One of the great joys of this process is the division of assets. Hurray, right? Nothing more fun that putting stuff in His and Hers piles.
So my old 401k is being divided into two and I have choices of what I want to do with My Half:
- Leave it where it is and let my old company continue to manage it.
- Move it to my new company’s 401k plan.
- Move it to a rollover IRA.
My first inclination is to dump it into my new company’s 401k and thus enjoy watching the total grow every week. However, the maxim about having all my eggs in one basket rears its head and I think that it might be better with a separate institution.
But I am a very hands-off kind of investor; I like index funds. I once invested in a bio-tech start-up firm in Hawaii. It was a penny-stock and the prospectus was really cool; using algae to solve the world’s problems, etc. What I think it really was was a bunch of biologists on vacation who, in a fit of alcohol-fueled inspiration, bought a hotel with a filthy pool and tried to recoup their losses with a fancy pamphlet and a marketting scheme. I lost everything, all $200 that I invested. So I like index funds.
My old company’s 401k is a 2040 retirement fund. My new company’s 401k is a 2040 retirement fund. And if I opened a new account with a rollover IRA, I’d probably start a 2040 retirement fund. I don’t want to spend my time allocating my money into separate growth, value, balance, international, precious metals, utilities, oil and gas, and money market accounts. I want simple. I don’t want to pay advertising fees. I don’t want to pay commissions. I don’t want my profits chewed up by money managers .
Thoughts?
Rollover IRA is definitely the way to go. It gives you the ability to make your own choices (even if you end up choosing something that’s available at your current employer, you can change your mind later an invest in anything).
Check out Vanguard for your IRA rollover. They are an excellent, low-fee organization.
Totally invest your super in me. I’ll manage it and only take a 20% per month fee
My father-in-law used to sit on the board of T.Rowe Price and was the dean of a top line business school. He always advices us to go with Vanguard. And we’re doing just fine.
Generally your employer is better able to negotiate funds with low expense ratios. Check the performance of each fund and especially the class shares you can get. Institutional share classes have better expense ratios. I personally don’t like target date funds. You are relying too much on one money manager to select the right funds. But to each his own.
You may want to consider putting enough into a ROTH IRA and still stay in the same tax bracket for income, since taxes are probably going to be much higher when you retire as opposed to what you might pay today.
I’m like you. I don’t want to have to think about this. I just want my money to make money and be there if my water heater, fridge, stove and car all die at the same time. I have Ralph.
I asked friends as my divorce progressed to asset division and they gave me names of people they trusted and the operative word there is “trust”. It’s not “Well, my next door neighbor’s nephew works with a guy whose sister’s husband, I think, does that for a living.” They had to know the person directly and trust them. In fact they had to have such a good relationship that if this financial adviser invited them to his 3rd grade daughter’s piano recital, they would cancel their anniversary dinner to attend.
Once I got names, I checked the BBB for negatives about their company. I read the company’s web site. If I couldn’t understand a word on the site, forget it. Don’t talk to me in financial-ese. Talk to me in my language. And put your fees in a spot where I can find them. If I couldn’t find out the services for which I would be charged, forget it.
When that was done, I was left with 3 names. I emailed each person, explained what I wanted and asked if they could do it and what they charged. What are my options with x amount of money? Ralph answered my questions and explained everything in a language I could understand. Ralph was also the ONLY one to want to meet face-to-face at a time convenient for me and at the local Panera instead of his office. He also bought dinner, which he really didn’t have to do. Ralph got my business.
As for your employer’s 401k, you should compare returns on investment over, say, the last 5 years. This past year has been a doozy, to be sure, but I was surprised to read what the firm that manages my company’s 401k had been able to do compared to what friends were telling me theirs had done. If your new employer’s 401k has a better track record than your old employer, I would move it. If it’s the other way around AND they let you keep your money there, I wouldn’t move it. If you can afford it and you’re not moving the 401k, I’d also start a 401k with your new employer.
So there are my suggestions. Ask around and find yourself a “Ralph”. I agree that you should be diversified with some funds more liquid than others. And then, when you’re finished, send the leftovers to me. I have this great idea for a senior retirement village south of Steamwheedle Port. You’ll want to get in on the ground floor.
