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Posted

OK I'm too busy and I saw some notice regarding my daughter's old 401K with her former employer.  I guess she quit early last year and the termination just caught up to the 401K folks, that I also think just recently changed.  Anyhow if she does nothing, I think they send her a check.  Which might be too big a temptation.  It's not a lot of money maybe 10-12K, but better to let grow.  

She's finishing her Nursing Degree and just changed jobs, so tossing it into a new employer program (if is that possible) is a no go.  So wonder if anyone has some device on where to park the money?  I also thought about converting it to a Roth but from above you can see I don't shit shit about converting one.  But maybe an early tax hit now, for tax free later and more flexibility in offerings?

So thoughts? Suggestions? Warnings? all appreciated.

Posted

401k should be able to rollover as cash, or possibly transfer in-kind if the new place carries the same funds. Can transfer to Trad IRA if she wants more freedom with funds. If she wasn’t working full time, the math might be good for Roth conversion if she can afford

Posted (edited)

Also, if they do end up cutting a check because she can't decide what to do or procrastinates, she has 60 (?) days to roll it into an IRA without having to pay the 10% early withdrawal penalty + taxes.

Edited by Redneck Mutha
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Posted

Call vanguard and be done, takes 10 minutes. Ive rollovered three 401ks to them. Had checks mailed directly to them in (El paso) and after deposit went into fund of my choice...after x days per IRS. 

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Posted
2 hours ago, horn4life said:

OK I'm too busy and I saw some notice regarding my daughter's old 401K with her former employer.  I guess she quit early last year and the termination just caught up to the 401K folks, that I also think just recently changed.  Anyhow if she does nothing, I think they send her a check.  Which might be too big a temptation.  It's not a lot of money maybe 10-12K, but better to let grow.  

She's finishing her Nursing Degree and just changed jobs, so tossing it into a new employer program (if is that possible) is a no go.  So wonder if anyone has some device on where to park the money?  I also thought about converting it to a Roth but from above you can see I don't shit shit about converting one.  But maybe an early tax hit now, for tax free later and more flexibility in offerings?

So thoughts? Suggestions? Warnings? all appreciated.

Tell her to roll it into a Traditional IRA.  never roll it into a new employer 401k.  ever.  If she wants to convert to ROTH it's absolutely worth it so long as she's willing to pay the taxes now.    

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Posted
51 minutes ago, Trey3216 said:

never roll it into a new employer 401k.

The problem with absolutes is that they are not correct 100% of the time. 
 

Features a 401k provides that an IRA does not:

Creditor protection

Ability to loan against 

1 login and 1 coherent strategy (not everyone wants a separate login for a $12k account)

Investment lineup that is vetted by a fiduciary on an ongoing basis (or at least it should be)

 

A traditional IRA can often times be lower fees but not everyone wants to do it themselves or does a half decent job setting one up. 
 

Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested. 

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Posted
2 minutes ago, Firemans4Horn said:

The problem with absolutes is that they are not correct 100% of the time. 
 

Features a 401k provides that an IRA does not:

Creditor protection

Ability to loan against 

1 login and 1 coherent strategy (not everyone wants a separate login for a $12k account)

Investment lineup that is vetted by a fiduciary on an ongoing basis (or at least it should be)

 

A traditional IRA can often times be lower fees but not everyone wants to do it themselves or does a half decent job setting one up. 
 

Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested. 

You can use the vetting by your employer to adjust your fund companies if you choose.   
 

It is increasingly frequent that only contributed funds while at that employer are available on loan from the 401k plan, so that point is moot.  
 

“Vetted by a fiduciary” is almost comical as an argument.   
 

 

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Posted
54 minutes ago, Firemans4Horn said:

I know in your mind everyone with $12k invests in some 3 fund Bogle model for 50 years but unfortunately that is far from what happens. 

No, that’s not how things work in my mind or in my practice.   But that’s a cool assumption 

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Posted

Thanks All - I was aware of the 60 day turnaround period, before penalty.  

Very good thinking on the ability to borrow in the 401K.  Vanguard was also one of my first thoughts as I am familiar with some of their funds.  However they apparently have exited the individual 401K business, and only have IRAs.  She's barely working full time as she knocks out the last semester of her BSN, so this year will likely be the lowest tax year she will have.  And if there is a real emergency she can withdraw any contributions tax free.  She also may travel to other states to work, and putting money into a Roth with direct stock investment would be good for her to learn with.

