Newbie 401K Advice Needed

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Newbie 401K Advice Needed

Postby 20Dukes11 » Tue Dec 11, 2012 11:43 am

Hi all,
Love the site and the books (currently reading the Investors Guide). I'm 23 and in my first job out of undergrad. I've been with the company for a year and a half, and want to take another stab at my 401K decisions. I'm quite unsure of myself with regards to my 401K allocations, and that has led me to take the "default" route so far with regards to our company's 401K options; I currently have my entire contribution (all Roth) going to the Principal LifeTime 2050 Separate Account - which (as you probably know) is a balanced asset allocation. I realize the fees attached to these funds are sometimes a dealbreaker, but I'm really unsure of how they match up with the other options within my company's offerings. When I started with the company, I was not (and am still not) confident enough in my own financial knowledge to "do it myself", as our Prinicpal brochure puts it :happy Our company matches half our contributions up to 6%, and so I certainly want to keep taking advantage of that. I suppose the real questions are:

1. Should my allocations be somewhere else?
2. If the options in my plan are pretty crappy, should I be contributing only 6% (to get the match) and then making my additional contributions to an additional account?

Hope this makes sense, let me know if I've left out any needed information.

Thanks in advance!

Emergency funds: $5,000-ish, planning to be closer to $10K
Debt: Auto Loan - 13,000-ish at 4.55%
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 7% State
State of Residence:NC
Age:23
Desired Asset allocation: 80-85% stocks / 15-20% bonds
Desired International allocation: not sure?

Current Available Options through company 401K - plan is with Principal Financial:

Short Term Fixed Income
- Morley Financial Services, Inc. – Principal Stable Value Fund - .86%
Fixed Income
- PIMCO – PIMCO GNMA A Fund - .90%
- Principal Global Investors – Bond and Mortgage Sep Acct - .71%
Balanced/Asset Allocation
- Multiple Sub-Advisors
-- Principal LifeTime Strategic Income Separate Account - .78%
-- Principal LifeTime 2010 Separate Account - .85%
-- Principal LifeTime 2020 Separate Account - .90%
-- Principal LifeTime 2030 Separate Account - .92%
-- Principal LifeTime 2040 Separate Account - .94%
-- Principal LifeTime 2050 Separate Account - .95% (this is currently where 100% of my contributions are going)
- Vanguard Group – Vanguard STAR Fund - .34%
Large US Equity
- American Century Inv. Mgmt. – American Century Value Inv Fund - 1.01%
- Principal Global Investors – LargeCap S&P 500 Index Separate Account - 0.31%
- T. Rowe Price Associates, Inc. – T. Rowe Price Equity Income Fund - .68%
- T. Rowe Price/Brown Advisory – LargeCap Growth I Separate Account - .79%
- Vanguard Group – Vanguard Primecap Fund - .45%
Small/Mid US Equity
- DFA/Vaughan Nelson/LA Capital – SmallCap Value II Separate Account - 1.27%
- Fidelity Management and Research – Fidelity Advisor Value Strategies I Fund - .86%
- Goldman Sachs/LA Capital Mgmt – MidCap Value I Separate Account - 1.16%
- Turner/Jacobs Levy – MidCap Growth III Separate Account - 1.13%
- Vanguard Group – Vanguard Explorer Fund - .50%
International Equity
- Principal Global Investors/DFA – International SmallCap Separate Account - 1.46%
- Vanguard Group – Vanguard International Growth Fund - 0.47%
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Re: Newbie 401K Advice Needed

Postby Default User BR » Tue Dec 11, 2012 8:17 pm

I would suggest using the STAR fund. It's the cheapest thing you have, and gives pretty good diversification.


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Re: Newbie 401K Advice Needed

Postby Duckie » Tue Dec 11, 2012 11:18 pm

I second the recommendation for (VGSTX) Vanguard STAR Fund (0.34%). Its expense ratio is almost two-thirds cheaper than the 2050 fund and it's very diversified. The only cheaper fund listed is the Principal LargeCap S&P 500 Index Fund (0.31%) which contains only large-cap US stocks. STAR has more bonds than you want, but it'll do for now.

You could always add some 500 Index if you want, say 80% STAR and 20% 500 Index to lower your bond ratio. Using the free Morningstar Instant X-Ray calculator type in VGSTX at 8000 and PLFPX (one class of the 500 Index fund) at 2000 and see what you get.

Or you could open IRAs and buy (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.18%) and/or (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%) to increase your stock to bond ratio.

