Can someone help direct me what to do with 401k?

[Happyjen27]

I work for a large investment company.

Do not listen to any advice here on this board other that that which tells you to speak to a certified/registered investment professional. Talk to your bank or if you have an investment firm, talk to a broker there.

I'll jump on this band wagon! I totally agree. Yes, many people are well versed enough to handle transactions on their own, some don't feel comfortable.

I'm not a financial professional at all. But here's my 2 cents anyway:

I would roll it over into a traditional IRA, and, since your company isn't planning on participating in a 401K, I would also open Roth IRA to fund next year.

I'm lucky enough to have both a 401K with my company that I fund at 10% of my income and I also have my own Roth that I fund each month through automatic transfers from my bank account. They both offer different tax benefits to me, the 401K now because I don't pay annual taxes on the deposits. The Roth will benefit later when I get the earnings tax free.

 

[Jeff_G]

I am going to add onto those who say call Vanguard and speak to them. Vanguard has some of the lowest fees and you can manager everything online.

With a Rollover you want to open the account, then direct your 401k company to write the check TO the new investment company not to yourself. This will avoid the tax hit.

Again as others have said find out who your current 401K company is with, it could already be Vanguard.

If not find out the Monthly , quarterly or yearly fees they charge. Sometimes these fees are inside the investment also know as Expense Ratio. Find out what this number is for your investments.

Since your company will no longer be offering a 401k and you cannot contribute to the investments anymore it is in your best interest to move it to an IRA (or Roth IRA) so you can continue to invest.

You asked about a Roth, if you choose to convert to a Roth IRA you have to pay taxes on the earnings from your 401k so the money becomes post tax. This is not necessarily a bad thing but just watch your overall family income because it could bump you into another tax bracket.


Roth IRA money is put in with after tax dollars and grows tax free, you never pay taxes on the earnings as long as you withdraw it after 59.5 years old.

A traditional IRA you can deduct the contributions from your taxes and it defers the taxes until after you withdraw at 59.5.

Your 401k is contributed with pre tax dollars so again it grows tax deferred until 59.5

If you withdraw your 401k before age 59.5 you will pay the taxes plus a 10% penalty, unless you fall into some of the special situations.

 

[Angeni11]

When I left my employer I rolled mine over to a Fidelity Rollover IRA (Traditional). Didn't cost anything and was very easy to do. I had a small amount like you did. There are several companies that do this and as I said very easy to set up (we chose Fidelity because we liked their options and they were very helpful).

However if you want to contribute to it I would definately suggest to talk to a certified financial planner as it can have tax implications. I can not contribute to mine but have other accounts set up that I can including a Roth.

 

[eliza61]

Op,
Yes rolling over is very easy to do and at your age (27) you could go for an easy low cost index fund.

but I would also look into financial planning. The object imo is not just to save money but to build WEALTH. Hopefully as time goes by you will have millions to invest not just 13K.
Now for me, once I accumulated wealth, handling tax implications, asset protection, asset management and wills, trust and all the other responsibilities that came along with the wealth was more than I wanted to do. Also as I got older my situation changed and my needs changed. I found an excellent Wealth manager who I trust. he has a fiduciary responsibility to me and it's a partnership (a couple of times it's a boxing match, when he makes a suggestion I don't agree with. lol).

they are not all snake oil salesmen. they are like any other industry, their are rotten apples and there are some great knowledgable people. Could I possibly do it all myself maybe? do I have the time or want to do it by myself? nope. Would it give me heart burn if I had to? probably. Considering most folks don't pay attention to their 401K's after they sign up, I'm more leery of the investor than the financial planner.
Does my portfolio have fees? yes, but generally the range about 1% or less.

So this is the perfect opportunity to do both. Learn about savings and investing and learn about finding great financial planning.

In 20 years when your portfolio is now 1.3 million you'll have the tools to choose wisely.

 

[CalDisneyMomof2]

Thank you everyone. I appreciate all of your responses. Didn't mean for it to turn into an argument! My credit union offers a free consultation. Maybe I'll just hear them out. Thanks again!

