an actual portfolio but haven't taken the initiative to put money aside to do it really and this would be a good chance to do it.

(and it's true I could use an influx of about ~$2k at this point in time, but not for anything time sensitive or debt related)

An IRA gives you full control. You can invest in anything in an IRA. DO NOT choose the cash option. You are simply pissing money away if you choose that option.

 

[MrPink93485]

Wouldn't I have more control though and potential for better gain (although higher risk)? I want to build an actual portfolio but haven't taken the initiative to put money aside to do it really and this would be a good chance to do it.

(and it's true I could use an influx of about ~$2k at this point in time, but not for anything time sensitive or debt related)

On top of income taxes, there's a 10% penalty for withdrawing from your 401k prior to age 59 and 1/2 and the IRA gives you just about complete freedom. Roll it over into a IRA, or roll over most of it and take what you need if you absolutely must.

 

[Ace Harding]

Wouldn't I have more control though and potential for better gain (although higher risk)? I want to build an actual portfolio but haven't taken the initiative to put money aside to do it really and this would be a good chance to do it.

(and it's true I could use an influx of about ~$2k at this point in time, but not for anything time sensitive or debt related)

You can invest in anything in an IRA, you just won't get slammed with the taxes and penalties of an early 401k distribution. Taking money out of a 401k before you are eligible is almost never a good idea - it would be for true emergencies only when you have no other option. Either roll it into an IRA (where you can invest in whatever you want) or just leave it in the existing 401k plan. I have maybe $100k sitting in an old employer's plan that I don't plan on moving because I like the funds they have and the expense ratios are very low - like 10-20 bps.

 

[Dr. Feel Good]

Sounds good, thanks for everyone's help. I will not take it out then. Appreciate the assistance.

 

[PflargBlarg]

Why not buy a US Total market Fund from the TSE? VUN.TO for example.

Well that's the thing, I have to do some projections on this stuff. I intend all these investments to be very long term (30+ years). The US-listed ones have significantly lower fees, but I have to compare at what point the lower fees will break even with currency exchange fees. I'm not so great at this kind of math, so it's a bit difficult.

 

[Y2Kev]

How do you decide to split retirement vs. non-retirement savings? Right now I max a Roth IRA and contribute 8% of income (2% above the match) to my Roth 401K, but I also try and save on the side (in addition to having an emergency fund). People often say max the 401k before you save anything else. Seems like it would mean I wouldn't be able to put a down payment on a house...

 

[Resident Guru]

Y'all with the per period matching, do you work for large or small companies, does the match go into company stock or into your general allocations.

My gut says smallish companies, no company stock.

I work for a very large retailer, they have per period matching. 100% match up to 6% of income.

 

[Resident Guru]

How do you decide to split retirement vs. non-retirement savings? Right now I max a Roth IRA and contribute 8% of income (2% above the match) to my Roth 401K, but I also try and save on the side (in addition to having an emergency fund). People often say max the 401k before you save anything else. Seems like it would mean I wouldn't be able to put a down payment on a house...

I would recommend placing 15% into retirement and save anything above that for your down payment.

 

[Cyan]

How do you decide to split retirement vs. non-retirement savings? Right now I max a Roth IRA and contribute 8% of income (2% above the match) to my Roth 401K, but I also try and save on the side (in addition to having an emergency fund). People often say max the 401k before you save anything else. Seems like it would mean I wouldn't be able to put a down payment on a house...

You want to max out the 401k before you save any retirement funds in a regular brokerage account. Having a specific non-retirement savings goal changes things. In that case you want to consider factors such as the required down payment (ridonkulous, based on where you live), the amount of risk you want to take, and when you want to buy the house, in order to determine how much you need to save towards this goal. You might find you still have room for additional retirement savings in the 401k, or you might not.

 

[Piecake]

How do you decide to split retirement vs. non-retirement savings? Right now I max a Roth IRA and contribute 8% of income (2% above the match) to my Roth 401K, but I also try and save on the side (in addition to having an emergency fund). People often say max the 401k before you save anything else. Seems like it would mean I wouldn't be able to put a down payment on a house...

You can take funds out of your IRA without penalty and use that for a down payment.

http://www.rothira.com/blog/should-i-use-a-roth-to-buy-a-house

You can find the circumstances above.

Is it a good idea? Well, I guess that depends on your circumstances

 

[Y2Kev]

Withdrawing 10k from a Roth IRA to buy a house seems insulting, but aren't contributions completely withdrawable with no penalty?

There's budget difficulty I don't like worrying about. I don't think I can put money into the 401k indirectly (i.e. not from my paycheck). But I would like to do a sweep at the end of the month to the 401k. It sucks that you have to put money in on a predictive basis...

 

[Randolph Freelander]

There's budget difficulty I don't like worrying about. I don't think I can put money into the 401k indirectly (i.e. not from my paycheck). But I would like to do a sweep at the end of the month to the 401k. It sucks that you have to put money in on a predictive basis...

You can temporarily go ham on your 401K, though.

