Personal Retirement Fund Dilemma (No Employer Option)

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AnthonyD8
Posts: 18
Joined: Mon Nov 07, 2016 12:07 pm

Personal Retirement Fund Dilemma (No Employer Option)

Post by AnthonyD8 » Sun Aug 26, 2018 7:14 am

Backstory: I am 30 years old and married. My wife has a 401k with her company that is maxed out each year with our contribution. I have been following her career and have thus held 4 jobs in the past 8 years.

Only one of those jobs (my first) offered retirement benefits. I have a 401k with TRowe Price that has not been contributed to since 2013. I fully expected to roll this over to another employers 401k, but unfortunately I have not held a job that offers Retirement Benefits since, and my current employer does not, nor do I see it happening any time soon.

Here are the details of my 401k with TRowe Price:

Balance is $30,200 (only $24,000 is mine because it is not fully vested). If cashed out, I would walk with $17,000 after all penalties and
taxes. I contributed $11,000 over the two years of employment.

In the meantime, without an Employer sponsored Retirement Option, I opened and have been funding a Roth IRA with USAA since 2012. I have maxed out contributions every year since 2014. The current balance is $40,000. However I have stopped contributing to the Roth IRA due to the income limitations for Roth IRA

Other factors:

I currently set aside $1100/month for my retirement contributions

I have $13,000 in cash I would like to put toward Retirement immediately

Here come the questions:

Should I cash out the 401k and merge these funds into one Retirement account since the 401k cannot be contributed to? Take the risk of
potentially obtaining a job with Retirement benefits and starting a 401k at Zero in my 30s? Or leave it in and let it sit with the possibility of
not contributing to it for years. How can I make the most value out of that account?

If they are all merged to be my main Retirement Account, is the best option a Traditional IRA with Vanguard? (Was thinking the portfolio
would be split between VBMFX (20%), VTSMX (70%), VTMGX (10%). I've also been told that if the fund is at least $50,000 (which it would be
in both cases), Vanguard manages it actively for a fairly low ratio (I think .25). Is this advisable?

If I keep them separate, still the best option to move the Roth IRA to a Traditional since I can’t contribute to the Roth IRA anymore? I've
heard of Backdoor IRA but cannot grasp how it works and do not fully understand if it is a long term option (I keep reading it could be taken
away in the future?)

Thank you in advance for any guidance! This has been weighing on me for some time and will be relived to resolve.

b42
Posts: 294
Joined: Thu Apr 11, 2013 7:00 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by b42 » Sun Aug 26, 2018 7:36 am

Instead of cashing out your 401k, why not roll it over to a Traditional IRA to avoid the tax penalties?

https://www.bogleheads.org/wiki/401(k)#Rollovers

You can then hold a Traditional IRA and a Roth IRA, and then continue to fund the Traditional IRA. Or if you prefer you can do a backdoor Roth IRA:

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Vanguard does offer management for 0.30%, but if you end up having a simple portfolio, you may not need this service.

SelfEmployed123
Posts: 183
Joined: Sun Apr 15, 2018 8:57 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by SelfEmployed123 » Sun Aug 26, 2018 9:21 am

AnthonyD8 wrote:
Sun Aug 26, 2018 7:14 am
Backstory: I am 30 years old and married. My wife has a 401k with her company that is maxed out each year with our contribution. I have been following her career and have thus held 4 jobs in the past 8 years.

Only one of those jobs (my first) offered retirement benefits. I have a 401k with TRowe Price that has not been contributed to since 2013. I fully expected to roll this over to another employers 401k, but unfortunately I have not held a job that offers Retirement Benefits since, and my current employer does not, nor do I see it happening any time soon.

Here are the details of my 401k with TRowe Price:

Balance is $30,200 (only $24,000 is mine because it is not fully vested). If cashed out, I would walk with $17,000 after all penalties and taxes. I contributed $11,000 over the two years of employment.