I was completely unaware of the inability to access converted rollover 401K dollars via the loan process, if moved to employers new 401K!  So individual 401K or Roth is what it sounds like.

 

 

 

Posted
21 hours ago, horn4life said:

OK I'm too busy and I saw some notice regarding my daughter's old 401K with her former employer.  I guess she quit early last year and the termination just caught up to the 401K folks, that I also think just recently changed.  Anyhow if she does nothing, I think they send her a check.  Which might be too big a temptation.  It's not a lot of money maybe 10-12K, but better to let grow.  

She's finishing her Nursing Degree and just changed jobs, so tossing it into a new employer program (if is that possible) is a no go.  So wonder if anyone has some device on where to park the money?  I also thought about converting it to a Roth but from above you can see I don't shit shit about converting one.  But maybe an early tax hit now, for tax free later and more flexibility in offerings?

So thoughts? Suggestions? Warnings? all appreciated.

One word of warning for anyone who changes jobs frequently. The switch might be needed or worthwhile but you frequently lose out on any retirement matching because you’re not fully vested yet. It needs to be considered with the overall decision.

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Posted (edited)

Roth conversion makes most sense IMO given her income situation.   Presuming she is single and stays below $49K of topline earnings (including the converted funds) that will keep her in that low 12% fed tax bracket and offset a lot of the negatives.

I am also 99% certain that she will NOT be subject to the 10% early withdrawal penalty as long as the converted funds remain in the Roth untouched for 5+ years...which further boosts the benefit in favor of moving out of the 401k.

I'm also 99% certain that the 401k admin will NOT do a federal/state withholding on conversions, so she will need to be disciplined enough to keep $1k or so extra 'cash-on-hand' when that tax finally comes due...or I guess hope that her tax refund is sufficient to cover that delta.

My advice to her would be to get that $10k into a Roth starting our as cash only.....then DCA $1k per month into a couple of standard index funds and then concurrently try to save-up $2k more over course of the year to finish Nov/Dec with similar "deposits".  This will give her a specific investment "goal" right off the bat and also get her some visibility into market trends without overwhelming her. 

Most importantly, the DCA strategy protects against the psychological outlier risk of her dropping $10k (which I assume is a lot of money in her mind) and then market immediately taking a shit and her potentially swearing off investing forever.

Building off that early momentum, I would then encourage her to build her career/budget framework with 5% auto-contribution to new employers 401K (assuming her company match will be somewhere in that range)...along with another 5% into her Roth going forward.  Given the $12k head-start she will have given herself with the Roth, the accompanying 401k should evolve into pretty nice pre/post tax combination for her long-term future.

 

Edited by Muny_Tex
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Posted

Thanks All - I was aware of the 60 day turnaround period, before penalty.  

Very good thinking on the ability to borrow in the 401K.  Vanguard was also one of my first thoughts as I am familiar with some of their funds.

1 hour ago, Muny_Tex said:

Roth conversion makes most sense IMO given her income situation.   Presuming she is single and stays below $49K of topline earnings (including the converted funds) that will keep her in that low 12% fed tax bracket and offset a lot of the negatives.

I am also 99% certain that she will NOT be subject to the 10% early withdrawal penalty as long as the converted funds remain in the Roth untouched for 5+ years...which further boosts the benefit in favor of moving out of the 401k.

I'm also 99% certain that the 401k admin will NOT do a federal/state withholding on conversions, so she will need to be disciplined enough to keep $1k or so extra 'cash-on-hand' when that tax finally comes due...or I guess hope that her tax refund is sufficient to cover that delta.

My advice to her would be to get that $10k into a Roth starting our as cash only.....then DCA $1k per month into a couple of standard index funds and then concurrently try to save-up $2k more over course of the year to finish Nov/Dec with similar "deposits".  This will give her a specific investment "goal" right off the bat and also get her some visibility into market trends without overwhelming her. 

Most importantly, the DCA strategy protects against the psychological outlier risk of her dropping $10k (which I assume is a lot of money in her mind) and then market immediately taking a shit and her potentially swearing off investing forever.

