To 401k or IRA in 2016? Please Help.

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Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

To 401k or IRA in 2016? Please Help.

Post by StevenNJ1 »

Hello,

Hope I can get some feedback on this question.

I have not had 401k offered to me in 2016 and did not contribute to my old 401k that's been sitting with my past employer. I just became eligible for a new 401k about a week ago but have not yet signed up.

What should I do? Avoid 401k in 2016 to do the Traditional IRA for this year instead? I at some point wanted to roll my old 401k into a Roth IRA (backdoor method as I am at over 150k+ salary, single).

My situation:
39 years old, single, 150+k salary, old 401k (1% fees) sitting with previous company, no IRA account of any kind. New 401k does not offer any match and fees are at around 0.60%

Thank you.
ved
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Joined: Sat Jan 18, 2014 6:56 pm

Re: To 401k or IRA in 2016? Please Help.

Post by ved »

I don't know what exactly your question is, but, you cannot contribute to the old 401k with your previous employer

I guess you could contribute to the 401k with your current employer, but the contributions are through payroll deductions. You almost certainly don't have time to signup & setup the payroll contributions and have them deducted from your paycheck before the end of the year (tomorrow).

With the 150k income, you are not eligible to contribute to a Roth IRA ($5,500, if under 50 years). But you can contribute to a non-deductible traditional IRA and do a backdoor conversion to Roth IRA.

Converting your old 401k (assuming this is pre-tax money) to a Roth IRA is a taxable event - you will have to pay taxes on the contributions and earnings. At your income level, that doesn't make sense.

I would suggest the following:

Contribute $5,500 to a traditional IRA (for 2016), and back door to Roth IRA - you have until the tax date (April 15, 2017) to do so.
In 2017,
Setup your 401k with the current employer
Contribute at least to get the full match from the employer (if any)
Rollover the old 401k to the current employer's 401k (if the funds available are similar or better than the old 401k)
Contribute $5,500 to a traditional IRA (for 2017), and back door to Roth IRA
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ruralavalon
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Re: To 401k or IRA in 2016? Please Help.

Post by ruralavalon »

What funds are you using in the old 401k?

What funds are offered in the new 401k?

Please give the fund names, tickers and expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
StevenNJ1
Posts: 270
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Re: To 401k or IRA in 2016? Please Help.

Post by StevenNJ1 »

ruralavalon wrote:What funds are you using in the old 401k?

What funds are offered in the new 401k?

Please give the fund names, tickers and expense ratios.
Old 401k Plan
I have my money in Vanguard funds (VFIAX, VTIAX and VEXAX). 0.91% expense per fund.
70% VFIAX
15% VTIAX
15% VEXAX


My New plan

Voya Target Solution 2045
0.81%

BONDS
BlackRock US Debt Index 0.32%

Fidelity Total Bond 0.45%

LARGE CAP VALUE
Voya Large Cap Value Portfolio 0.64%

BlackRock Russell 3000 Index Fund 0.28%

LARGE CAP GROWTH
Voya Large Cap Growth Portfolio (IPEIX) 0.67%

SMALL/MID/SPECIALTY
John Hancock Disciplined Value Mid Cap Fund (JVMIX) 0.86%

T.Rowe Price Mid Cap Fund (PAMCX) 1.03%

Federated Clover Small Cap Value Fund (VSFIX) 1.02%

T. Rowe Price New Horizons Fund (PRNHX) 0.79%

GLOBAL / INTERNATIONAL
BlackRock Global Equity ex US
(BlackRock MSCI ACWI ex US Index) 0.38%

American Funds EuroPacific Growth Fund 0.85%
The Fund does not permit transfers into the Fund for amounts equal to or greater than $5000 for a 30 calendar day period following a transfer out of the Fund for amounts equal to or greater than $5000.

STABILITY OF PRINCIPAL
Stable Return Fund 0.78%
Amounts transferred from the Wells Fargo Stable Return Fund must be held in a non-competing investment option for 90 days before they may be transferred to a ‘Competing fund.’
Oracles4444
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Re: To 401k or IRA in 2016? Please Help.

Post by Oracles4444 »

StevenNJ1 wrote:Hello,

What should I do? Avoid 401k in 2016 to do the Traditional IRA for this year instead? I at some point wanted to roll my old 401k into a Roth IRA (backdoor method as I am at over 150k+ salary, single).

Thank you.
If you want to do a backdoor Roth, you should rollover your old 401k into your new 401k so you will be able to do the backdoor.
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ruralavalon
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Re: To 401k or IRA in 2016? Please Help.