Just some possibilities.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Wed Dec 12, 2012 10:51 am

Very cool! Just punched in the suggested allocation for the VGSTX and PSPJX funds (8000/2000 resp.) using the Morningstar X-ray. Looks like a 68/29 stock/bond allocation - does this seem like a pretty heavy bond percentage for someone my age? I know right now the LifeTime 2050 Fund has me sitting at about 90% stocks, and only around 6-7% bonds if I'm interpreting it correctly. Thanks for the help!
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Re: Newbie 401K Advice Needed

Postby Duckie » Wed Dec 12, 2012 10:21 pm

29% bonds is a little conservative for age 23 (I would have picked 20%) but it's within acceptable range for awhile. The best thing for you as a couple to do for now is contribute as much as possible to the 401k/IRAs. At this point in your retirement investing what matters most is how much you can save.

Also, read the Wiki, starting with the Bogleheads® investing start-up kit.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Thu May 30, 2013 5:12 pm

Sorry to reintroduce this post,

I still haven't switched gears from being entirely in the 2050 Target Date fund I mentioned earlier. This is because the more I hear/read, the more confused I become! I spoke with our "401K manager" earlier today, and I mentioned to him the idea of moving my current allocations from the Target Date fund over to a blend of the STAR and the Large Cap S&P 500 Index. He said I'd be missing out on things like "mid cap" funds, and some other stuff. I mentioned to him my concern with the high expense ratios of the Target Fund, to which he replied that those expenses would be "worth it" if the funds were better performing than funds that had lower ER's.

Can someone basically reiterate what my "best" options are given the mentioned plan and its available funds? I'm currently contributing 12% monthly, which I'm quite proud of, but I'm only more unsure now of WHERE that 12% needs to be going. I'm also considering dropping those 401K contributions down to 6%, and then taking the rest to a Roth IRA somewhere else. Any suggestions on a low-cost Roth IRA would ALSO be greatly appreciated. I've been considering Fidelity, as well as TIAA-CREF for this.

I know what my INTENTIONS are...I believe my overall investment goal is to buy and hold only low cost, index funds. But getting to that strategy in practice has been easier said than done.

Thanks in advance!
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Re: Newbie 401K Advice Needed

Postby sharx » Thu May 30, 2013 5:24 pm

No comment on the 401k fund choices (I'm not familiar enough with the star fund) but I would definitely recommend dropping your 401k contribution to 6% (max match) and putting the remainder in either a traditional or Roth IRA at Vanguard. This will allow you to invest in the lower ER funds mentioned above such as VTSMX. This will also allow you to balance you portfolio more toward stocks (because your 401k choices seem bond heavy based on other replies)
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Re: Newbie 401K Advice Needed

Postby Duckie » Thu May 30, 2013 5:57 pm

20Dukes11 wrote:I mentioned to him my concern with the high expense ratios of the Target Fund, to which he replied that those expenses would be "worth it" if the funds were better performing than funds that had lower ER's.

If is a big word. You can't control the market. You can't control a fund. You can control costs.

Can someone basically reiterate what my "best" options are given the mentioned plan and its available funds?

My recommendation hasn't changed.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Thu May 30, 2013 7:44 pm

Sounds great.

I think my plan will be to:

1. Lower my 401K contributions down to 6%. This 6% will be either entirely the Vanguard STAR (VGSTX), or spread between VGSTX and PLFPX - a Principal LargeCap S&P 500 Index.

2. Take my additional contributions (currently another 6%) and put it into a Roth IRA. Within this IRA, I'd like to beef up my stock allocations (since the STAR fund is a little bond-heavy for my age), so I'm thinking either just VTSMX, or a blend of VTSMX and VGTSX. I'd like to initially just go with the VTSMX, since I'm assuming each one of these requires a $3,000 initial investment. Or is that a $3,000 minimum investment for the entire IRA?

In any event, when I plug this 50/50 split percentage-wise (401K vs Roth IRA) into the Vanguard Instant Xray, I'm seeing the following breakdown:

Cash: 2%
US Stocks: 69%
Foreign Stocks: 12%
Bonds: 18%

Maybe that's a little heavy on the US Stocks, but I like the simplicity of that idea, and the ER's are WAY better than my current Principal Lifetime 2050 account. Any thoughts?

Thanks!
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Re: Newbie 401K Advice Needed

Postby fulltilt » Thu May 30, 2013 8:11 pm

20Dukes11 wrote:...
2. Take my additional contributions (currently another 6%) and put it into a Roth IRA. Within this IRA, I'd like to beef up my stock allocations (since the STAR fund is a little bond-heavy for my age), so I'm thinking either just VTSMX, or a blend of VTSMX and VGTSX. I'd like to initially just go with the VTSMX, since I'm assuming each one of these requires a $3,000 initial investment. Or is that a $3,000 minimum investment for the entire IRA?


The other thing that you might want to consider is using an extended market index fund like VEXMX. If you take 4 parts S&P 500 and 1 part VEXMX, then you're getting an approximation of the total stock market index. I don't know what the proper ratio of star to the extended market index would be, but you could just choose something sane like 5:1 or you could actually crunch the numbers...