In the meantime, without an Employer sponsored Retirement Option, I opened and have been funding a Roth IRA with USAA since 2012. I have maxed out contributions every year since 2014. The current balance is $40,000. However I have stopped contributing to the Roth IRA due to the income limitations for Roth IRA

Other factors:

I currently set aside $1100/month for my retirement contributions

I have $13,000 in cash I would like to put toward Retirement immediately

Here come the questions:

Should I cash out the 401k and merge these funds into one Retirement account since the 401k cannot be contributed to? Take the risk of potentially obtaining a job with Retirement benefits and starting a 401k at Zero in my 30s? Or leave it in and let it sit with the possibility of not contributing to it for years. How can I make the most value out of that account? If they are all merged to be my main Retirement Account, is the best option a Traditional IRA with Vanguard? (Was thinking the portfolio would be split between VBMFX (20%), VTSMX (70%), VTMGX (10%). I've also been told that if the fund is at least $50,000 (which it would be in both cases), Vanguard manages it actively for a fairly low ratio (I think .25). Is this advisable?

If I keep them separate, still the best option to move the Roth IRA to a Traditional since I can’t contribute to the Roth IRA anymore? I've
heard of Backdoor IRA but cannot grasp how it works and do not fully understand if it is a long term option (I keep reading it could be taken away in the future?)

Thank you in advance for any guidance! This has been weighing on me for some time and will be relived to resolve.
Welcome to the forum! I have a few general thoughts for you:
1. If you rollover the 401k from your old employer to a Vanguard IRA, you will not pay any taxes or penalties on your contributions. I am not sure how it works regarding the value that is not vested, but you should be able to rollover at least your full amount of any contributions you made along with whatever gains they have made in the market since your contribution. I think you should definitely roll over the old 401k because in an IRA with Vanguard you'll have a wide variety of good investment options.

2. Once you do a rollover to a traditional Vanguard IRA, you can consider converting the balance to a Roth IRA. See here for more: https://www.bogleheads.org/wiki/Roth_IRA_conversion

3. Am I correct that between you and your spouse you have about $70,000 saved for retirement? If your income is above the limit to directly contribute to a Roth and you are budgeting $1100 per month for retirement, I'm wondering if you can up your savings rate. As far as where to stash all of your savings, see this article on investment priorities: https://www.bogleheads.org/wiki/Priorit ... nvestments

Regarding your questions:
-I don't see where the risk is that you are referring to. It is perfectly normal to roll over an old 401k to an IRA of your choosing. In many situations it is advantageous to do so. You may start a new job and contribute to a new 401k, but that will not put your savings at risk. On the contrary, it will only help you by giving you even more tax-deferred space to grow your nest egg. I would definitely recommend you set up an IRA with Vanguard.
-Regarding your proposed portfolio, you might consider going 10% bonds rather than 20%. At 30, you have plenty of time to ride out the highs and lows of the market. The target date fund for 2050 (your approximate retirement year) is 90% stocks.
-Regarding the Backdoor Roth, this option may not always be present, but it is definitely available right now if you are above the income threshold to make direct Roth IRA contributions. However, there are multiple ways to screw up the Backdoor Roth so make sure you know what you are doing. Here are some articles about it for your viewing pleasure:
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
https://www.physicianonfire.com/backdoor/
https://www.whitecoatinvestor.com/17-wa ... -roth-ira/
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

AnthonyD8
Posts: 18
Joined: Mon Nov 07, 2016 12:07 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by AnthonyD8 » Sun Aug 26, 2018 10:12 am

Thank you for the advice!

To clear up my perceived "risk" - I was simply thinking that if I could get all of my money into 1 account (instead of 2 or 3) that it would grow and compound faster (even by taking a small penalty now). Example - One $60,000 account instead of Two $35,000 accounts. Sounds like it's not that simple

To answer your question - the $70,000 I mentioned are my retirement funds. My wife has a 401k with her company that has accumulated to $175,000, fully vested. I believe (possibly ignorant) that account is in a good place as we max out the $18,500 contribution each year with a company match of $8,000/year.

Back to your thoughts - if I'm reading your advice correctly, my situation could/should possibly look like this (3 retirement accounts):

Traditional IRA with Vanguard (10% Bonds, 90% Stocks) with a starting balance of about $24000 (Roll over old company 401k) which I will contribute to monthly (are there contribution limits?)

Roth IRA (Backdoor) that I continue to contribute to (Can I contribute to both Roth & Traditional?).

And potentially a 401k with my current company or another company down the line.

Thank you!

SelfEmployed123
Posts: 183
Joined: Sun Apr 15, 2018 8:57 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by SelfEmployed123 » Sun Aug 26, 2018 11:28 am

AnthonyD8 wrote:
Sun Aug 26, 2018 10:12 am
Thank you for the advice!

