Should I do an in-service rollover

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Should I do an in-service rollover

Postby mphilips » Sat Feb 09, 2013 11:12 am

Emergency funds: I have this
Debt: No Debt
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 5.45% State
State of Residence: OH
Age: 59 1/2
Desired Asset allocation: 40% stocks / 60% bonds
Desired International allocation: 12% of stocks

Size of your current total portfolio (low six-figures)

Current retirement assets

Taxable
04% cash (for investing – do not include emergency funds) 
01% VTSAX ER 0.06%

His 401k

95% VTINX ER 0.16%
Company match 6%

Contributions

New annual Contributions 
$29K his 401k

Available funds 

Funds available in his 401(k)

VIGIX VANG GRTH INDEX INST ER 0.08

VIVIX VANG VAL INDEX INST ER 0.08

VINIX VANGUARD INST INDEX ER 0.04

FLPKX FID LOW PRICED STK K ER 0.76

FKMCX FID MID CAP STOCK K ER 0.69

VMCIX VANG MIDCAP IDX INST ER 0.08

AVFIX ABF SM CAP VAL INST ER 0.83

VSCIX VANG SM CAP IDX INST ER 0.08

FDIKX FID DIVERSIFD INTL K ER 0.84

VTSNX VANG TOT INTL STK IS ER 0.13

OAKBX OAKMARK EQ & INC I ER 0.78

VANG TARGET RET 2010

VANG TARGET RET 2015

VANG TARGET RET 2020

etc.

VINIX VANG TARGET RET INC ER 0.16 (I am currently 100% invested here)

FID MIP II CL 3 ER 0.28

PTTRX PIM TOTAL RT INST ER 0.46

VBTIX VANG TOT BD MKT INST ER 0.07

FRTXX FID RETIRE MMKT ER 0.42

I am currently able to do an in-service rollover of 65% of my tax deferred savings and 4% of my post tax savings.

I am considering moving into a traditional IRA at Vanguard with the tax deferred funds or move this into an account with either Betterment or Wealthfront so they can manage it for me. I am also considering moving the post tax savings into a Roth account. Does this make sense? I can still participate in the 401K with company match after doing the rollovers.
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Re: Should I do an in-service rollover

Postby WHL » Sat Feb 09, 2013 11:49 am

In-service rollovers make complete sense to me when the 401k choices are sub-optimal. Mine are much worse than yours; I will be doing in-service rollovers annually.

I don't see why you would need to have someone else "manage" your money for you, though, especially if it is only a small amount of your total portfolio.
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Re: Should I do an in-service rollover

Postby Default User BR » Sat Feb 09, 2013 1:02 pm

I would not. You have quality choices in the 401(k). What do you think those management companies will do for you? What will they charge? What other investments do you have?


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Re: Should I do an in-service rollover

Postby dbr » Sat Feb 09, 2013 1:20 pm

I can't see why you would want to do this.

I wouldn't spend even a small cost on having someone else manage your investments.

You do seem a little off choosing VTINX if you want 40/60. Why not a different TR fund?
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Re: Should I do an in-service rollover

Postby retiredjg » Sat Feb 09, 2013 1:56 pm

There are several things to consider here.

Should you do the rollover? I don't see a reason to do that since they are charging you the same for the target fund that you would pay at Vanguard. If you should find that they are charging you an additional fee to administer your 401k (on top of the .16% expense ratio), then yes, there would be a benefit to moving that money to Vanguard instead.

Should you use something like Betterment? That would make no sense to me at all. The Vanguard Target Retirement funds don't need any sort of watching or overlooking. They take care of themselves. Are you thinking that a place like Betterment could help you invest in something "better" than the funds in the Target fund?

What asset allocation do you actually want? You said you want 40% stocks and 60% bonds, but your Target Retirement Income fund is 30% stocks and 70% bonds. To get to 40% stocks and 60% bonds, you could exchange your Target Retirement Income to Target Retirement 2010 VTENX. Together with your taxable account, that would put you at 42% stocks and 58% bonds. If that is too aggressive, you could leave some of the Target Retirement Income as is to raise the bond allocation a little.
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Re: Should I do an in-service rollover

Postby mphilips » Sun Feb 10, 2013 9:57 am

Is it really this simple? Choose one fund and let it ride? I look at at the posts on bogleheads and I am just amazed at the wealth of knowledge available. So I feel that I must be missing something. I recently moved from a mix of higher cost funds into the VTINX fund because I wanted to lessen cost and risk but now I am feeling (due to age) that I might have gone too far. How do you really ascertain your own risk profile? I have filled out several risk questionnaires including the one on Vanguard and it puts me about 40/60. Is there a downside to moving from one retirement fund to another within a period of a few months? I also wonder whether the bond market will really provide adequate income over the long haul.
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Re: Should I do an in-service rollover

Postby BL » Sun Feb 10, 2013 10:49 am

Yes, it is really that simple! You have wonderful low-cost funds available, so unless there is another expensive layer of costs for admin, why change? If funds are in tax-sheltered accounts, you don't even have to worry about bonds throwing off taxable dividends.
So your main decision is what percent stocks you want and then choose a TR fund that comes closest. There is generally no cost in changing funds within your account. Over the long haul, this will save you much more than sharing your money with a manager.

Why would you want to share your profits with someone else? When you retire, if you withdraw 4% (might be aggressive unless you have more stocks), paying someone else 1% (or more) to manage would mean sharing 25% (or more) of your withdrawal with them, leaving you with 75% (or less) out of which you have to cover any taxes. It could even end up with them getting as much as you get for your retirement!