 

[runwad]

Call Vanguard 800-319-4254 https://personal.vanguard.com/us/openaccount, it's very easy they will do practically everything for you. Roll it over into a traditional IRA if your 40k is traditional. Then you can learn about rolling some of it over to a Roth after you have it established.

 

[JasonMouse]

I think I can make this clearer. First, I'd choose Traditional. The bank (or credit union) will roll a 401k over for you, which means they simply open up a new account and transfer the money into it. At which point it will look like an ordinary bank account, except if you withdraw it to anything but another Traditional IRA, you will be charged 10% for early withdrawal with exceptions like college tuition.

While it's in this account, you can leave it as cash, buy and sell stocks, or buy mutual funds like Vanguard. You can also deposit more money into it and get some significant income tax savings up to a certain amount. You can also open up as many IRA's as you want, like a Roth if you want to try that. IRA's are not joint accounts, so you may put the husband on a Roth and you on a Traditional. Just don't give him the password.

One thing to consider! While the kids' education is important, we all know school is boring and Disney is not! There's nothing wrong with sending the kids to the school of life while you go on a 1 week Grand Floridian vacation! The only thing stopping me is that I heard the presidential suites only have a baby grand piano and not the full sized kind. I know you're thinking that's ridiculous, the lackluster richness and sound of the baby grand is perfectly acceptable for vacation pianoing and plus I don't even play piano, and you may have a point there. But if I'm going to spend my kids' college money on Disney, there better be a full sized piano in my room.

 

[bdcp]

I think the only safe advise on this forum is this......other than....don't cash it in and spend it.

This.

The only other thing I can add is find a Certified Financial Planner and work with them. We have for the last 11 years. Fortunately, we knew someone well who is one and he's been managing our investments outside our current job 401K's and has made us a bit of money and protected a portion of it since we're in our 50's and can't lose much. Point is, there are very good planners out there. The problem with just going with your bank is their first alliance is to the bank and tend to push their bank's products. Our planner works with a large group of CFP's but they do not work for an investment group. He's more like an independent broker under the umbrella of this company. What they have it access to investments that an individual doesn't or would have trouble getting to. I know some people complain that they get a % everyyear, but so what? We're paying for his expertise and he's made us quite a bit. The reality is, the more we make the more he makes which is one more incentive for him. Although he really enjoys helping people and finding the right investments. He also listens to us and has helped us invest based on those.

 

[RitaE]

I'm going to vote open an IRA account with Vanguard and send it to them. Put it into a low cost index fund for the moment and then start reading the Bogleheads forum to learn how to manage your own money.

This has been floating around a lot this year, but this is the advice Warren Buffett gave to the future Trustee of his estate in his papers:

My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

The second portion of your task is to arrange automatic withdrawals from your paychecks that used to be going to your 401k account over to a new IRA.

The Bogleheads forum can help you eventually figure out the difference between the Pre and Post Tax IRA types. I don't believe you should make that choice with your money until you understand it.

 

[supersnoop]

There are two separate suggestions going on here, and you need to make sure you keep them separate. You need to roll the money over into another ACCOUNT, and then choose your INVESTMENTS.

Accounts:
There are basically three choices here; Traditional IRA, Roth IRA, or a non-retirement account.
Non-retirement account - you'll pay a penalty and taxes, probably reducing the account value by 50%. Don't do this.
Traditional IRA - Still a retirement account; no taxes owed. The money just moves over and you'll be taxed when you withdraw it during retirement.
Roth IRA - Also a retirement account. The full amount needs to be deposited, but you'll have to come up with additional money to pay taxes. In this account, you pay taxes on the money when it goes in, but not when you withdraw it during retirement. You cannot use any of the money to pay the taxes. This account is better if you expect your tax rate to be higher during retirement.

After you choose which account type is best, then you can consider your investment options.

 

[ariel71]

I would recommend becoming familiar with the IRS guide on IRAs. It's a lot to take in, but it's information you should at least have some basic familiarity with ( or at least know the resource is out there should you need it). One unintentional move can have unforeseen consequences. For example, if your 401k balance is paid directly to you, it generally needs to be rolled into a traditional IRA within 60 days to not trigger the withdrawal penalty (there are other considerations, but generally speaking).