Check who your company uses for the funds… When i changed jobs last time my account didnt because both companies used Fadelity… If they do then there is no point in having 2 accounts with the same investments… if one goes down they both go down.
I must agree with Debbie. A Roth IRA is a good idea. If your company (old or new) has no Roth option, and you don’t want to pay commissions/fees, I’d roll it over to a 401K with your new company.
Check out a great place. Dave Ramsey has a great plan. http://www.daveramsey.com He has basic rules that make sense. 1st rule pay off debt. 2nd get with a ELP. Do not be slave to a master. That is what debt is.
Dude,
Go talk to an accountant. Sure you’ll pay $SOME_NUMBER for the privilege of doing so, but at the end of it all you’ll have some sound financial advice that takes into account your particular situation. This is not a question for teh internets.
I’ll second Galvenize’s recommendation. But from the sounds of it, there is a good chance like my previous employer they actually use the same firm for the 401k so it was real easy to move my 401k. But since your splitting it and your gonna get hit with penalties might as well roll it into a Roth IRA or Vanguard IRA.
My thought is…bwahahaha…I would that I had any assets. Never have, never will.
Have fun playing with ‘em.
http://clarkhoward.com/
http://www.daveramsey.com/?ictid=glpdr
^^ You can’t go wrong.
Both of them love Vanguard.
Sounds like you have been given sound advice. Just don’t do what I did and invest heavily into a company and have it fold on you.
I’m with Kai Howells. This is not a question for the internets. You deserve to have better advice than we all can offer. Ask a professional. Someone objective that will charge you a fee-for-service, rather than an advisor that earns on commissions and has a conflict of interest while making recommendations.
I’m going to guess that you are going to have to fully fund your retirement, and that you won’t suddenly luck into some pension plan.
For that, I’d go low risk, with a roll over into something managed by Vanguard, not your current employer. Call me crazy, but I always think of Enron…
I’m going to guess that you are going to have to fully fund your retirement, and that you won’t suddenly luck into some pension plan.
For that, I’d go low risk, with a roll over into something managed by Vanguard, not your current employer. Call me crazy, but I always think of Enron…
OH! You’re my new favorite blogger fyi
Another thing to think about…. If your funds are way down from when you bought into them, and you transfer out of your current 401(k) funds now, then you’re locking in those losses. If you leave them where they are for a few years, they have the chance of going back up, and then you can transfer later. There is no penalty for leaving them where they are, unless they’re just crap funds and you’re unhappy with them for some other reason.
Whatever you do, don’t have them cut a check directly to you if you transfer the funds out. The check should be made out to “New_Investment_Company FBO: Big R. Kitty “. That way the mandatory federal and state withholding taxes will not be taken out, and you will keep those assets intact for reinvestment.
Good luck with whatever you decide.
Dave Ramsey’s web site is a good place to start. He also has ELPs as Galvenize mentioned who are people his group has checked out as being good and following his ideas (be debt free, pay cash etc). I’d also go with those who say a Roth IRA would be the best thing to have some money in. You might not want to diversify because you think it’s more work but even if you just have a Roth and your new work’s 401K you’re getting some diversification right there. You can set it up to automatically send your contributions to different plans too and it’s not any more work than setting it up the first time. Plus, the 401K you pay taxes later but the Roth you pay taxes now. So when you retire, you’re cutting down on the amount of taxes you’ll have to pay when you have no new income coming in.
Longtime reader and poster under my gaming handle – also a financial advisor and CFP when I’m not topping Recount as a Ret Pally.
I don’t know what Index Funds everyone here likes, but over the last 10 years, the S&P 500 is down – money hidden under mattresses did better. I’d suggest investing in something that made money during that period of time. The greater cost of a managed fund would be more than offset by investing in something with a positive return. Feel free to email me if you like, Daniel. And more Airman Howell stories when you can!