Post by ruralavalon »

If your new 401k will accept a rollover from your old 401k, then do that. The funds in your new 401k have substantially lower expenses than the 0.61% in your old 401k. In the new 401k you could use these three funds:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.

Rolling the old 401k over into a Roth IRA will create income tax liability for you. What is your current tax bracket, both federal and state?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
StevenNJ1
Posts: 270
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Re: To 401k or IRA in 2016? Please Help.

Post by StevenNJ1 »

ruralavalon wrote:If your new 401k will accept a rollover from your old 401k, then do that. The funds in your new 401k have substantially lower expenses than the 0.61% in your old 401k. In the new 401k you could use these three funds:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.

Rolling the old 401k over into a Roth IRA will create income tax liability for you. What is your current tax bracket, both federal and state?
Thank you all for your feedback. Very much appreciated.

Ruralavalon, please tell me more about tax liability. My tax bracket is probably the highest there is. I am not sure. Single, in NJ, making about 160k on W2.
chrisdds98
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Location: Austin, TX

Re: To 401k or IRA in 2016? Please Help.

Post by chrisdds98 »

StevenNJ1 wrote:
ruralavalon wrote:If your new 401k will accept a rollover from your old 401k, then do that. The funds in your new 401k have substantially lower expenses than the 0.61% in your old 401k. In the new 401k you could use these three funds:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.

Rolling the old 401k over into a Roth IRA will create income tax liability for you. What is your current tax bracket, both federal and state?
Thank you all for your feedback. Very much appreciated.

Ruralavalon, please tell me more about tax liability. My tax bracket is probably the highest there is. I am not sure. Single, in NJ, making about 160k on W2.
it feels like its the highest but you still have a few brackets to go! you're in the 28% federal. the highest is 39.6%

If you are going to contribute less then 5500 then go with a traditional IRA.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: To 401k or IRA in 2016? Please Help.

Post by StevenNJ1 »

chrisdds98 wrote:
StevenNJ1 wrote:
ruralavalon wrote:If your new 401k will accept a rollover from your old 401k, then do that. The funds in your new 401k have substantially lower expenses than the 0.61% in your old 401k. In the new 401k you could use these three funds:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.

Rolling the old 401k over into a Roth IRA will create income tax liability for you. What is your current tax bracket, both federal and state?
Thank you all for your feedback. Very much appreciated.

Ruralavalon, please tell me more about tax liability. My tax bracket is probably the highest there is. I am not sure. Single, in NJ, making about 160k on W2.
it feels like its the highest but you still have a few brackets to go! you're in the 28% federal. the highest is 39.6%

If you are going to contribute less then 5500 then go with a traditional IRA.
I thought I am not eligible for a tIRA if I have 401k at my salary? Hence, I was thinking for the upcoming year to
1. Roll over my old 401k into new one and contribute about $9,000/year
2. Keep the backdoor Roth IRA option available if I decide ti do rIRA at some point (probably won't be in 2017 as I am not even maxing out my 401k).
ff4930
Posts: 114
Joined: Fri Dec 30, 2016 3:33 pm

Re: To 401k or IRA in 2016? Please Help.

Post by ff4930 »


I thought I am not eligible for a tIRA if I have 401k at my salary? Hence, I was thinking for the upcoming year to
1. Roll over my old 401k into new one and contribute about $9,000/year
2. Keep the backdoor Roth IRA option available if I decide ti do rIRA at some point (probably won't be in 2017 as I am not even maxing out my 401k).
1 - You can open a T-IRA anytime. Having an active 401k at your current job has no effect.
-Is a good idea to roll over your old 401k into an T-IRA at Vanguard,Fidelity, etc. However, I think because of your income you may not be qualify to take any deduction from your T-IRA contribution. So I may reconsider in contributing.
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ruralavalon
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Location: Illinois

Re: To 401k or IRA in 2016? Please Help.

Post by ruralavalon »

StevenNJ1 wrote:
ruralavalon wrote:If your new 401k will accept a rollover from your old 401k, then do that. The funds in your new 401k have substantially lower expenses than the 0.61% in your old 401k. In the new 401k you could use these three funds:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.

Rolling the old 401k over into a Roth IRA will create income tax liability for you. What is your current tax bracket, both federal and state?
Thank you all for your feedback. Very much appreciated.

Ruralavalon, please tell me more about tax liability. My tax bracket is probably the highest there is. I am not sure. Single, in NJ, making about 160k on W2.
First of all, I am not a tax expert. I do not even do my own taxes.