Building off that early momentum, I would then encourage her to build her career/budget framework with 5% auto-contribution to new employers 401K (assuming her company match will be somewhere in that range)...along with another 5% into her Roth going forward.  Given the $12k head-start she will have given herself with the Roth, the accompanying 401k should evolve into pretty nice pre/post tax combination for her long-term future.

 

Thanks for the detailed response.  Dollar Cost averaging was what I was telling her to do.  When she finds a stock she likes, buy a little bit every month.  What was the old Peter Principle something about investing in what you see in your industry before the rest of the market notices.  My other Pharmacist Daughter was all over LLY when it was barely over $300 for example.  

The 5 year Roth restriction was one I just realized today doing a little research.  Sort of locks her in to this as a long term deal.  Which is how I think she will view it.  I would guess she will make around $60K+ working 3 shifts a week.  And I know she will max out to at least the contribution match.  VERY GOOD point about how long it takes to vest for the Employee matching contributions!  That is something I had not thought to tell her to think about.  

I figure she is going to look at a couple aspects of nursing before settling in on what she wants to do long term.  So there may be a bit of transience the next few years job wise.  So maybe one of the best things about a Roth might be the regular paycheck contributions into it.  No matter where she was working.  If she really got into a bind my wife and I could probably help her out financially, but she has been very independent financially, and I expect that to continue.  

 

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Posted

I was about to create a post about this and found this one, nice.

Ok, so I have a 401k from my old employer which is currently about $72,000.  I have it in a Fidelity IRA.

What Firemans4 posted above, I sort of fell into that group.  "Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested."

I have about 80% in FBALX, and the other 20% in FXAIX.  

Just wondering what would be the best thing to do with it?  It's never gained or lost very much, but I feel like I'm missing out.

TIA

 

Posted
38 minutes ago, Rip76 said:

I was about to create a post about this and found this one, nice.

Ok, so I have a 401k from my old employer which is currently about $72,000.  I have it in a Fidelity IRA.

What Firemans4 posted above, I sort of fell into that group.  "Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested."

I have about 80% in FBALX, and the other 20% in FXAIX.  

Just wondering what would be the best thing to do with it?  It's never gained or lost very much, but I feel like I'm missing out.

TIA

 

FBALX is 34% bonds. Depending on your age and risk tolerance, that could be too high. 

Posted
10 minutes ago, Larry T. Spider said:

FBALX is 34% bonds. Depending on your age and risk tolerance, that could be too high. 

Age 52.

You think maybe back it off to 40%?

Posted

If you ask 100 people you will get 100 different answers in terms of what percentage should be in bonds by age. I have a pretty high risk tolerance so I’m not  planning on having any bonds 10 years out from retirement. Other people seem to think 20% is appropriate for your age.

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Posted
On 2/17/2025 at 12:11 PM, Rip76 said:

Age 52.

You think maybe back it off to 40%?

Haha.  I mean lower on the bond side to 20%.

Posted
On 2/18/2025 at 3:06 PM, Larry T. Spider said:

If you ask 100 people you will get 100 different answers in terms of what percentage should be in bonds by age. I have a pretty high risk tolerance so I’m not  planning on having any bonds 10 years out from retirement. Other people seem to think 20% is appropriate for your age.

Ok, but I’m also not sure that’s the right question. I get the rule of thumb, but I think people think too much about what percentage of their investable assets should be allocated to bonds, and not nearly enough about what the bonds are for- what function do they serve in the portfolio and whether “bonds” are the best way to deliver results. 

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Posted

Continuing in this vein:

The “what percentage should be bonds” discourse is almost as baffling to me as the “what is your risk tolerance” discourse.

So @Rip76 I guess my question is, when you say “what is the best thing” to do with it, what do you want that money to do? Appreciate in value? Throw off cash? And do you need liquidity, meaning, is the ability to get out of an investment quickly and easily?

Posted
On 1/3/2025 at 4:04 PM, Firemans4Horn said:

The problem with absolutes is that they are not correct 100% of the time. 
 

Features a 401k provides that an IRA does not:

Creditor protection Depends on the state.  In Texas, IRAs are exempt, too.

Ability to loan against  Theoretical.  Some employers/plan administrators impose additional hurdles to borrowing against 401k and it's probably bad idea jeans in any event.

1 login and 1 coherent strategy (not everyone wants a separate login for a $12k account)  True enough.