As an accountant, I’d suggest getting in touch with a CFA or CFP if you know any. And it looks like you do now… Bryan’s a good bet then. They are more specialized in this type of thing and can be a better resource than a CPA. And shockingly, if they like you, advice can be free… just depends on who you know
If I had to suggest something, and I don’t… Vanguard has a solid reputation and a history of good performance. I think they also have an 401k IRA rollover, that might work for you.
Rollover your old 401k to a Traditional IRA. A 401k and Traditional IRA both are pre-tax money. They are taxed at the time of distribution when you retire.
An IRA has several advantages over a 401k. You have much more control over the assets you can purchase. A 401k is typically limited to a small menu of funds. You can own gold as part of an IRA, following certain rules. You can change your brokerage whenever you want, and when changing jobs you won’t have to worry about if the new company’s 401k isn’t as good as the old one.
With your new company’s 401k, only contribute enough to max out the match. That’s free money, and you’ll be hard pressed to match the rate of return (often 100% on the match).
After that though, your extra investments should go into a Roth IRA up to the max amount you can contribute. A Roth has a big advantage over a traditional IRA for younger investors. The money you put in is post-tax, but is NOT TAXED when withdrawn at retirement. This allows you to achieve maximum benefit of the growth in principle. This advantage fades as you approach retirement, and a mix of traditional IRA and Roth IRA is a good idea as you get older.
Having an IRA will give you the freedom to do what you want. This becomes problematic when you don’t know what you want, and don’t want to figure it out. If you do go that direction, choose investments (funds/stocks/bonds, etc…) based on your own criteria, and not just those we random people spout out because we like them. Our needs and risk levels are different than yours, so at least take time to evaluate your options.
Don’t underestimate the value, however, of a company 401k, especially if they are doing any kind of match based on what you contribute out of your paycheck.
My advice would be to roll your existing money to an IRA (if you’re okay with taking it out as it stands today, and losing any money that it has already lost), but then take part in your current company’s 401k, especially if they are matching.
Just wanted to add something that tends to be overlooked since few people toss enough of their salary into it to trigger this… 401k contributions are taxable after a certain amount. For 2010 I believe the maximum limit is 16,500 before the contributions become taxable (there’s additional rules here that can limit the size based on the percentage your employer’s plan allows you to contribute each year as it is written in a lower of the two case in the tax code, but that is the absolute max assuming no limit to your employer plan). This is for personal contributions, not including employer matching (as far as I know, I haven’t read into the tax code on that part lately on it). There’s also a similar limit on traditional IRA’s in terms of the amount of your contribution that you can claim as a deduction. (You’re not old enough for the additional catch-up exemptions.. sorry).
^ Above doesn’t effect amounts in existing retirement related savings like your case. Just make sure they don’t cash it out to you first, as it would most likely cause a taxable event. It should go plan to plan with you just telling them where to send the money to.
If it was a gov job (aka. TSP), they have the lowest fees PERIOD.
Definitely go for the IRA. Which one is the only question, and for that I’m sure you can get lots of good advice from the various sources promoted above. The key thing is that even if you don’t want to tinker with it now (or ever), you’ll likely get a better rate of return and have the flexibility to work with it later. I only wish I could move my 401K into an IRA. Do it man! It may be one of the few perks of the whole thing you’re going through.
Best of luck to you with it!
Steve
like the poster said, find yourself a Ralph, and see who your company recommends. ask around, see whats out there, but dont do it blindly, see who your work buddies use, see which name comes up the most and why they chose that person. if you had a person already at your old job, see if youcan still use their services at your new one, sometimes if you build that repore, they will let you do buisness like that.
Get it in an IRA (I’d really suggest Roth) with Vanguard, put it in an index fund. They have the lowest fees around — it’s absolutely the fees that make the difference when you’re dealing with index funds. (The best analysis I’ve seen also shows that it’s the fees that make the difference when dealing with ANY mutual fund, but that point is argued… mostly by the guys trying to sell you their managed fund.)
I would rollover to an IRA. I always prefer to have more control over my money rather than less.
As many people have mentioned there are tons of good index funds out there. There are also quite a few funds that are somewhat linked to the indices but beat them by a decent margin.