It would give you exposure to midcap & small, and balance out the higher percentage of bonds. There is a wiki article which will give you more background.
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Re: Newbie 401K Advice Needed

Postby Jeff7 » Thu May 30, 2013 9:03 pm

20Dukes11 wrote:Sorry to reintroduce this post,

I still haven't switched gears from being entirely in the 2050 Target Date fund I mentioned earlier. This is because the more I hear/read, the more confused I become! I spoke with our "401K manager" earlier today, and I mentioned to him the idea of moving my current allocations from the Target Date fund over to a blend of the STAR and the Large Cap S&P 500 Index. He said I'd be missing out on things like "mid cap" funds, and some other stuff. I mentioned to him my concern with the high expense ratios of the Target Fund, to which he replied that those expenses would be "worth it" if the funds were better performing than funds that had lower ER's.
...
Midcap funds? The same ones which also happen to be some of the most costly ones available to you? Was the "other stuff" the small-cap funds? ;)

If he's not bound by any fiduciary responsibilities, he's likely following a different responsibility: Maximizing revenue for his employer, and for himself.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Fri May 31, 2013 9:14 am

The other thing that you might want to consider is using an extended market index fund like VEXMX. If you take 4 parts S&P 500 and 1 part VEXMX, then you're getting an approximation of the total stock market index. I don't know what the proper ratio of star to the extended market index would be, but you could just choose something sane like 5:1 or you could actually crunch the numbers...


Hmmm... So instead of splitting between STAR and the Principal Large Cap S&P500 Index, you're suggesting something like a blend of just STAR and VEXMX? I guess in my head, its all a balancing act between dropping down to just 6% contributions to the 401K, and then where to go contribution-wise with an external Roth IRA. Sorry for spinning in circles here!
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Re: Newbie 401K Advice Needed

Postby investor1 » Fri May 31, 2013 9:24 am

Your plan is good.

Keep in mind that you don't have to use a Roth IRA, you can use a traditional IRA. If you think your tax rate is higher now than it will be in retirement, use a traditional IRA. If you think your tax rate is lower now than it will be in retirement, use a Roth IRA.

Of course, there are other differences between the two types of accounts, but that's the main one.
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Re: Newbie 401K Advice Needed

Postby fulltilt » Fri May 31, 2013 11:39 am

20Dukes11 wrote:
The other thing that you might want to consider is using an extended market index fund like VEXMX. If you take 4 parts S&P 500 and 1 part VEXMX, then you're getting an approximation of the total stock market index. I don't know what the proper ratio of star to the extended market index would be, but you could just choose something sane like 5:1 or you could actually crunch the numbers...


Hmmm... So instead of splitting between STAR and the Principal Large Cap S&P500 Index, you're suggesting something like a blend of just STAR and VEXMX? I guess in my head, its all a balancing act between dropping down to just 6% contributions to the 401K, and then where to go contribution-wise with an external Roth IRA. Sorry for spinning in circles here!


Yes. That is what i am offering as an alternative. Drop your 401k down to 6% to get the full match and change to the STAR fund, and then contribute to a traditional or Roth IRA.

The second question is what to put in the IRA. S&P, extended market index, total stock market, total international, small cap, could all be good choices. I suggested VEXMX because it negates your 401k manager's argument about missing out on mid and small.

Asset allocation isn't all a numbers game so there is no one "best" alternative for YOU.

Duckie really nailed it when he said that the most important thing is to contribute as much as you can. In the long run, that is going to be the most important thing.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Mon Jun 03, 2013 10:51 am

Thanks all!

As of this morning, I've dropped my 401K contributions to 6%, and moved it all over to 100% STAR. Once I have $3K in hand to open an external Roth IRA with Vanguard, I'll be moving in that direction with the rest of my contributions.
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Re: Newbie 401K Advice Needed

Postby steve.s » Mon Jun 03, 2013 9:50 pm

20Dukes11,

I'm not sure I'd reduce my 401k contribution just because of non-optimal options. Most 401k's have a few clunkers and you just avoid them.
Keep in mind that the 401k contribution is deductible and reduces your current taxable income, while the Roth IRA is not deductible and does not reduce current taxable income.
That said, Roth IRAs are good as a tax-free pool (as long as our legislators don't change the rules). If you can afford it, why not maximize your 401k *and* contribute to the Roth?

Good job paying attention to this at this point in your life. You should benefit from this early attention when you are ready to retire.

Steve
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Tue Jun 04, 2013 12:24 pm

Steve-

Wonderful advice. I believe my plan was to follow the path of:

1. Contribute to 401K, up to employer's match.
2. Contribute up to max amount in a Roth-IRA (I think its $5500/yr. for those under 50 yrs old, or something like that?)
3. Go back to 401K, and max it out.