Also, there's a difference between an employer freezing a plan and terminating a plan. The plan administrator is required to give you "plain language" information. It's a problem if you haven't received any solid information regarding what's happening to your plan.

http://www.irs.gov/pub/irs-pdf/p590.pdf

 

[DVCcurious]

I am a CPA and my advice is what most people have been saying:

Call Vanguard and roll your money into an IRA with them.

Since you won't have a 401k anymore you still need to save for retirement, so you'll have to do it on your own. Vanguard will help you with everything.

Set up a Roth IRA at Vanguard and then do an automatic dedication from your checking account each month to fund it.

Vanguard also has the lowest fees. You won't strike it rich with them but you will get decent advice for a very low price.

Listen, you have 13k. To a financial professional that's nothing. Most CFPs and CPAs won't even bother with anyone who has less than 500k. It's just not worth our time. So if you go to a CFP you're going to get the amount of attention from them that you deserve: nothing. You just don't have enough cash to be worth anybody's time. The CFP has to make money so you'll be charged something, somewhere along the line. There's nothing wrong with this, it's just how business is done.

CFPs provide a valuable service....to those with a lot of money. If that's not you then you don't need a CFP.

 

[dcfromva]

This is the only job I've ever had so I'm clueless on what to do.

What is the best thing for me to do?

I'm 27, so very far off from retirement if that makes any difference. Any advice would be appreciated.

No matter what you decide, do a bit of research so you aren't clueless.

I recommend the boglehead website-- there is so much information on basic investing there.

boglehead website

They will also provide very detailed suggestions on how to meet your goals:
http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212 But, you have to know what type of asset allocation you want.

 

[bdcp]

Listen, you have 13k. To a financial professional that's nothing. Most CFPs and CPAs won't even bother with anyone who has less than 500k. It's just not worth our time. So if you go to a CFP you're going to get the amount of attention from them that you deserve: nothing. You just don't have enough cash to be worth anybody's time. The CFP has to make money so you'll be charged something, somewhere along the line. There's nothing wrong with this, it's just how business is done.

CFPs provide a valuable service....to those with a lot of money. If that's not you then you don't need a CFP.

That is so not true. CFP's absolutely will deal with people who have 13K. You do not have to have 500K. Seriously? We had just a little more than 13K (50K or so) when we started with him and a lot more now. But, he never gave us a floor. Some investments require a minimum, but not all. The whole idea is that the CFP helps you build your portfolio. If they only worked with people who had 500K, they would have a very small number of clients. Our CFP gets a percentage of our total investment so the more we make, the more he makes and it all comes out of our invesments cash portion, never, ever directly from us.

OP, shop around, ask questions and find someone who is there to help you. Don't go with someone who only sells their own company's investments. That is too limiting.

If you don't want to use a CFP, then by all means roll it into an IRA, but you don't need to use your bank.

 

[crisi]

Listen, you have 13k. To a financial professional that's nothing. Most CFPs and CPAs won't even bother with anyone who has less than 500k. It's just not worth our time. So if you go to a CFP you're going to get the amount of attention from them that you deserve: nothing. You just don't have enough cash to be worth anybody's time. The CFP has to make money so you'll be charged something, somewhere along the line. There's nothing wrong with this, it's just how business is done.

And this can be sort of soul sucking. There are fee based CFPs who will work with people with smaller amounts of assets. But they can be very difficult to find. So you can spend a lot of time trying to find someone to even talk to you with under mid six figures. And with such a small choice of people, you often take the first guy you get. But being told that your life savings isn't worth the bother is belittling. (Yes, its a business reality for the CFP, but it isn't encouraging for the person with $30k to invest for whom that is a lot of money).

If you can get a referral to someone who does fee based planning and works with smaller amounts of wealth from someone you trust, you should interview that person - those CFPs are rare. And if you hit it off, decide if its worth it.