Always compare funds to their peers and pick a reputable fund administrator (like Vanguard or American Funds).
Rick
I’m starting a new company: “Take-it-all, Inc.” You can send your investment to: Take-It-All, Inc.
666 Gimme Lane,
Cedar Rapids, Iowa.
You’re going to get a very wide range of answers Mr BRK. All of them will be different from what it is YOU want to achieve. As for investment methodology though, you should feel confident that investing in Index funds means you’re going to beat +90% of the professional money managers in the world. And that is not a made up statistic. Next, about the only detail to consider is how much in Stock Indexes and how much in Bonds. That’s all a 2040 fund is doing anyway and you can do that part for free for yourself with some decent advice from a Rollover IRA specialist instead of paying some high up muckety muck fund manager big $$$s to do it year after year.
I just want to say that I hope this request for advice is an indication that the end is nearer in this mess she’s inflicted on you.
You’re a great man, Daniel, and you deserve a big fat slice of happiness. I hope this all is behind you soon.
Dan,
As some people here have already mentioned …roll your old 401k (once you are free to do so) into a Traditional IRA. You can check with your accountant and see if/how much you could roll to a Roth IRA without changing your tax situation too much if you would like, but get it into an Traditional IRA first…pronto.
The thing that is not mentioned is that IRA’s are much more user friendly in terms of beneficiaries (who you want the money to go to in the event someone hits you with a bus when you are out in that zippy car of yours). There is more to financial planning than just the return on the investment – you also need to think about that kiddo of yours.
As some one else mentioned (correctly) at least match your employers contribution to your current (new) 401k (if there is one).
As for what to invest in…if you like low fee…Vanguard & T Roe Price are some of the lowest, however I also like Franklin Funds for there long track record. You could also look into exchange traded funds…you buy them like a stock…so you have a commission charge at purchase…but no real management fees while you hold them.
Drop me a line if you would like to know more…have more questions…
If I had the money I would get the GTR. I love Nissan products, my wife wouldn’t let me get the 350Z, so I bought the Mirano instead.
If you don’t want to make the investment decisions then DON’T ROLL IT INTO AN IRA. By rolling it into an IRA, you have to make the decisions or pay someone to make them for you.
Move it into your new company’s 401(k) and DIVERSIFY. There’s a good chance the 2040 retirement fund is diversified, but the danger is what the allocation becomes as you get closer to retirement. A good book to read is “Simple Wealth, Inevitable Wealth” by Nick Murray.
A Roth IRA coversion could bring a big tax bill, but in the long run may be worth it because any distributions taken after 59 1/2 are TAX FREE. Converting is a question for your CPA. If you’re in a big tax bracket now, it may not be a good option.
If you’re interested in allocation advice, email me, and we can talk. I’m in the financial industry but WOULDN’T solicit your business. I’d just want to help someone that helps everyone else with his very amusing blogs.
1) Eat a bunch of Mayo sandwiches.
2) Bury money in mayo jars in the back yard.
3) ???
4) Profit.
(Note: If planning a garden between step 2 and 4, be careful to not roto-till that area.)
I would consider leaving it all in the new company’s 401(k). They will do all the managing for you and can take care of the diversification. If they invest in Vanguard, even better (since that’s likely what you would choose anyway). If nothing else, leave enough to get the employer’s full matching — it’s free money!
If you go move some to an IRA, I’d talk to a professional about your situation and choosing a Roth versus a Traditional. I have a Roth because my taxes are low now and will likely be higher when I retire. The IRA route is more hands-on, but if you just pick an index fund or 2 and plunk your cash in them for the long haul, it should be pretty low maintenance. Just make sure to login once in a while to check balances and you’ll be set.
Not to get nosy here, but I was under the impression that a 401K is the one asset you have that can never, ever be touched by someone else? Its protected from people seeking money from you due to bankruptcy, lawsuits and even, I thought, divorces. At least that was how it was explained to me.
I’m assuming that this is a mutual agreement you came to with the other party. Again, I don’t mean to pry, but I do want to make sure that A) I’m right about it being protected, and B) you didn’t get the wool pulled over your eyes or something.