This seems like it would eventually get me to what you're suggesting, contributing to and maxxing out both the 401K and the Roth IRA.
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Re: Newbie 401K Advice Needed

Postby mnvalue » Wed Jun 05, 2013 12:38 am

We're missing one big detail here... you're married, so what does your spouse have for retirement account options? Anything invested right now? How much is being contributed? That could change what is the best plan dramatically. For example, if your spouse is a stay-at-home parent with no retirement assets, then you probably want to max out an IRA for your spouse before going back to the 401k. That is, contribute up to the match, then max out IRAs, then back to the 401k. On the other hand, if he/she has a 401k or other similar account, you probably want to choose the best options in each account to build an overall portfolio at the lowest cost.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Wed Jun 05, 2013 9:36 am

mnvalue,

Very good question. My wife is a state employee here in NC (nurse), and so she contributes to the state "TSERS" plan - Teachers' and State Employees' Retirement Plan. Its a defined retirement plan where you contribute 6% and only 6%. She becomes vested after 5 years of service, but has the option of taking her own contributions and rolling them over into an IRA if she were leave before then. The TSERS annual retirement benefit is based on the following formula:

(1.82% of your "average final compensation") x ( # of years and months of "creditable service"), where:

"avg. final compensation" = the avg of your salary during your 4 highest paid years in a row
and
"creditable service" = any period during which you contributed to the system, provided you didn't make any withdrawals.


In addition to this TSERS program, she's also contributing an additional 2% to a 403B. She has the option of using either Fidelity or TIAA-CREF as a vendor for this, and right now the entirety of her contributions are in the Fidelity Freedom K 2050 target date plan.

I can't tell you how frustrated I am with Fidelity. Her 403B plan has 261 different fund options. So for new investors like us, its basically seems like you can either sign up for one of these target date plans with a terrible expense ratio (hers is .68%), or try your hand at their 260+ funds. If it would help, I'd be happy to write out the available funds, because if I'm being honest with myself, there's too many options in there for me to really digest.

The TIAA-CREF plan is a little more navigable. Her fund options can be found here:
http://www1.tiaa-cref.org/tcm/unc/plans ... /index.htm
I feel like a blend of some of those index funds would be nice alternative to her current Fidelity target date fund.
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Re: Newbie 401K Advice Needed

Postby JW Nearly Retired » Wed Jun 05, 2013 10:23 am

20Dukes11 wrote:mnvalue,
In addition to this TSERS program, she's also contributing an additional 2% to a 403B. She has the option of using either Fidelity or TIAA-CREF as a vendor for this, and right now the entirety of her contributions are in the Fidelity Freedom K 2050 target date plan.

I can't tell you how frustrated I am with Fidelity. Her 403B plan has 261 different fund options. So for new investors like us, its basically seems like you can either sign up for one of these target date plans with a terrible expense ratio (hers is .68%), or try your hand at their 260+ funds. If it would help, I'd be happy to write out the available funds, because if I'm being honest with myself, there's too many options in there for me to really digest.

You don't need to digest 261 Fidelity funds, just their low expense index funds. Are there any of these 261 with "Spartan" in their names? The retail ERs for those are direct loss leader competitors with Vanguard's index funds.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Wed Jun 05, 2013 3:19 pm

JW,

She has access to the following Vanguard and Spartan funds:

Large Cap:
Vanguard:
1. Dividend Growth Fund, Investor Shares (.29%)
2. Vanguard Equity-Income Fund Admiral Shares (.21%)
3. Vanguard Growth Index Fund Signal Shares (0.1%)
4. Vanguard Morgan Growth Fund Admiral Shares (0.26%)
5. Vanguard Value Index Fund Signal Shares (0.1%)
6. Vanguard 500 Index Fund Signal Class (0.05%)

Spartan:
1. Spartan® 500 Index Fund - Institutional Class (0.05%)
2. Spartan® Total Market Index Fund - Fidelity Advantage Class (0.07%)

Mid Cap:
Vanguard:
1. Vanguard Mid-Cap Index Fund Signal Shares (0.1%)
2. Vanguard Mid-Cap Growth Fund Investor Shares (0.54%)

Spartan:
1. Spartan® Extended Market Index Fund - Fidelity (0.07%)
2. Spartan® Mid Cap Index Fund - Fidelity Advantage Class (0.22%)

Small Cap:
Vanguard:
1. Vanguard Explorer Fund Admiral Shares (0.32%)
2. Vanguard Small Cap Index Fund Signal Shares (0.1%)
3. Vanguard Small Capitalization Growth Index Fund Investor Shares (0.24%)
4. Vanguard Small Capitalization Value Index Fund Investor Shares (0.24%)

Spartan:
1. Spartan® Small Cap Index Fund - Fidelity Advantage Class (0.30%)