Investment lineup that is vetted by a fiduciary on an ongoing basis (or at least it should be)  Probably more theoretical than real.

 

A traditional IRA can often times be lower fees but not everyone wants to do it themselves or does a half decent job setting one up. 
 

Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested. 

 

Posted (edited)
3 hours ago, Bozo_Casanova said:

Continuing in this vein:

The “what percentage should be bonds” discourse is almost as baffling to me as the “what is your risk tolerance” discourse.

So @Rip76 I guess my question is, when you say “what is the best thing” to do with it, what do you want that money to do? Appreciate in value? Throw off cash? And do you need liquidity, meaning, is the ability to get out of an investment quickly and easily?

BC, 

I just need to do something with it.  Basically just keeping it where I've had it isn't promoting much growth at all.

Should I just move it all around in a bunch of different stocks?  Take some of it out a start a side hustle?  

Take most out and bet on black.

 

"And do you need liquidity, meaning, is the ability to get out of an investment quickly and easily?"

This would be a plus, just in case.

Edited by Rip76
Posted
2 hours ago, Rip76 said:

BC, 

I just need to do something with it.  Basically just keeping it where I've had it isn't promoting much growth at all.

Should I just move it all around in a bunch of different stocks?  Take some of it out a start a side hustle?  

Take most out and bet on black.

 

"And do you need liquidity, meaning, is the ability to get out of an investment quickly and easily?"

This would be a plus, just in case.

A lot to unpack here. I think you should talk to your financial advisor 

Posted
On 2/17/2025 at 11:20 AM, Rip76 said:

Just wondering what would be the best thing to do with it?

 

6 minutes ago, Bozo_Casanova said:

I think you should talk to your financial advisor 

Personally, I’ve found financial advisors come in three categories:

1.  Work on fee basis rather than a percentage of the portfolio and don’t have any insight beyond basic fundamentals you’d learn in a finance class. 

2.  Advertise their portfolio management but that’s just biz dev bullshit to sell you insurance (which is fine but for the bait and switch aspect) 

3.  Work for a depository bank and are mostly focused with obtaining deposits/assets for the bank (another bait and switch, also fuck the big banks) 
 

Jeffrey Goldberg wrote an article in The Atlantic in 2009 (so this is likely stale but whatever) that concluded financial advisors weren’t able to do better than a quant unless you had $25m to invest. 

Posted
22 minutes ago, tx 3 putt said:

getting help and actually making the move >>>>> not doing anything 

Yeah.  With my 401k I’ve always done pretty well moving around to different funds using Morningstar ratings, etc.

Unfortunately I just haven’t done much with this IRA.

Posted
31 minutes ago, tx 3 putt said:

getting help and actually making the move >>>>> not doing anything 

This. 
I’m not an advisor, but I know a lot of them and in my experience they vary about as much as any profession. Like any professional, I wouldn’t pick one at random. But the median is certainly better than operating from a place of limited knowledge and not knowing where to start. In @Rip76 case they should at the very least be able to help him discern what he’s trying to accomplish, and help him with a plan or at least some immediate actions, which is better than not having that. 

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Posted (edited)
4 minutes ago, Firemans4Horn said:

Nick Maggulio, COO of Ritholtz Wealth Management, wrote a post this week about age and asset allocation and risk tolerance. Worth a read 

 

How Should Your Allocation Change With Age?

Good stuff.

Regarding the “target” retirement date, I’ve always done that with my 401k.

I guess I’ve always just had this IRA around for worst case scenarios.

Edited by Rip76
  • 3 weeks later...
Posted
On 1/3/2025 at 4:04 PM, Firemans4Horn said:

The problem with absolutes is that they are not correct 100% of the time. 
 

Features a 401k provides that an IRA does not:

Creditor protection

Ability to loan against 

1 login and 1 coherent strategy (not everyone wants a separate login for a $12k account)

Investment lineup that is vetted by a fiduciary on an ongoing basis (or at least it should be)

 

A traditional IRA can often times be lower fees but not everyone wants to do it themselves or does a half decent job setting one up. 
 

Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested. 


Forgot to mention the most important issue with rolling it to an IRA. If you are a high income earner and want to take advantage of the back door Roth you now subject yourself to the pro-rata rule if you have a traditional IRA. 

