Help on 401K

[abcboys]

I've been trying to research this myself but I have no clue what everything is talking about.

My husband has a 401k thru his work and his rate of returns are terrible. I know you can't look at it short term (for instance this quarter is negative 4.74% and year is negative .68) I've looked back thru 2 years and the highest quarter was a 3.something and most of the time it 1% or less. He actually has 2 plans. One is from his old work that's no longer being contributed to and it averages around 1% for the past year or longer. Surely it could be better than this? Sometime in the future we may need to look into rolling that plan into his current plan.

So my question is we have no idea how to determine what money we put where. I know they say difersify but not exactly sure what the best way to do it is. I guess my hubby is afraid of losing money b/c he has 60% in income investment (goldman sachs ILA Prime Oblig Por-Serv ??) and 40% in growth (divided up between 4 things under growth). He is 36, I am 33 and a SAHM.

Our options on his Goldman Sachs 401K plan are income, growth and income, agressive growth, and growth with 4 or 5 different things underneath each (none of which make any sense to me)

So I give up trying to figure this out on my own. I know we should at least be a little more aggressive but have no idea what to pick or how to make our money work the best for us. I would think in the past 2 years we would at least have some or more rates of return at 4% or above??

The bummer thing is his company in the past month is no longer contributing anything. They used to contribute 3% of his 6% and they quit doing that. But for the time being we are going to stick with contributing to this I just don't know the best way to do it.

 

[Janet Hill]

Go to the website smart401k.com. For a fixed fee yearly fee they will update your portfolio allocation should be based on what funds you have to choose from. Painless and I actually did much better while following their allocation advice.

You actually have to move the funds and all of that they just provide the advice.

 

[wdwfan16]

First I would close out the old account and not roll it into the new 401K. I would roll it into an IRA account, like Vanguard, as you will have so many more options.

It is hard for me to tell you where to put the money since I don't know what funds he has available to him in his 401K account.

A trip to a financial advisor would be a good idea.

 

[minnie1928]

So I give up trying to figure this out on my own. I know we should at least be a little more aggressive but have no idea what to pick or how to make our money work the best for us. I would think in the past 2 years we would at least have some or more rates of return at 4% or above??

Keep in mind that they period that you are looking at is also covering the recession, positive returns were a rare treat for investments that were made prior to the recession beginning. I think your 4% or higher is a bit optimistic for that time period.

I've had returns that were much higher than 4%, but that was only on the securities that I purchased during the low points in the market in the last 18-24 months. My other securities are still underwater, but getting closer to breaking even.

 

[ilovejack02]

First I would close out the old account and not roll it into the new 401K. I would roll it into an IRA account, like Vanguard, as you will have so many more options.

It is hard for me to tell you where to put the money since I don't know what funds he has available to him in his 401K account.

A trip to a financial advisor would be a good idea.

 

[cbond5]

Looking at just the last two years won't give you a good picture of what to expect. Look back at 10 years or longer if available. Imo, the main thing to worry about is to always be allocated properly bonds/stocks and to avoid fees like the plague. He really should roll the old 401k into an IRA, I would, gives you soooo many more options. And it's easy, most reps. at the larger companies can start the process over the phone and send you a link. VG has 0 fees on their IRAs if you have 10k or get online statements.

There are plenty of free tools online to help guide you to the proper allocation. Depending on the $$ amount, some firms offer free financial planning. Watch out for financial planners that make their living off of loads, flat fee planners are the way to go if you feel you need one. Otherwise just call one of the big companies and ask for help....and if the rep. on the line isn't helpful, call back until you get someone who knows their stuff.

As for the current 401K, since the co. isn't matching, you could always look at using at IRA (traditional or roth) for your first $5k of contributions so you have more investment options and use the company plan for anything above the $5k.

HTH

 

[shanasbananas]

I am a financial advisor and for a general allocation, you should really diversify the 401k at his current employer. Get a good mix of large cap value, large cap growth and international growth. Get in on some emerging markets and bond funds to a smaller degree.

He needs to ditch the old 401k and roll it into an IRA. You can get low cost IRA's at banks. You can also open one with an investment firm for a low annual fee, like our fee is $45 a year and it comes with advice.

Good luck! Now is the time to get the balance right

 

[abcboys]

Well, i'm still kinda confused...but that doesn't surprise me.
I think I will look into that website someone mentioned and look into getting our old 401k into an IRA.

I don't think I have any records more than 2 years back and the website will only let me look back that far.

Thanks for all your help!

 

[brerrabbit]

Roll the old 401 into a self directed IRA as soon as possible. There are a lot you can choose from, I use Fidelity because they have a lot of investment choices. Then ask for a list of the options available under the current one and either check them out youself through Yahoo Finance or some other online tool, or after rolling the old plan to the self directed IRA ask them to give you advice on investments given the selections from his current plan. Then sit back and forget about them except for annual reviews as this is long term money and has time to grow. I have to many friends that treat retirement funds as day trading accounts and fret way to much over them. They will grow over time and annual reviews are better than looking at them every day and worrying about them.

 

[eliza61]

I've been trying to research this myself but I have no clue what everything is talking about.



So my question is we have no idea how to determine what money we put where. I know they say difersify but not exactly sure what the best way to do it is. I guess my hubby is afraid of losing money b/c he has 60% in income investment (goldman sachs ILA Prime Oblig Por-Serv ??) and 40% in growth (divided up between 4 things under growth). He is 36, I am 33 and a SAHM.