Int'l:
Vanguard:
1. Vanguard International Growth Fund Admiral Shares (0.36%)
2. Vanguard Total International Stock Index Fund Signal Shares (0.16%)
3. Vanguard International Value Fund Investor Shares (0.41%)

Spartan:
1. Spartan® Emerging Markets Index Fund - Fidelity Advantage Class (0.35%)
2. Spartan® Global ex U.S. Index Fund - Fidelity Advantage Class (0.28%)
3. Spartan® International Index Fund - Fidelity Advantage Class (0.17%)

Blended:
Vanguard:
1. Vanguard Wellington Fund Admiral Shares (0.17%)



How crazy would it be to simply switch her over to the Wellington fund entirely? I know this is a lot of bonds for her age- she's 25, and stock bond ratio is 65/31-ish on the Wellington. That being said, she's very "conservative" with regards to risk.
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Re: Newbie 401K Advice Needed

Postby Duckie » Wed Jun 05, 2013 10:50 pm

20Dukes11 wrote:She has access to the following Vanguard and Spartan funds:

Spartan® Total Market Index Fund - Fidelity Advantage Class (0.07%)
Spartan® Extended Market Index Fund - Fidelity (0.07%)
Vanguard Total International Stock Index Fund Signal Shares (0.16%)

Perfect, she has a total US stock market fund and a total international stock fund. Does she have a good bond fund?

You could put the S&P 500 Index in His 401k and complete it with the Extended Market in her 403b. Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Wed Jun 05, 2013 11:16 pm

Her 403b's Vanguard/Spartan bond options are as follows:

Vanguard:
Vanguard GNMA Fund Admiral Shares (0.11%)
Vanguard Intermediate-Term Bond Index Fund Signal Shares (0.1%)
Vanguard Total Bond Market Index Fund Signal Shares (0.1%)
Vanguard Inflation-Protected Securities Fund Admiral Shares (0.1%)

Spartan:
Spartan® Inflation-Protected Bond Index Fund - Fidelity Advantage Class (0.10%)
Spartan® Intermediate Treasury Bond Index Fund - Fidelity Advantage Class (0.10%)
Spartan® Long-Term Treasury Bond Index Fund - Fidelity Advantage Class (0.10%)
Spartan® Short-Term Treasury Bond Index Fund - Fidelity Advantage Class (0.10%)
Spartan® U.S. Bond Index Fund - Institutional Class (0.07%)

You could put the S&P 500 Index in His 401k and complete it with the Extended Market in her 403b. Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.


You'll have to forgive my lack of understanding on this suggestion - the S&P500 Index you're referring to is my Vanguard STAR fund, correct? That would mean 80% of our entire contributions would fall into this STAR fund, and then remaining 20% would go into the Extended Market to boost our mid/small cap exposure?
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Re: Newbie 401K Advice Needed

Postby Duckie » Wed Jun 05, 2013 11:50 pm

She's blessed with bond choices. Spartan® U.S. Bond Index Fund - Institutional Class (0.07%) is the cheapest total bond fund.

20Dukes11 wrote:The S&P500 Index you're referring to is my Vanguard STAR fund, correct?

No. I'm referring to Principal Global Investors – LargeCap S&P 500 Index Separate Account - 0.31%.

That would mean 80% of our entire contributions would fall into this STAR fund, and then remaining 20% would go into the Extended Market to boost our mid/small cap exposure?

I'm not talking about contributions, but your entire portfolio. This hasn't been discussed yet. We don't know the percentages. Adding up the assets in all of your retirement accounts, what is the percentage in His 401k and Her 403b? You don't have an IRA yet. Does she? They're part of your retirement portfolio. For example:
  • His 401k -- 20%
  • Her 403b -- 70%
  • Her Roth IRA -- 10%
Then we need to know how much you plan to contribute to the accounts each year. For example:
  • $4K to His 401k (plus $2K in matching)
  • $8K to Her 403b
  • $3K to His Roth IRA
  • $3K to Her Roth IRA
Since she has a much better plan, you would be better off maxing Her 403b and putting only 6% in His 401k, unless you can afford to put in more.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Thu Jun 06, 2013 8:52 am

Well, I think our entire retirement portfolio would simply consist of the 3 "systems" we contribute to: my 401K, her 403b, and her TSERS state employee plan. I'll assume we don't want to consider her TSERS in this analysis, but stop me if I'm mistaken.

So I have just about $10K in my 401K, and she has $3500 in the 403b- she's not contributing very much, since she also pays into the TSERS. So I guess that looks like:

his 401K --- $10,000 or ~75%
her 403b --- $ 3,500 or ~25%
total-------- $13,500 or 100%
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Re: Newbie 401K Advice Needed

Postby Duckie » Thu Jun 06, 2013 7:39 pm

20Dukes11 wrote:I'll assume we don't want to consider her TSERS in this analysis, but stop me if I'm mistaken.