If, for whatever reason, you accumulate a significant cash savings you'd rather have in your (unmaxed) retirement account, I suggest temporarily bumping your 401K contribution up as far as you can (or need), and then paying yourself out of your accumulated savings to cover your expenses. This would basically be an indirect transfer between your savings and 401K. It's not quite what you're seeking to do, but it gets the job done.

I essentially did this when I switched from being a contractor to being an in-house employee at my current job (in 2012), a move that gave me access to the 401K plan. My contributions didn't kick in until later in the year, but I came as close as I could to meeting the max contribution by contributing 50% (the max I could do) of my gross to my 401K and drawing down savings on the other side.

As far as budgeting goes, I still follow a "pay myself" strategy. The direct deposit goes to savings, and I automatically transfer a weekly allowance to cover bills and expenses. It's obviously a lesser amount than what my average weekly pay would be (I get paid biweekly), so it forces cash savings as a matter of routine, though obviously I can alter the weekly transfer amounts at any time or make an unscheduled transfer whenever the need arises (or whenever those funds might be put to better use).

 

[Makai]

I'm about to start investing at 23. I have about $9k in savings and I'm thinking about putting $5k of that in a standard Vanguard index fund (all stocks, no bonds). Is there anything wrong with this plan?

A coworker showed me an alternative to Vanguard called Betterment, but its 0.25% fee seems bad.

 

[GhaleonEB]

I'm about to start investing at 23. I have about $9k in savings and I'm thinking about putting $5k of that in a standard Vanguard index fund (all stocks, no bonds). Is there anything wrong with this plan?

A coworker showed me an alternative to Vanguard called Betterment, but its 0.25% fee seems bad.

Do you plan to use the money to start your retirement fund? If so, stick to your plan, but first open an IRA at Vanguard (it's free), then invest the money. I'd suggest a Roth IRA given your age and likely income level. (See the OP for the differences.)

If you just want to get the money off the sidelines, then yes, it's still a good plan so long as you don't intend to use the funds in the near-term (due to short term stock market volatility).

Don't take your coworker's advice.

How do you decide to split retirement vs. non-retirement savings? Right now I max a Roth IRA and contribute 8% of income (2% above the match) to my Roth 401K, but I also try and save on the side (in addition to having an emergency fund). People often say max the 401k before you save anything else. Seems like it would mean I wouldn't be able to put a down payment on a house...

This will be squishy, but it kind of comes down to how much you can save, how old you are, what you are saving for, what your priorities are, etc. My own investment strategy was to work on filling several buckets (retirement, savings funds/non-retirement savings, and kids college funds) all at once, to varying degrees, rather than focus on one at a time. Initially we couldn't save much, so I set the mix based on our age and the priority my wife and I put on retirement. That ended up being roughly a 70/20/10 mix, respective to those buckets. Over the course of many years, we got comfortable with the level of savings we had, and stopped adding to the fund (letting it just keep churning dividends), directing what used to go in there to our IRA's.

I don't think it's a good idea to focus on retirement at the total expense of other priorities, though I personally put that at the highest. Just find a mix of regular savings into those buckets that you are comfortable with, and which will advance your goals (saving for a house, for example).

 

[Randolph Freelander]

Don't take your coworker's advice.

...on anything ever.

 

[Piecake]

Withdrawing 10k from a Roth IRA to buy a house seems insulting, but aren't contributions completely withdrawable with no penalty?

There's budget difficulty I don't like worrying about. I don't think I can put money into the 401k indirectly (i.e. not from my paycheck). But I would like to do a sweep at the end of the month to the 401k. It sucks that you have to put money in on a predictive basis...

Hmm, that is true. Honestly I havent looked at it much since it just seemed like a very stupid idea. But maybe it can make sense in some circumstances? Who knows.

Man, 2k posts. Pretty crazy. Who thought retirement investing would be so popular!

 

[Makai]

Do you plan to use the money to start your retirement fund? If so, stick to your plan, but first open an IRA at Vanguard (it's free), then invest the money. I'd suggest a Roth IRA given your age and likely income level. (See the OP for the differences.)

If you just want to get the money off the sidelines, then yes, it's still a good plan so long as you don't intend to use the funds in the near-term (due to short term stock market volatility).

Don't take your coworker's advice.

Thanks. Yeah, it's for retirement and I don't plan on taking the money out early. I just found out my tax burden will be a lot lower than I was expecting so I feel safe to jump in.

When I asked my coworker what Betterment does to justify the fee, he mentioned rebalancing and tax loss harvesting, but he couldn't explain what those are.

Spoiler

I'm remembering now that he put money into a 401k with no company match.

 

[Cyan]

I took a look at Betterment, and it sounds like it's literally just buying Vanguard funds and rebalancing on your behalf. That doesn't seem worth the 0.25% fee. I mean, it doesn't appear to be a scam or anything. Just a poor value.

 

[Cyan]

When I asked my coworker what Betterment does to justify the fee, he mentioned rebalancing and tax loss harvesting, but he couldn't explain what those are.

Spoiler

I'm remembering now that he put money into a 401k with no company match.