If you roll your old traditional 401k over to a Roth IRA you create tax liability. IRS, "Rollover Chart".

You state that your income is $150k per year. Here are calculators you can use to determine your federal tax bracket. First determine your "taxable income". money chimp, "Tax Calculator". Then use your "taxable income" to determine your "tax bracket". moneychimp, "Federal Tax Brackets".

Your marginal rate times the amount in your old 401k would be your income tax liability if you did that conversion to a Roth IRA.

My suggestion is that you not do the rollover to a Roth IRA. My suggestion is that you roll your old 401k over into your new 401k. That would mean you would be able to do the backdoor Roth IRA in the future.

I suggest that you use these three funds in your new 401k:
BlackRock Russell 3000 Index Fund (total US stock market), ER 0.28%,
BlackRock MSCI ACWI EX-U.S. Index Fund (larger companies in developed & emerging markets), ER 0.38%,
BlackRock U.S. Debt Index Fund (total US bond market), ER 0.32%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
pasadena
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Re: To 401k or IRA in 2016? Please Help.

Post by pasadena »

StevenNJ1 wrote: (...) I was thinking for the upcoming year to
1. Roll over my old 401k into new one and contribute about $9,000/year
2. Keep the backdoor Roth IRA option available if I decide ti do rIRA at some point (probably won't be in 2017 as I am not even maxing out my 401k).
Why not max-out your 401(k) ? Are you paying off any debt or building your EF ? Any other liability ? Kids / alimony ?

I'm roughly the same age as you are, single, in CA, and I can max mine out (plus backdoor Roth) without too much problems and with a 135-140k salary. But I don't have any debt, or kids, so there's that.

The tax reduction is sweet.
Topic Author
StevenNJ1
Posts: 270
Joined: Fri Apr 04, 2014 12:56 pm

Re: To 401k or IRA in 2016? Please Help.

Post by StevenNJ1 »

pasadena wrote:
StevenNJ1 wrote: (...) I was thinking for the upcoming year to
1. Roll over my old 401k into new one and contribute about $9,000/year
2. Keep the backdoor Roth IRA option available if I decide ti do rIRA at some point (probably won't be in 2017 as I am not even maxing out my 401k).
Why not max-out your 401(k) ? Are you paying off any debt or building your EF ? Any other liability ? Kids / alimony ?

I'm roughly the same age as you are, single, in CA, and I can max mine out (plus backdoor Roth) without too much problems and with a 135-140k salary. But I don't have any debt, or kids, so there's that.

The tax reduction is sweet.
I believe in 401k and IRA, however, I need to put my money in things that don't pay off only after I am 65. Don't forget that you'll still have to pay tax on your 401k some day. I also invest in stocks and am very happy in buying Wells Fargo as that's up 20%. Just wish I bought more shares.
DSInvestor
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Re: To 401k or IRA in 2016? Please Help.

Post by DSInvestor »

StevenNJ1 wrote:
pasadena wrote:
StevenNJ1 wrote: (...) I was thinking for the upcoming year to
1. Roll over my old 401k into new one and contribute about $9,000/year
2. Keep the backdoor Roth IRA option available if I decide ti do rIRA at some point (probably won't be in 2017 as I am not even maxing out my 401k).
Why not max-out your 401(k) ? Are you paying off any debt or building your EF ? Any other liability ? Kids / alimony ?

I'm roughly the same age as you are, single, in CA, and I can max mine out (plus backdoor Roth) without too much problems and with a 135-140k salary. But I don't have any debt, or kids, so there's that.

The tax reduction is sweet.
I believe in 401k and IRA, however, I need to put my money in things that don't pay off only after I am 65. Don't forget that you'll still have to pay tax on your 401k some day. I also invest in stocks and am very happy in buying Wells Fargo as that's up 20%. Just wish I bought more shares.
Max out your 401k to get the max tax deduction, max out Roth IRA, then invest in taxable accounts. 401k assets are not locked up until 65. If you separate from service at age 55, you can withdraw from 401k without any early withdrawal penalty. Investments in 401k are sheltered from tax until withdrawal. Roth IRA contribution basis can be withdrawn at any time without tax or penalty.

I maxed out Traditional 401k for many years and now that I'm retired and living off my taxable account with social security still many years away, I can do Roth conversions every year for little or no tax. No tax going in. No tax going out. The conversions are taxable but they are taxed at 0% as they fill up the 0% tax bracket provided by deductions and exemptions.
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