You're correct. Her pension, although an asset, is not part of the retirement portfolio. She has no control over it and cannot use it for rebalancing purposes.

For now, you could just use the following funds. It's not the AA you want, but you don't have much yet. Later when your accounts have more assets you can split things up.

His 401k -- $10K -- 74%
74% (VGSTX) Vanguard STAR Fund (0.34%)

Her 403b -- $3.5K -- 26%
26% (VWENX) Vanguard Wellington Fund Admiral Shares (0.17%)

I meant what I wrote earlier about only putting 6% into His 401k and as much as possible into Her 403b. Her plan is just so much better.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Thu Jun 06, 2013 8:45 pm

OK. I'd previously been contributing 12% to my 401K, until I dropped down to 6% contributions into the STAR a few days ago. So this additional 6% I'm no longer putting into the 401K (or any additional amount) could now be going into the wife's 403b? Presumably the Wellington Fund previously mentioned?

I ran a combo of the STAR and Wellington through the XRay calculator with my 6% contributions in STAR, and then an add'l 8% in the Wellington. Thats ~43% STAR to 57% Wellington (unless I'm doing bogus mathematics here), and it looks like a lot of bonds, but I guess you're saying until we get a bit more into those funds, this should be fine.

Thanks for all the help here!
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Re: Newbie 401K Advice Needed

Postby Duckie » Thu Jun 06, 2013 9:32 pm

20Dukes11 wrote:So this additional 6% I'm no longer putting into the 401K (or any additional amount) could now be going into the wife's 403b?

Yes. Eventually, with an AA of 80% stocks, 20% bonds, and 30% of stocks in international (which would break down to 56% US stocks, 24% international stocks, and 20% bonds), you could have something like this example:

His 401k -- $15K -- 43%
43% (N/A) Principal LargeCap S&P 500 Index Fund (0.31%)

Her 403b -- $20K -- 57%
2% (FSTVX) Spartan Total Market Index Fund Advantage Class (0.07%)
11% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
24% (VTSGX) Vanguard Total International Stock Index Fund Signal Shares (0.16%)
20% (FXSTX) Spartan U.S. Bond Index Fund Institutional Class (0.07%)

If after putting 6% into His 401k and maxing Her 403b you still have extra money, open Roth IRAs at Vanguard and max them before contributing more to His 401k.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Sat Jun 08, 2013 12:47 pm

Ok, starting to make more sense. I'm reading Bogle's "Little Book on Common Sense Investing" currently, and its helping to drive lots of these points home.

A couple more bonehead questions...

1. The figures you used for the 2 specific accounts - $15K for the 401K, and $20K for the 403B - are these roughly the amounts we want to see in the accounts before we start moving things into various index funds?

2. Should my wife's 403b be entirely Roth at this point? This may be one of those "its up to you, since we don't know what taxes will be like in XX years" type questions. Currently, my 401K contributions are entirely Roth, based off of my own opinion that I'll (presumably) be in a higher tax bracket whenever I start making withdrawals. I'd assume we'd want her 403b to be entirely Roth as well.

3. I feel really smart asking this one: How do I go about contributing to my wife's 403b? Is there a certain correct process in which I actually put money into the account? I can totally see myself doing that "wrong" per say, if that makes any sense.



Can't thank everyone enough for the advice here.

Best,

Sam
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Re: Newbie 401K Advice Needed

Postby Duckie » Sat Jun 08, 2013 6:08 pm

20Dukes11 wrote:1. The figures you used for the 2 specific accounts - $15K for the 401K, and $20K for the 403B - are these roughly the amounts we want to see in the accounts before we start moving things into various index funds?

Roughly. There's no point splitting things up until you have enough in the accounts to do it right. I don't know how much in dollars you are planning to contribute, but I figured that in a couple of years you could have this much.

2. Should my wife's 403b be entirely Roth at this point? This may be one of those "its up to you, since we don't know what taxes will be like in XX years" type questions. Currently, my 401K contributions are entirely Roth, based off of my own opinion that I'll (presumably) be in a higher tax bracket whenever I start making withdrawals. I'd assume we'd want her 403b to be entirely Roth as well.

It depends on your particular circumstances, but for most people it's better to use the Traditional employer plans rather than the Roth plans. It reduces your taxes so you can contribute more. See 
The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max

3. I feel really smart asking this one: How do I go about contributing to my wife's 403b? Is there a certain correct process in which I actually put money into the account? I can totally see myself doing that "wrong" per say, if that makes any sense.