Rebalancing means getting back to your preferred asset allocation. e.g. Let's say I am typically allocated at 70/30 stocks/bonds, and then the stock market goes down substantially over the course of the year. Now I'm at 60/40, just because of changing values within my portfolio. Well, if I want to get back to my preferred allocation, I'm going to have to sell some bonds and buy some stocks. This is called rebalancing.

Tax loss harvesting is the practice of selling assets that have gone down in value, in order to have losses to claim with the IRS. This can be useful, but not if you're using a retirement vehicle such as a 401k or IRA. Those are tax exempt, so it doesn't matter.

 

[Piecake]

Thanks. Yeah, it's for retirement and I don't plan on taking the money out early. I just found out my tax burden will be a lot lower than I was expecting so I feel safe to jump in.

When I asked my coworker what Betterment does to justify the fee, he mentioned rebalancing and tax loss harvesting, but he couldn't explain what those are.

Spoiler

I'm remembering now that he put money into a 401k with no company match.

I don't see how betterment could do tax loss harvesting because that requires you to buy a completely different fund, which I would hope that betterment does not have the authority to do on its own.

http://www.bogleheads.org/wiki/Tax_loss_harvesting

And like Cyan said, tax loss harvesting doesnt make sense in a retirement fund.

 

[blitz64]

LoL. reading this thread and I see a Betterment ad at the bottom of the page.

I think Betterment is not a scam. It will give you a return of .5% or better which offsets the fee they charge.
You have to understand tax loss harvesting and re balancing to understand how it came improve your annual return.
I don't use it myself but maybe in the future.

 

[blitz64]

I don't see how betterment could do tax loss harvesting because that requires you to buy a completely different fund, which I would hope that betterment does not have the authority to do on its own.

Here is a real world example. Betterment will sell emerging markets ETF (VWO) and buy emerging markets ETF (IEMG). It is a completely different ETF in the same sector. Perfectly legal and Betterment does this automatically.

 

[GhaleonEB]

Here is a real world example. Betterment will sell emerging markets ETF (VWO) and buy emerging markets ETF (IEMG). It is a completely different ETF in the same sector. Perfectly legal and Betterment does this automatically.

In the context of retirement accounts, there is no benefit to this, though.

 

[Brolic Gaoler]

I have a Roth tsp matched 5% by employer and I put in 10% in a deversified lifetime fund. I'll also get a law enforcement pension through the fed in 18'years. (When I'm 52)

 

[Feep]

I'm under the very risky 20's impression that every dollar I invest into my business will yield a vastly superior return than any bond or index...

But I may start using this thread soon if my new games comes out and does well.

Thanks for all the resources, gang!

 

[BigFwoosh]

I'm looking to transfer my IRA to Fidelity, and apparently I have to liquidate my funds in order to move everything over. Is that bad to do? It says I could incur a tax or fee.

 

[BigFwoosh]

fidelity has close to 600 funds on its platform. are you sure you can't just do an ACAT and transfer in-kind?

if its in an IRA, taxes are not realized unless you take a distribution. transfering account away from an institution may incur a fee, yes; typically $75

I'm transferring from a couple funds I have through Principal. When I try the in-kind option through Fidelity's site it says that those funds can't be transferred in-kind.

I'm pretty new to this stuff but I'm trying to learn a bit. Principal doesn't seem to have many funds available, which is my main reason for transferring. Do you think it would be a good idea to take the $75 hit and transfer everything, or leave my Principal funds where they are and just start new ones through Fidelity?

 

[GhaleonEB]

I'm transferring from a couple funds I have through Principal. When I try the in-kind option through Fidelity's site it says that those funds can't be transferred in-kind.

I'm pretty new to this stuff but I'm trying to learn a bit. Principal doesn't seem to have many funds available, which is my main reason for transferring. Do you think it would be a good idea to take the $75 hit and transfer everything, or leave my Principal funds where they are and just start new ones through Fidelity?

Are they in an IRA? If so at least you won't have to worry about taxes.

Check with Fidelity about the fee (ask about it on their online help site). When I closed out my American Funds accounts, they charged me a fee to transfer to Fidelity (taking it out of the transferred funds). IIRC it was around $90 total. Fidelity then refunded me the fee, adding the funds back to my account. Chatting with the customer rep, they apparently do that for people changing brokerages for Fidelity.

 

[Piecake]

I'm transferring from a couple funds I have through Principal. When I try the in-kind option through Fidelity's site it says that those funds can't be transferred in-kind.

I'm pretty new to this stuff but I'm trying to learn a bit. Principal doesn't seem to have many funds available, which is my main reason for transferring. Do you think it would be a good idea to take the $75 hit and transfer everything, or leave my Principal funds where they are and just start new ones through Fidelity?

I would definitely call up Fidelity and ask for help. I know Vanguard has an IRA roll-over help desk, so I would assume that Fidelity has some sort of customer service support in that regard that knows what it is doing.

 

[BigFwoosh]

Thanks for the recommendations. I'll definitely give Fidelity a call.