Our options on his Goldman Sachs 401K plan are income, growth and income, agressive growth, and growth with 4 or 5 different things underneath each (none of which make any sense to me)

So I give up trying to figure this out on my own. I know we should at least be a little more aggressive but have no idea what to pick or how to make our money work the best for us. I would think in the past 2 years we would at least have some or more rates of return at 4% or above??

The bummer thing is his company in the past month is no longer contributing anything. They used to contribute 3% of his 6% and they quit doing that. But for the time being we are going to stick with contributing to this I just don't know the best way to do it.

You plan on it not being your own money? Never give up trying to figure this out. I'm 50's and have been trying for the last 15 years. some things make sense, others do not.

At no time should you use the last 2 years for decent return rates. You will only end up drinking heavily.

that being said, I would.
go to a financial advisor. One who is independant and not pushing any particular funds. Tell him your goals, how much time you have etc etc. let him make some recommendations.

Now here is the nagging part. You still must do a little homework on his recommendations. Yes he is the expert but it's your money. You must make sure every so often that his recommendations still fit.

So unfortunately you must continue to learn but the good news is that no one is going to give you a test so you can go at your own speed.

good luck.

 

[bettymae1121]

I agree with the others, roll the old 401k into an IRA, I recomend Fidelity or Vanguard, they are the best for unsophisticated investors (which most people are). Low fees and great funds to choose from.

As for the current 401k, if you do not like the investment options they give you, then what I would recomend is this. IF, and only IF, your company matches your husbands 401k contribution, then only contribute up to the amount need to get the full match, and no more than that. For example, my company matches my contribution dollar for dollar up to 3%. So if I put in 1% of my income, they only put in 1% of my income in matching funds. If I put in 3%, then they match the full 3%. If I put in 6% of my gross income, they still only match 3%. If you want to save more than that, then put any additional amount into an IRA instead, as an IRA will let you have full control over your investment options.

If his company doesn't match at all, then stop contributing to his current companies 401k and put your money into the IRA. (again, this is if you don't like their investment options. If you like them then staying with the 401k is fine).

Also note, there are two types of IRA's, the traditional kind, and one called a Roth IRA. A traditional IRA, you put in the money tax free (you don't pay income taxes now) and you don't pay taxes on any money you earn while it sits there. Once you retire and start taking money out, you pay taxes then. This gives you a nice tax break now and lets your money grow-tax free. This is bascily how a 401k works. With a traditional IRA, you cannot take out the money until you reach retirement age (currently 59 1/2) without paying a penalty and income taxes on the money.

A Roth IRA is the oposit. You pay taxes on the money you put in NOW, but the money still grows tax free AND you don't pay taxes when you take it out when you retire. You ALSO get to take money out of the Roth at anytime without paying penalties or taxes, even before retirement age! You are just limited to the amount of what you put in it. Lets say over the next 5 years you put in $20k, and with investment returns it's worth $30k. Then a job loss happens and you need $10k to help relocate to a new state so you can get a new job. You can take out $10k with no penalty because you put in $20k. But if you needed $30k, you can still only take $20k, even though there is $30k in it, because only $20k is "your" money, the rest is investment returns that grew tax free. You can only take out investment returns with no taxes or penalties at the retirement age.

The reason I bring up the two types of IRA's is because most financial experts say that a person should have both types, so you can take advantage of tax savings both now and in retirement. Since a 401k works like a Traditional IRA, if you decide to set up an IRA on your own, you may want to choose a Roth instead. I don't believe you can roll the old 401k into a Roth, however, since that money was put away pre-tax, I'm pretty sure you're only option for a rollover is a traditional IRA.

 

[brerrabbit]

Only problem with this is you are limited to what you can put into the IRA if you have access to a 401(k) so if the wife does not work she can contribute to the IRA but the husband can't. Also you would lose the benifit of the 401 contributions being taxed deferred. I think they should explore all the options in the 401 and find one that works for them with the help of an advisor or their own research.

 

[shanasbananas]

Only problem with this is you are limited to what you can put into the IRA if you have access to a 401(k) so if the wife does not work she can contribute to the IRA but the husband can't. Also you would lose the benifit of the 401 contributions being taxed deferred. I think they should explore all the options in the 401 and find one that works for them with the help of an advisor or their own research.

You will be limited to what you can contribute to a traditional IRA regardless. ($5000 per year). You can roll the entire old 401k over and still contribute $5000 per year.

The only issue that would arise with having both is the tax deduction. For joint filers there is a phase out gross income range around $100,000. So, if your husband makes over $100,000 he wouldn't be able to fully deduct his IRA contributions. Your income in an IRA will still grow tax deferred and you can deduct your contributions at the end of the year (you cannot deduct 401k contributions b/c you don't pay tax on them) so the tax liability is the same in the end.

Your other option might be to ONLY have an IRA and roll both plans into it. The 401k tax consequence only comes if you're an ACTIVE participant in the plan. If it doesn't look like his employer will resume matching his contributions, that would be the best option. There's really no reason to let the company's rep manage your funds if they aren't contributing, unless he can contribute more than $5000 per year (the IRA max), THEN you could open a spousal IRA and contribute $5000 per year into that as well.

I hope this didn't confuse you even more! We like to work with American Funds for external IRAs. Regardless of what company you choose, I would call up and speak with an investment advisor. The call is free and they can make a suggestion to you based on your circumstances. I guess be happy that you have extra funds each month to contribute to retirement Many people our age don't right now! Good luck!!