She has to contact her employer and fill out some paperwork. Her pay will be reduced and that money will go into the plan.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Sat Jun 08, 2013 7:30 pm

Sorry Duckie-

What I meant on question 3 was how do I, her spouse, contribute to her plan? She's already contributing, so I understand how her contributions would be automatically deducted from a paycheck. But for me, since its not my account, is there one "right" way for me to contribute? Perhaps you answered this and I'm just not understanding! :oops:
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Re: Newbie 401K Advice Needed

Postby Duckie » Sat Jun 08, 2013 7:58 pm

20Dukes11 wrote:How do I, her spouse, contribute to her plan?

You can't contribute to her 403b plan. It's hers. (Just like she can't contribute to your 401k plan.) All contributions are deducted from her pay. You can however have her contribute more which will reduce her take-home pay, and use more of your income to make up for her missing income.
Last edited by Duckie on Sun Jun 09, 2013 4:10 pm, edited 1 time in total.
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Sat Jun 08, 2013 9:14 pm

Excellent. Yep - didn't trust myself on the rules of different retirement funds, but that's what I had assumed the situation would be.

Duckie, you've given me tons to think about, I really appreciate all this advice!

Thanks again-
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Tue Jul 02, 2013 1:04 pm

Ok,

Since switching my future contributions over to the VGSTX fund, I have some more noob questions. Obviously, since I just switched over to this fund from the Lifetime 2050, about 97% of my balance still lies in the Lifetime 2050. Do I transfer the entirety of this balance over into the VGSTX? Additionally, with my new contributions to my wife's 403b, we should also be moving that entire balance over to the VGEMX fund, correct? This type of stuff is where I begin to lose full understanding :confused

Thanks!
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Re: Newbie 401K Advice Needed

Postby Duckie » Tue Jul 02, 2013 8:22 pm

20Dukes11 wrote:Since switching my future contributions over to the VGSTX fund, I have some more noob questions. Obviously, since I just switched over to this fund from the Lifetime 2050, about 97% of my balance still lies in the Lifetime 2050. Do I transfer the entirety of this balance over into the VGSTX? Additionally, with my new contributions to my wife's 403b, we should also be moving that entire balance over to the VGEMX fund, correct?

Yes, transfer the entire balance of His 401k over to the STAR fund (VGSTX). And yes, transfer the entire balance of Her 403b over to Wellington (VWENX). In most plans this can be done easily online. (I'm assuming "VGEMX" is a typo.)
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Wed Jul 03, 2013 11:26 am

Yes,

A total typo there, I was half asleep :happy Thanks for the ongoing support!
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Fri Apr 11, 2014 2:26 pm

Hi folks-

After a few months hiatus, I've reached the point where I have $15K in my own 401K, but my wife's 403b is nowhere near $20K (I mention these benchmark amounts bc of Duckie's previous post above from Jun 06, 9:32pm). So I'm wondering how best to go about increasing the wifey's 403b amount while I'm also contributing my 401k to receive the match. I'm confused bc obviously by the time we get $20K into her 403b, we'll have quite a bit more in my 401k, which messes up the allocations, if that makes sense. I guess the most obvious solution is to do a one-time dump of some cash into the 403b account to help it catch up, I'm just not sure I can do that.

Any thoughts here?

Thanks in advance-

S
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Re: Newbie 401K Advice Needed

Postby Duckie » Fri Apr 11, 2014 6:09 pm

20Dukes11 wrote:I guess the most obvious solution is to do a one-time dump of some cash into the 403b account to help it catch up

The only way to increase her 403b account is to have her contribute more per paycheck. You can't just dump cash in.

So, you have $15K in your 401k. How much does she have in her 403b? Do you have any IRAs yet? Are you still in STAR and Wellington?
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Sat Apr 12, 2014 10:11 am

So, you have $15K in your 401k. How much does she have in her 403b? Do you have any IRAs yet? Are you still in STAR and Wellington?


We have ~$7800 in the 403b right now. No IRAs, and yes still entirely in the STAR and Wellington accounts.

S
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Re: Newbie 401K Advice Needed

Postby Saving$ » Sat Apr 12, 2014 10:29 am

You have the money going into low cost funds.

Your best bet here is to stop obsessing about exact allocation, and start figuring out how to contribute the most money possible. In summary, you should do this:
1. Contribute to your 401k up to the employer match (done?)
2. Contribute to spouse's TSERS up to the employer match if any (done?)
3. Fully fund Roth IRA's for both you and spouse. This should be your emergency fund. Are you doing this?
4. Any extra, split the difference between her 403b and your 401k, up to max in each.

5. For at least 3 months, keep track of every penny coming in and going out. Make sure you and your wife know where the money is being spent. Better if you can do this for at least a year, but 3 months will also be eye opening. Study it and figure out if all spending is necessary, and if you can save more.
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Re: Newbie 401K Advice Needed

Postby mnvalue » Sat Apr 12, 2014 2:46 pm

You mentioned a one-time dump of cash into the 403b. It's already been covered that such a move is not possible. But my question is this: do you have a big pile of cash on hand? How much is it? Is this your emergency fund or separate money?

