New Employer 401k Questions

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NewPhoneWhoDis
Posts: 12
Joined: Thu Sep 28, 2017 3:59 pm

New Employer 401k Questions

Post by NewPhoneWhoDis » Sun Oct 01, 2017 12:45 pm

Emergency funds: $15k (four months of expenses)
Debt: $168k mortgage - 3.875%
$220k student loan - 7% (she has worked in the public sector for seven years, therefore this loan is due to be forgiven in three years; however, who knows if that will actually happen. With that said, we’ve come this far so we’re going to ride it out and if the government screws us over on their promise, we’ll deal with it then)
$7.5k student loan - 3.62%
$2.8k student loan - 3.75%
$2.7k student loan - 3.62%
Tax Filing Status: Married Filing Separately
Tax Rate: 15%
State of Residence:IL
Age: 37 & 34
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks
Approx Combined Portfolio Value: $185k

He recently started a new job. New employees aren’t eligible for a 401k until they have been with the company for six months. After six months passes (three months to go), there’s a 100% company match on the first 1% and a 50% match on the next 5%. The makeup of his old 401k is as follows, as selected by the "moderately aggressive" default option:

His Old 401k
7% Dodge & Cox Income (DODIX) (.43)
7% PIMCO Total Return Instl (PTTRX) (.46)
4% Hotchkis & Wiley High Yield I (HWHIX) (.70)
2% PIMCO Emerging Mkts Full Spectrum Bd Instl (PFSIX) (.99)
6% DFA US Large Cap Value I (DFLVX) (.27)
26% Schwab S&P 500 Index (SWPPX) (.03)
7% DFA US Targeted Value I (DFFVX) (.37)
4% Vanguard Small Cap Growth Index Admiral (VSGAX) (.07)
9% DFA International Value I (DFIVX) (.43)
8% Vanguard International Growth Adm (VWILX) (.33)
5% DFA International Small Cap Value I (DISVX) (.68)
8% DFA Global Real Estate Securities Port (DFGEX) (.24)
7% DFA Emerging Markets Core Equity I (DFCEX) (.53)

New 401k Options
Fidelity Total Bond (FTBFX) (.45)
Invesco Comstock A (ACSTX) (.86)
Fidelity 500 Index Premium (FUSVX) (.04)
Harbor Capital Appreciation Admin (HRCAX) (.95)
Artisan Mid Cap Investor (ARTMX) (1.19)
DFA US Small Cap I (DFSTX) (.37)
Oakmark International Investor (OAKIX) (1.05)
Oakmark Equity & Income Investor (OAKBX) (.89)

Question 1 - Regarding his new 401k options and given his desired asset allocation (50 us stock, 30 int stock, 20 bond), what would be the ideal makeup provided the above options?

Question 2 - This might depend on the responses to question 1, but provided the options in the new 401k account, thoughts on (a) taking only the full 6% company match and then taking an additional percentage (let's say 4%) of salary and putting that into a separate IRA (probably through Vanguard) (10% of salary total) vs (b) putting all 10% into the new 401k?

Question 3 - Provided the options in the new 401k account, would it make sense for him to rollover his old 401k into an IRA at Vanguard rather than rolling it into the new 401k?
Last edited by NewPhoneWhoDis on Wed Oct 04, 2017 1:05 pm, edited 1 time in total.

delamer
Posts: 3240
Joined: Tue Feb 08, 2011 6:13 pm

Re: New Employer 401k Questions

Post by delamer » Sun Oct 01, 2017 2:43 pm

Your Question #3 is the right one -- you need to know your options for the new 401(k) before making any decisions.

Not sure where your idea about "generally higher fees for 401(k) accounts" comes from. Some have great options with low costs, and others don't. Your old plan is a mix. There is a cheap option like the S&P500 fund and an expensive option like the PIMCO Emerging Markets fund.

In any case, all that matters is what the options are in your new plan in terms of making your decisions.

NewPhoneWhoDis
Posts: 12
Joined: Thu Sep 28, 2017 3:59 pm

Re: New Employer 401k Questions

Post by NewPhoneWhoDis » Sun Oct 01, 2017 2:48 pm

Thanks, I'll update the initial post once I get that information.

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FiveK
Posts: 3298
Joined: Sun Mar 16, 2014 2:43 pm

Re: New Employer 401k Questions

Post by FiveK » Sun Oct 01, 2017 5:51 pm

NewPhoneWhoDis wrote:
Sun Oct 01, 2017 12:45 pm
Question 2 - Given the generally higher fees of 401k accounts, would it make sense for him to rollover his old 401k into an IRA at Vanguard rather than rolling it into the new 401k?
Is the ability to do Backdoor Roth IRAs of interest? If so, that may affect the answer here.

See also Three-fund portfolio - Bogleheads. Having 13 different funds in the current 401k is probably more confusing than helpful.

NewPhoneWhoDis
Posts: 12
Joined: Thu Sep 28, 2017 3:59 pm

Re: New Employer 401k Questions

Post by NewPhoneWhoDis » Wed Oct 04, 2017 1:06 pm

Thanks for the responses so far. I have the information regarding the new 401k fund options. I've updated the original post questions as well.

New 401k Options
Fidelity Total Bond (FTBFX) (.45)
Invesco Comstock A (ACSTX) (.86)
Fidelity 500 Index Premium (FUSVX) (.04)
Harbor Capital Appreciation Admin (HRCAX) (.95)
Artisan Mid Cap Investor (ARTMX) (1.19)
DFA US Small Cap I (DFSTX) (.37)
Oakmark International Investor (OAKIX) (1.05)
Oakmark Equity & Income Investor (OAKBX) (.89)

an_asker
Posts: 1920
Joined: Thu Jun 27, 2013 2:15 pm

Re: New Employer 401k Questions

Post by an_asker » Wed Oct 04, 2017 1:09 pm

NewPhoneWhoDis wrote:
Sun Oct 01, 2017 12:45 pm
Emergency funds: $15k (four months of expenses)
Debt: $168k mortgage - 3.875%
$220k student loan - 7% (she has worked in the public sector for seven years, therefore this loan is due to be forgiven in three years; however, who knows if that will actually happen. With that said, we’ve come this far so we’re going to ride it out and if the government screws us over on their promise, we’ll deal with it then)
[...]
As someone who didn't ever take a student loan, I didn't know that a student loan can be forgiven after working in the public sector for ten years. How exactly does this work? If the entire balance is written off, then why would anyone wish to try to pay off a student loan early?

NewPhoneWhoDis
Posts: 12
Joined: Thu Sep 28, 2017 3:59 pm

Re: New Employer 401k Questions

Post by NewPhoneWhoDis » Wed Oct 04, 2017 1:18 pm

My wife would know more about it than I do, but here is an article about it that also contains some more informational links.

https://www.usnews.com/education/best-c ... orgiveness

The program is Public Service Loan Forgiveness and it was started toward the end of the GWB's second term.

delamer
Posts: 3240
Joined: Tue Feb 08, 2011 6:13 pm

Re: New Employer 401k Questions

Post by delamer » Wed Oct 04, 2017 1:26 pm

Your only excellent option in the new 401(k) is the Fidelity 500 Index. The Fidelity Total Bond and DFA US Small Cap are decent options.

So you are on the right track with just contributing enough to the new plan to get the match, put that in the 500 Index, and the putting any other savings in an IRA. Rolling over your old 401(k) into an IRA is your best bet. The new IRAs can hold your bonds and international stocks. (You'll need to have some US stocks in the IRAs for awhile as the new 401(k) balance builds up.)

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