Yes, people are endlessly talking about fine-tuning their accounts, and it probably doesn't matter as long as they are using low-cost Vanguard funds and not sharing their profits with an expensive "wealth manager". Some have inadequate expensive 401Ks and they must choose more funds in different accounts to get close to what TR funds have all in one package. Others may be stuck with funds in taxable that would cost too much in taxes to simplify, so they have to work around them. You are very fortunate.
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Re: Should I do an in-service rollover

Postby dbr » Sun Feb 10, 2013 12:15 pm

mphilips wrote:Is it really this simple? Choose one fund and let it ride? I look at at the posts on bogleheads and I am just amazed at the wealth of knowledge available. So I feel that I must be missing something. I recently moved from a mix of higher cost funds into the VTINX fund because I wanted to lessen cost and risk but now I am feeling (due to age) that I might have gone too far. How do you really ascertain your own risk profile? I have filled out several risk questionnaires including the one on Vanguard and it puts me about 40/60. Is there a downside to moving from one retirement fund to another within a period of a few months? I also wonder whether the bond market will really provide adequate income over the long haul.


Everything BL and everyone else said.

Is there a downside to moving from one fund to another? There is not unless it becomes a habit based on constantly undermining a good plan in hopes of finding a better one.

The bond market will not provide adequate income over the long haul. It is not expected to under any conditions looking forward unless the income one takes is small relative to one's wealth. You have to be on the wealthy side of investing or on the frugal side of spending to survive on bonds. That is why people also invest in stocks. In the marginal case annuitizing some of the assets may be necessary to obtain sufficient longevity sure income. Annuities include any existing pensions and Social Security.

If you want to read about risk and asset allocation, Larry Swedroe's books have, I think, the best discussion.

If you can manage the length of it, the best comprehensive discussion of income in retirement is the book and software here:

http://www.retirementoptimizer.com/
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Re: Should I do an in-service rollover

Postby retiredjg » Sun Feb 10, 2013 12:26 pm

Yes, it can be that simple - choose one fund and let it ride. Remember that one fund contains everything you need - the total US stock market, the total international stock market, the total bond market (not really total, but that's what it is called) and soon...a bit of international bonds as well.

Another option, which would be a little lower cost, would be to make up your own mix using some of the funds you have available in your 401k. The best choices would end up looking almost identical to the target type fund. You would save about $100 each year for every $100k you have invested. You'd have to to the rebalancing yourself. Not suggesting that you should do that, only that you could if you want.
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Re: Should I do an in-service rollover

Postby mphilips » Wed Feb 13, 2013 11:10 am

Creating my own mix of funds or having a better choice to do that with is why I asked the question of doing an in-service rollover. True I could create a mix of funds which approximates what I would do if I could invest in any Vanguard fund but not exactly. Also I am not saying I necessarily disagree about using one of the low cost online managers to do the same thing but if I am doing the math correctly they are only about 50% more expensive that using a Vanguard retirement fund. So instead of paying an extra $100 per 100K I would be paying an extra $150 or so per 100K while getting a different mix of funds based on more asset classes. Is this really such a bad thing? Again I am not promoting just asking.
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Re: Should I do an in-service rollover

Postby retiredjg » Wed Feb 13, 2013 4:25 pm

If you used an online manager, don't you have to pay for their service in addition to the expense ratios of the funds?

The 3 fund portfolio (soon to be 4 funds) found in the Target Funds pretty much covers everything. What other asset classes are you interested in?
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Re: Should I do an in-service rollover

Postby rickmerrill » Wed Feb 13, 2013 8:59 pm

mphilips wrote:Is it really this simple? Choose one fund and let it ride? I look at at the posts on bogleheads and I am just amazed at the wealth of knowledge available. So I feel that I must be missing something. I recently moved from a mix of higher cost funds into the VTINX fund because I wanted to lessen cost and risk but now I am feeling (due to age) that I might have gone too far. How do you really ascertain your own risk profile? I have filled out several risk questionnaires including the one on Vanguard and it puts me about 40/60. Is there a downside to moving from one retirement fund to another within a period of a few months? I also wonder whether the bond market will really provide adequate income over the long haul.


Yes it is that simple. The TR funds are low cost and well diversified. If you want a different allocation just choose another TR find - ignore the date in the name. If you had taxable assets and needed to keep more bonds in your tax advantaged or you wanted to overweight or slice and dice the advice might be to start from a three fund portfolio but in your case one good fund fits.

As far as asset allocation I don't think any questionnaire has much ability to capture what you'd do if if there was a prolonged severe market drop. A lot us thought we knew until 2008-2009 came along - then we stopped thinking with our heads and started acting with our gut. A good test is how did you act and feel during this period. If you we're sleeping good and happily rebalancing back into stocks a higher percentage in stocks might be appropriate. If you sold out you were too heavy in stocks. The one thing about this decision is you don't want to be so aggressive that you sell at the worst time. Only you can decide the right asset allocation for you. They call it the sleep test - just try to be honest with yourself. With that said, the rule of thumb is age in bonds (some say age -5 or age -10) and you stated 40/60 is your desired allocation. It looks like you have it about right.

The only advisor I would use would be an hourly fee based one who has no ties or incentives to sell you a particular fund or insurance product and I would only use them to look over my shoulder and give advice. The Bogleheads provide that service for free.
If I am stupid I will pay.
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