If you have a pile of cash that's not your emergency fund... Is her 403b contribution amount already such that she'll hit the limit ($17,500) this year? If not, is it such that she's contributing her whole paycheck (other than what goes into the pension)? If not, she should raise her contribution amount until she hits one of those limits. Then, use the pile of cash to supplement her reduced take-home wages. If she has hit one of those limits and you still have a pile of cash to invest, then as Saving$ mentions, a Roth IRA for each of you would be a good next step. (Note that Saving$ suggested a Roth IRA as a higher priority than maxing her 403b. Reasonable people can differ on this; either can be a fine approach.) See my comments below about the deadline.

If you have a pile of cash that is your emergency fund... go open a Roth IRA at Vanguard for each of you, today. Put $5,500 in each of them, making absolutely sure to mark them as a 2013 (last year) contribution. You have until Tuesday to get this done, so start now. Since it's your emergency fund, you should invest it very conservatively. Probably just in Vanguard Short-Term Bond Index Fund Investor Shares (VBISX). If you have less than $11,000 in your emergency fund, then just reduce the amounts in each Roth. If you have less than $6,000 in your emergency fund, then things get trickier because of mutual fund minimum investment amounts. You'd have to use Target Retirement Income with its $1,000 minimum. If you have more than $11k in emergency fund, then you can go ahead and put in another contribution for 2014 (up to $5,500 for each of you).
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Re: Newbie 401K Advice Needed

Postby larmewar » Sat Apr 12, 2014 10:34 pm

VG Primecap has been an outstanding fund, but has been closed to new investors almost forever. Now probably isn't a good time (over weight to health care/biotechnology and tech sectors), but you might consider the fund in the future.

Lar
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Re: Newbie 401K Advice Needed

Postby 20Dukes11 » Sun Apr 13, 2014 9:34 am

Your best bet here is to stop obsessing about exact allocation, and start figuring out how to contribute the most money possible. In summary, you should do this:
1. Contribute to your 401k up to the employer match (done?)

Yes, done.

2. Contribute to spouse's TSERS up to the employer match if any (done?)

Yes, done.

3. Fully fund Roth IRA's for both you and spouse. This should be your emergency fund. Are you doing this?

Nope. Wife and I have an emergency fund of $15K in a local credit union savings account (earns .75% interest). I have not found any other investing or savings vehicle that I feel properly educated about to put this emergency fund in. I don't believe there's anything out there as liquid as this savings account. Isn't an emergency fund for...emergencies? Like, "I need this $ now because my hot water heater just went out." I was thinking putting this $15K anywhere else would "tie it up", and that's not what emergency funds are for.

4. Any extra, split the difference between her 403b and your 401k, up to max in each.

I contribute 6% to my own 401K to get the full employer match, and I then take another 6% and put it into my wife's 403b (the funds in my 401K are junk, so anything above the employer match, I'm shoving into the 403b instead).

On top of our $15K cash savings, we have another ~$31K in savings for a house. My wife and I are saving anywhere from 600-1000 each month for this future purchase. I'm assuming some of you will advise me to STOP saving as much for this home purchase and put it towards retirement, but we can have that discussion when it comes up.

Thanks so much for the advice and patience.
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Re: Newbie 401K Advice Needed

Postby mnvalue » Sun Apr 13, 2014 10:48 pm

20Dukes11 wrote:
3. Fully fund Roth IRA's for both you and spouse. This should be your emergency fund. Are you doing this?

Nope. Wife and I have an emergency fund of $15K in a local credit union savings account (earns .75% interest). I have not found any other investing or savings vehicle that I feel properly educated about to put this emergency fund in. I don't believe there's anything out there as liquid as this savings account. Isn't an emergency fund for...emergencies? Like, "I need this $ now because my hot water heater just went out." I was thinking putting this $15K anywhere else would "tie it up", and that's not what emergency funds are for.

I'll repeat my/the suggestion to put your emergency fund into Roth IRAs then. If you act now (before Tuesday, which is April 15th), you can put $5.5k into a Roth IRA for you for 2013, $5.5k into a Roth IRA for your wife for 2013, and, if you want, $2k for each of you for 2014. If you have an emergency, you should be able to get that out just as fast (ACH transfer) as any online savings account. With a Roth IRA, you can pull out contributions (not earnings) at any time, tax and penalty free. So if you need the money and pull it, you're basically in the same situation you otherwise would have been. If you don't have an emergency, though, you're increasing your tax-advantaged space, which may come in handy later. Since this $15k is your emergency fund, you wouldn't count it as part of your overall retirement portfolio asset allocation; instead, you'd invest in something relatively safe, like a short-term bond fund.
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