To clear up my perceived "risk" - I was simply thinking that if I could get all of my money into 1 account (instead of 2 or 3) that it would grow and compound faster (even by taking a small penalty now). Example - One $60,000 account instead of Two $35,000 accounts. Sounds like it's not that simple

To answer your question - the $70,000 I mentioned are my retirement funds. My wife has a 401k with her company that has accumulated to $175,000, fully vested. I believe (possibly ignorant) that account is in a good place as we max out the $18,500 contribution each year with a company match of $8,000/year.

Back to your thoughts - if I'm reading your advice correctly, my situation could/should possibly look like this (3 retirement accounts):

Traditional IRA with Vanguard (10% Bonds, 90% Stocks) with a starting balance of about $24000 (Roll over old company 401k) which I will contribute to monthly (are there contribution limits?)

Roth IRA (Backdoor) that I continue to contribute to (Can I contribute to both Roth & Traditional?).

And potentially a 401k with my current company or another company down the line.

Thank you!
You're welcome!

Your asset allocation (how much you have in stocks versus bonds) is what determines the overall risk of your portfolio, not how many individual accounts you have. For example my spouse and I have investments with three different custodians. She has a Roth IRA, Traditional IRA, a 403B and 457 with current employer, and one 403b from a previous employer. I have a traditional IRA, Roth IRA, 401k, a 529 for our child, and our taxable brokerage. Throw in our bank accounts and that's 12 different accounts between the two of us. That's probably typical of many posters in this forum. Regardless of the number of accounts you have, think of everything as being one pot of money. If 100 percent of your liquid assets across your accounts was in Vanguard Total Stock Market (VTSAX), that would be a high risk portfolio. If 100% were in bonds (VBMFX), that would be very conservative.

Seems like you are off to a very good start on your retirement savings. You cannot make direct contributions to a Roth IRA if you are above the income threshold, so it appears you will be only able to contribute to Traditional IRAs. That may or may not be tax deductible depending on your income. You really need to do your research before doing Backdoor Roth so that you do not run afoul of the pro rata rule.

There are contribution limits for both types of IRAs. See below for details:
Traditional IRA: https://www.bogleheads.org/wiki/Traditional_IRA
Roth IRA: https://www.bogleheads.org/wiki/Roth_IRA

It sounds like in general you'd benefit from reading more about these issues. I'm going to recommend you check out the Bogleheads Guide To Investing. Most of the answers to the questions you have can be found in this one book: https://www.amazon.com/Bogleheads-Guide ... 0470067365. Then come back to the forum for follow up questions.

Good luck!
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

User avatar
ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by ruralavalon » Sun Aug 26, 2018 12:12 pm

AnthonyD8 wrote:
Sun Aug 26, 2018 7:14 am
Backstory: I am 30 years old and married. My wife has a 401k with her company that is maxed out each year with our contribution. I have been following her career and have thus held 4 jobs in the past 8 years.

Only one of those jobs (my first) offered retirement benefits. I have a 401k with TRowe Price that has not been contributed to since 2013. I fully expected to roll this over to another employers 401k, but unfortunately I have not held a job that offers Retirement Benefits since, and my current employer does not, nor do I see it happening any time soon.

Here are the details of my 401k with TRowe Price:

Balance is $30,200 (only $24,000 is mine because it is not fully vested). If cashed out, I would walk with $17,000 after all penalties and
taxes. I contributed $11,000 over the two years of employment.

In the meantime, without an Employer sponsored Retirement Option, I opened and have been funding a Roth IRA with USAA since 2012. I have maxed out contributions every year since 2014. The current balance is $40,000. However I have stopped contributing to the Roth IRA due to the income limitations for Roth IRA

Other factors:

I currently set aside $1100/month for my retirement contributions

I have $13,000 in cash I would like to put toward Retirement immediately

Here come the questions:

Should I cash out the 401k and merge these funds into one Retirement account since the 401k cannot be contributed to? Take the risk of
potentially obtaining a job with Retirement benefits and starting a 401k at Zero in my 30s? Or leave it in and let it sit with the possibility of
not contributing to it for years. How can I make the most value out of that account?

If they are all merged to be my main Retirement Account, is the best option a Traditional IRA with Vanguard? (Was thinking the portfolio
would be split between VBMFX (20%), VTSMX (70%), VTMGX (10%). I've also been told that if the fund is at least $50,000 (which it would be
in both cases), Vanguard manages it actively for a fairly low ratio (I think .25). Is this advisable?