I've interviewed several over the years that have been referred by friends - one made a tax statement about options so wrong it made my head spin (I have an Accounting degree), several others were not fee based at all but selling high load mutual funds - and I'd really rather get my money without someone taking a large cut. I'm now well into the wealth bracket that I get shark letters and calls from the guys eager to manage my money - but at this point, I'm pretty good at it - I got here myself, it doesn't take that much work. And there are a few people I've needed for expertise - but I wouldn't use a CFP for it (like trusts - trusts are set up by trust attorneys. Taxes should be done by CPAs or enrolled agents.)

Bogleheads is a discussion board like this - except they are obsessed about investing rather than Disney. They tend to be good, and willing to teach. They are in it for learning from each other and teaching - not because people are paying them for their advice.

For right now, I'd

1) Call Vanguard - a representative will walk you completely through a rollover.

2) Spent 1 hour a week on Bogelheads. More if you have time and interest.

3) If you can make another hour a week, use it to check out a book on personal finance at the library or spend it in the library flipping through Money magazine or Kiplingers. My Dad gave me a subscription to those one year for Christmas when I was around your age, and I learned more in a year in easy to understand magazine articles than I would have imagined. (Eventually, they are like bridal magazines and you've read "best places to honeymoon (Brides)/retire (Money)" a zillion times).

 

[eliza61]

And this can be sort of soul sucking. There are fee based CFPs who will work with people with smaller amounts of assets. But they can be very difficult to find. So you can spend a lot of time trying to find someone to even talk to you with under mid six figures. And with such a small choice of people, you often take the first guy you get. But being told that your life savings isn't worth the bother is belittling. (Yes, its a business reality for the CFP, but it isn't encouraging for the person with $30k to invest for whom that is a lot of money).

If you can get a referral to someone who does fee based planning and works with smaller amounts of wealth from someone you trust, you should interview that person - those CFPs are rare. And if you hit it off, decide if its worth it.

).

Good googlie moogly, who are you guys hanging out with? Bernie Madorf?

Do you really believe that every cfp has all clients with half a mil assets. LOL if that were true we really wouldn't have a retirement crisis now would we.

Secondly, I would hope some one would not wait until they had that much money to finally have a relationship with a cfp. the time for learning and investigating is before you hand over a fortune to some one.


Ok thankfully op my experience has been different.

My first exposure to financial planning was back in the dark ages of 1987 way before there was even a thing called IRA's my dh and I had worked in another rcountry and we needed to park the money some where safe and we didn't understand the tax codes for income made in a foreign country.
We walked into Chase manhattan bank in NYC and spoke (for free) with an accountant. Now sure once we decided on what to do there was a charge but initially they gathered info and gave a recommendation. we had all of 20 thousand dollars.


A lot of fee based cfp's will do an analysis FOR FREE.

Fast forward to 2013, now I'm looking around because I have my husband assets to liquidate and invest. I interviewed almost 8 fp's only one was a complete jackrabbit. LOL I almost choked him to death because after I asked him to explain his investment strategy he mumbled "I hate working with chicks".

all of them thought the value of my portfolio was around 200K. like I said, I need to know what you are going to do with a small amount before I fork over millions of bucks.

Now maybe it's because I live in a big city and competition is great but all were decent or let me say they gave advice and could back up their advice with sound financial practices.
not a one made me feel "soul sucked".

I really like the gentlemen I picked, fees on my portfolio average 0.9-1.3% depending on if I'm moving stuff around and he has a cpa in his firm so I get my taxes done yearly for free.

I generally a passive investor but I just sold a piece of property that was left to me so I'm thinking of taking the proceeds from there (about 100K) and opening a brokerage account and do a little individual stock buying. I wish I had it already in place as the last couple of weeks with stocks down I could have picked up some bargins.
Once again all the places I've called, Edward Jones, fidelity, Janney Montgomery have all offered services and I did not need 500K

I love Bogleheads but talk about intimidating, while they are very helpful it seems everyone on there is a Doctor with 10 million.

 

[crisi]

Good googlie moogly, who are you guys hanging out with? Bernie Madorf?

Do you really believe that every cfp has all clients with half a mil assets. LOL if that were true we really wouldn't have a retirement crisis now would we.

Secondly, I would hope some one would not wait until they had that much money to finally have a relationship with a cfp. the time for learning and investigating is before you hand over a fortune to some one.