Posted
2 hours ago, Firemans4Horn said:


Forgot to mention the most important issue with rolling it to an IRA. If you are a high income earner and want to take advantage of the back door Roth you now subject yourself to the pro-rata rule if you have a traditional IRA. 

This is why I’ve never rolled my wife’s 401k from her past job into an IRA. We’ve done back door/mega back door, and not having to think about the pro rata rule is great.

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Posted
On 2/17/2025 at 11:20 AM, Rip76 said:

I was about to create a post about this and found this one, nice.

Ok, so I have a 401k from my old employer which is currently about $72,000.  I have it in a Fidelity IRA.

What Firemans4 posted above, I sort of fell into that group.  "Seen plenty of clients roll a legacy 401k into an IRA and then sit in cash for years. They would have been better off rolling it into their current employer and investing it like their current 401k is invested."

I have about 80% in FBALX, and the other 20% in FXAIX.  

Just wondering what would be the best thing to do with it?  It's never gained or lost very much, but I feel like I'm missing out.

TIA

 

Too conservative, but as has been said it depends on your risk evel confort. But you have said the performance has been meh...

Since you are 52 you also need to decide how long you want or need to work.  Is 62 your number, is 68 your number?  That makes a difference as well.  But no risk, no reward.  Of course IMHO you might wait a couple months to really reallocate.  As Meh performance is better than red line performance downward. But I am not ready to be optimistic on this market until I understand more of the political and tariff risks.  Our 401K is very conservatively allocated right now in bonds and maybe 30% stocks.  Our risky account, is 40% cash, and 60% betting against the market.

The only thing I really wish I had done differently was shove aftertax dollars into a Roth, that I could be playing around in the market with.  I could have tripled or quadrupled that money in the last 2 years, tax free.  Instead I am gonna have to write a very large check next year on regular and cap gain income.

But talk to somebody and decide you level of risk acceptance.  THAT is the first step.  Then you use, that risk acceptance to balance your portifolio in a similar manner.

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Posted
35 minutes ago, horn4life said:

 

The only thing I really wish I had done differently was shove after tax dollars into a Roth, that I could be playing around in the market with.  I could have tripled or quadrupled that money in the last 2 years, tax free.  Instead I am gonna have to write a very large check next year on regular and cap gain income.

This is kind of what I was asking I guess.  Should I be throwing money around on certain stocks instead of funds.

But I may sit tight for a little bit.

Thanks for the reply.

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Posted (edited)
40 minutes ago, Rip76 said:

This is kind of what I was asking I guess.  Should I be throwing money around on certain stocks instead of funds.

But I may sit tight for a little bit.

Thanks for the reply.

I might suggest you find one or more places to "paper trade" stocks.  A lot easier to learn on paper than losing paper dollars.  You might look for more conservative companies that pay off nice dividends.  Select dividend reinvestment and do nothing and it will grow over time.  If history is any indicator.

Great dividend reinvestment story.  My wife's MOM's sister worked as a secretary her entire life as was very frugal.   But she had invested in Frito Lay, at the behest of an uncle in the early 1960's. PEPSICO swallowed Frito Lay in 1965.  She passed away in 2015, and to the surprise of all her siblings... she had over $7 million in Pepsico stock.  Dividend reinvestment, and stock splits over the decades, made that sucker grow but she never took anything out.   

Edited by horn4life
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Posted
3 hours ago, horn4life said:

Great dividend reinvestment story.  My wife's MOM's sister worked as a secretary her entire life as was very frugal.   But she had invested in Frito Lay, at the behest of an uncle in the early 1960's. PEPSICO swallowed Frito Lay in 1965.  She passed away in 2015, and to the surprise of all her siblings... she had over $7 million in Pepsico stock.  Dividend reinvestment, and stock splits over the decades, made that sucker grow but she never took anything out.   

A buddy’s uncle did the same exact thing… at Enron.

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Posted
10 minutes ago, SaucyJack said:

A buddy’s uncle did the same exact thing… at Enron.

I did barely miss out on a crazy deal.  If (and it was a long time ago) i recall correctly, right before all shit got lose at Enron, they were trying to dump some condos the corp had apparently bought.  Apparently it was a good portion of a complex and they were dumping two bedroom gulf facing 2/2 condos for Like $37K?  

Enron was brutal.  Really hurt Houston at the time as I recall. But I was long gone to Austin by that time.  

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