Rollover your 401k to a Roth IRA.
Your Roth IRA gives you more control over your money. You can pick which index fund(s) you buy, thus keeping your expense ratio low. With a 401k, you’re limited to the company plan, and the company plan change at any minute.
So go with control.
The other benefit?
Tax-free withdrawals. What if you’re in a higher tax bracket during retirement? If everything is in your 401k, then you’re paying higher taxes. If some is in a Roth IRA, then that portion is tax-free.
Go with the Roth!
Two things about advice. 1) Everybody has some. 2) You get what you pay for.
Being in the business prevents me from going into specifics, but you’ve outlined some keenly specific needs/wants. I think enough so that it narrows your choices to a select few. Plus there are keen questions that need to be answered to round out those needs. A professional from either will be able to outline the benefits and drawbacks of each.
And remember, if its on the internetz it gotz to be tru.
(disclaimer: I did not have time to read the other comments)
If your new employer has a ROTH 401K (they can exist) option of any kind, by all means grab it. Otherwise a rollover into a self managed IRA. Be sure to start your own ROTH if you qualify for it.
Index funds are fine. Vanguard very competent and the cheapest I know of…and fees matter BIG time over the years.
Outside of index funds, and particularly with a ROTH…at yor age…40, right?…..I HIGHLY recommend dividend growth reinvestment. Not just dividend reinvestment…everyone does that and they should……but dividend GROWTH reinvestment.
Even after the cataclysm, there are companies that still can pay an excelllent dividend and still grow it EVERY year… as they have, in some cases, for 30 or more years.
They will continue to do so. One example would be WRE. There are many others. The stock price will wax and wane, but the dividend will only rise; and of course when the price is down, you’ll be getting more bang for your reinvestment buck.
Over 20 or 25 years a carefully selected basket of stocks like that will snowball beautifully, and will be throwing off substantial income by the time you are 65. Tax free income if it grew in a ROTH.
Good Luck, Daniel!
I think eggs in several baskets is good. I had mine in 2 baskets when I divorced and a third later, and they fared really differenly when the economy tanked. Two of the funds lost nearly half their value. The third one made dramatic gains.
Naturally, the third one was the one my ex-wife got in the divorce.
old motto on wall st that should remind you to look for the lowest fees you can find if you go the index route…
To Err is Human
To Get Paid For It is Divine
; – )
Bah – sorry I’m late on this.
Forget all of that crap. Take the money out (eat the tax hit and the early withdrawal). Take 10%-15%, buy some silver and gold bullion (take physical possession, not some crappy “paper gold”). Bury it in the backyard if it makes you feel better. (Bob-the-goat’s Mayo Jars advice above is on the right track!)
Take the rest, and put it in the Bank of Sealy. (or Certa, or whatever you happen to have…)
We’re experiencing a huge deflationary crush at the moment, and cash is king (or will be). Rumors of “bank holidays” make it so that cash-in-hand is king, as you may not be able to get anything out of a bank. The gold/silver is a hedge against what TPTB are trying to do (i.e., massive inflation to “paper over” the US debt).
@everyone in the US (including BRK): Take a couple of days and educate yourselves about WTF is really going on in this country’s economy.
Some good links:
http://market-ticker.denninger.net/
http://www.zerohedge.com/
http://www.calculatedriskblog.com/
http://globaleconomicanalysis.blogspot.com/
Read. Learn. Get angry (this part optional, but highly recommended).
As an aside: For anyone leaving money in an “index fund” at the moment, you’re risking a 60-ish% loss to try to capture a 10-ish% gain. Is that really a smart idea?
Also: Remember that “financial advisors” give you the advice that is going to make THEM the most money, not what is best for YOU.
/end Dooooooooom!
On the bright side, that circuit set looks awesome!
t. rowe would definately be my institution of choice
Not like the mainstream concepts, I have to disagree with you, as there are just so many other elements to consider. Properly if you’re open for link trade, maybe we must always communicate with one another, in order that we are able to construct a better blog together. What do you assume?