If I keep them separate, still the best option to move the Roth IRA to a Traditional since I can’t contribute to the Roth IRA anymore? I've
heard of Backdoor IRA but cannot grasp how it works and do not fully understand if it is a long term option (I keep reading it could be taken
away in the future?)

Thank you in advance for any guidance! This has been weighing on me for some time and will be relived to resolve.
AnthonyD8 wrote:
Sun Aug 26, 2018 10:12 am
Thank you for the advice!

To clear up my perceived "risk" - I was simply thinking that if I could get all of my money into 1 account (instead of 2 or 3) that it would grow and compound faster (even by taking a small penalty now). Example - One $60,000 account instead of Two $35,000 accounts. Sounds like it's not that simple

To answer your question - the $70,000 I mentioned are my retirement funds. My wife has a 401k with her company that has accumulated to $175,000, fully vested. I believe (possibly ignorant) that account is in a good place as we max out the $18,500 contribution each year with a company match of $8,000/year.

Back to your thoughts - if I'm reading your advice correctly, my situation could/should possibly look like this (3 retirement accounts):

Traditional IRA with Vanguard (10% Bonds, 90% Stocks) with a starting balance of about $24000 (Roll over old company 401k) which I will contribute to monthly (are there contribution limits?)

Roth IRA (Backdoor) that I continue to contribute to (Can I contribute to both Roth & Traditional?).

And potentially a 401k with my current company or another company down the line.

Thank you!
Some additional information will be useful.

Do you have any debt? If so what types, amounts and interest rates?

What is your tax bracket, both federal and state? What state do you pay any state income taxes to?

What is your tax filing status?

What investments do you and wife have in each account? Please list all accounts. Please give fund names, tickers and expense ratios.

What funds are offered in your old 401k? Please give fund names, tickers and expense ratios.

What funds are offered in her 401k? Please give fund names, tickers and expense ratios.

Is here any account maintenance fee charged if you leave your old 401k where it is? If so what is the fee?

Is there a High Deductible Health Plan (HDHP) offered at work, so that you are eligible to use a Health Savings Account (HSA)?

Please see the post "Asking Portfolio Questions" for format and information needed. You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

. . . . . .

Combining accounts will not produce bigger returns or more compounding.

If your old 401k offers good low expense funds, with no account maintenance fee or only a small one, then it may be better to leave that account where it is. Wiki article, 401k, Rollovers, "Leave with employer".

If you rollover the old 401k to a traditional IRA, and don't convert that to a Roth IRA, then that impedes your ability to continue contributing to a backdoor Roth IRA. Wiki article, 401k, Rollovers, ”Rollover to IRA". I think that you should continue to contribute to the backdoor Roth IRA.

The contribution limits to your IRAs is $5.5k per year total, no matter how many IRAs you have.

The better choices for your $13k cash and the $1.1k per month may be: (1) paying off any high interest debt; (2) contributions to a HSA; (3) contributions to a taxable account and investing in very tax-efficient stock index funds like Vanguard Total Stock Market Index Fund or Vanguard Total International Stock Index Fund; or (4) a combination of the three. Wiki article "Prioritizing investments".

EDITED to add links.
Last edited by ruralavalon on Sun Aug 26, 2018 1:13 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Kevin8696
Posts: 155
Joined: Mon Oct 08, 2012 7:45 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by Kevin8696 » Sun Aug 26, 2018 12:52 pm

To Rollover or not ? Two issues to consider... investment options and expenses.

Choose the path that offers you the best balance of investment options and expenses.

IRA will usually give you better options and lower expenses, but may not always offer what you want/need.

For instance: I stayed with an old 401k for a few years because it offered a fixed income fund that I could not get in the mutual fund market.

When my needs changed, I rolled the 401k into a Traditional IRA.

Hope this helps,
Kevin

AnthonyD8
Posts: 18
Joined: Mon Nov 07, 2016 12:07 pm

Re: Personal Retirement Fund Dilemma (No Employer Option)

Post by AnthonyD8 » Sun Aug 26, 2018 4:41 pm

Thank you all for you're replies, I appreciate all of the info. Looks like I have some serious reading and preparation to do. I will be sure to do all my reading in addition to providing more detailed information in the proper format.

Thank you all again, I will be back with more information and knowledge! Much appreciated!

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