Ok thankfully op my experience has been different.

My first exposure to financial planning was back in the dark ages of 1987 way before there was even a thing called IRA's my dh and I had worked in another rcountry and we needed to park the money some where safe and we didn't understand the tax codes for income made in a foreign country.
We walked into Chase manhattan bank in NYC and spoke (for free) with an accountant. Now sure once we decided on what to do there was a charge but initially they gathered info and gave a recommendation. we had all of 20 thousand dollars.



First of all most fee based cfp's will do an analysis FOR FREE.

I spent a lot of time looking for a financial planner fifteen years ago - I'm a huge fan of Eric Tyson's Personal Finance for Dummies where he recommends it. And around here, you need lots of assets, or the person you get is working commission sales, or they are an idiot (which you discover when they analyze you for free). It really was a soul sucking experience.

It may be quite different in other parts of the country or now. But here and then, those statements were very true - finding someone to give you good advice about a small portfolio with a reasonable cost associated with it might have been possible, but it was NOT easy. It was far easier to learn it myself.

 

[eliza61]

I spent a lot of time looking for a financial planner fifteen years ago - I'm a huge fan of Eric Tyson's Personal Finance for Dummies where he recommends it. And around here, you need lots of assets, or the person you get is working commission sales, or they are an idiot (which you discover when they analyze you for free). It really was a soul sucking experience.

It may be quite different in other parts of the country or now. But here and then, those statements were very true - finding someone to give you good advice about a small portfolio with a reasonable cost associated with it might have been possible, but it was NOT easy. It was far easier to learn it myself.

wow, that sucks. I'm in Philly so the hard part is mainly weeding through the novices to get some one who is good and works well with you.

I am learning much mainly because when dh died I just had so much work to do with his business, investments yada yada yad

But I gotta admit Crisi, I don't like it. I don't think I'm a stupid gal but I find the stuff boring at best, mind numbing at worst. So I've always known that I didn't want to invest hours managing my own investments. I can barely stand just keeping on top of it a few times a year. So it was really important for me to find a good person.

I look at him right up there with my doctor, plumber and colorist. lol some things I've done myself and it was a disaster.
I won't self diagnosis
I won't fix a leaking pipe
I won't do my own dye job.

unfortunately all are things I've tried once and they ended disastrously!!

Ironically the one firm I interviewed that did require a minimum investment of 500K was fisher investments and they gave the worst advice.

 

[crisi]

I love it - but it really is a few hours a year if you aren't actively trading (and you shouldn't). Really, most people need to put 60% in a S&P 500 index fund, 40% into a bond fund, and let it sit there. Once every six months - reallocate to make sure you keep up a 60 - 40 balance

If you want a little more risk - or are really young, change those numbers to 70-30 (or even 80 -20 if you like to live with risk). If you are older (within a few years of retirement or retired) or very risk adverse, change those numbers the other way. The more risk, the more likely you are to make a bigger profit - but you might also find yourself not having money when you need it.

Leave your emergency fund in cash - you don't want to cash in in a down market.

If you want a little more variety, start looking at putting the stock portion into a wider variety of funds - an international fund or a utility fund would be good bets.

Use Vanguards funds because they are low cost - i.e. every mutual fund is going to take a small percentage each year to cover their costs, pay the people who are the "experts." Vanguards are the lowest. And index funds don't take an expert - you invest to the index.

For 90% of people, this is all you need to know, and why pay anyone anything for that?

 

[NewRVLady]

I am a CPA and my advice is what most people have been saying:

Call Vanguard and roll your money into an IRA with them.



Listen, you have 13k. To a financial professional that's nothing. Most CFPs and CPAs won't even bother with anyone who has less than 500k. It's just not worth our time. .

Altho I agree with your FIRST part


I am rolling my eyes over the second

When our company filed for bankruptcy-one of employers had a sister who is a financial planner-she got LOTS of our accounts ( rolled over our 401k into IRA)and some were NOT big( way less than 100k)...like mine
BUT she treated me with respect
and when my Mom died-I put ALL that $$ in my account -another investment account
Its with new York Life

I also have lots of $$ invested with vanguard-really like them