Helping friend with 401k rollover to Vanguard

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trixit
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Joined: Wed Aug 17, 2016 11:20 pm

Helping friend with 401k rollover to Vanguard

Post by trixit » Sun Oct 01, 2017 10:22 pm

Hi team,

I'm helping my friend with his 401k he has with his former company. The 401k is managed by PAYCHEX. My friend currently lives in Dallas TX. He wants to roll over his 401k to Vanguard due to low fees. We found out that his current 401k fees are 1.85% on average. He would like to simplify everything to have it in one fund for easy management. My friend is 57 years old and plans on retiring in about 10 years. He is looking for fairly conservative portfolio but also leans to holding stocks for some growth potential now and after he retires.

He has basically 2 questions for kind fellow bogleheads (thank you so much in advance!):
1) What type of single solution fund would you recommend?
2) Also, will there be any tax consequences for him? He plans to rollover the entire amount without withdrawing anything.


Here is what his 401k currently holds:

Name Symbol Expense
1) BlackRock Global Allocation Fund, Inc. Investor C Shares
MCLOX - 1.81% expense (14.3% of his portfolio)

2) BlackRock Capital Appreciation Fund Investor C Shares
MCFGX - 1.89% expense (17.48% of his portfolio)

3) BlackRock Advantage Large Cap Core Fund Investor C Shares
MCLRX - 1.95% expense (10.73% of his portfolio)

4) Wells Fargo Core Bond Fund - Class C
MBFCX - 1.58% expense (23.94% of his portfolio)

5) JPMorgan Dynamic Small Cap Growth Fund Class C
VSCCX - 2.19% expense (11.87% of his portfolio)

6) Davis New York Venture Fund Class C
NYVCX - 1.66% expense (21.95% of his portfolio)

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fnmix
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Location: Northern California

Re: Helping friend with 401k rollover to Vanguard

Post by fnmix » Sun Oct 01, 2017 10:39 pm

(1) Your friend should look at a target retirement (aka lifestrategy) fund. He/She should also consider a three-fund-portfolio (see https://www.bogleheads.org/wiki/Three-fund_portfolio). The choice depends on what other assets he has (e.g. taxable brokerage account)
(2) Rollover should have no tax consequences as long as the rollover is done correctly (see https://www.bogleheads.org/wiki/401(k)#Rollovers)

At the expense ratios that you shared, your friend should run, not walk, from the current 401k setup.
trixit wrote:
Sun Oct 01, 2017 10:22 pm

He has basically 2 questions for kind fellow bogleheads (thank you so much in advance!):
1) What type of single solution fund would you recommend?
2) Also, will there be any tax consequences for him? He plans to rollover the entire amount without withdrawing anything.

Last edited by fnmix on Sun Oct 01, 2017 10:53 pm, edited 1 time in total.
Keep it simple

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badbreath
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Re: Helping friend with 401k rollover to Vanguard

Post by badbreath » Sun Oct 01, 2017 10:40 pm

A Life Strategy fund of his choice/risk. No tax consequences with moving it. just call Vanguard and have them move it for you.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

trixit
Posts: 5
Joined: Wed Aug 17, 2016 11:20 pm

Re: Helping friend with 401k rollover to Vanguard

Post by trixit » Sun Oct 01, 2017 11:01 pm

fnmix wrote:
Sun Oct 01, 2017 10:39 pm
(1) Your friend should look at a target retirement (aka lifestrategy) fund. He/She should also consider a three-fund-portfolio (see https://www.bogleheads.org/wiki/Three-fund_portfolio). The choice depends on what other assets he has (e.g. taxable brokerage account)
(2) Rollover should have no tax consequences as long as the rollover is done correctly (see https://www.bogleheads.org/wiki/401(k)#Rollovers)

At the expense ratios that you shared, your friend should run, not walk, from the current 401k setup.
trixit wrote:
Sun Oct 01, 2017 10:22 pm

He has basically 2 questions for kind fellow bogleheads (thank you so much in advance!):
1) What type of single solution fund would you recommend?
2) Also, will there be any tax consequences for him? He plans to rollover the entire amount without withdrawing anything.

Thank you for much for your fast answer. Yeah, I told him he needs to RUN from there. We are going to work on it this week. We plan on doing it through Vanguard's website and call them as well. Any recommendation of the Target Retirement or Life Strategy fund?

billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: Helping friend with 401k rollover to Vanguard

Post by billfromct » Mon Oct 02, 2017 7:32 am

The LifeStrategy Moderate Growth is 60% stocks (domestic & international), 40% bonds (domestic & international).

I like the 60%/40% allocation leading up to & in retirement.

I believe the Target Retirement funds move to 50% stocks/50% bonds at the target year then to 30% stocks/70% bonds, 8 years after the target year.

bill

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unclescrooge
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Re: Helping friend with 401k rollover to Vanguard

Post by unclescrooge » Mon Oct 02, 2017 10:02 am

I would move his funds to any brokerage but vanguard. Their customer service is the worst in the industry.

You can definitely choose vanguard funds from any discount brokerage.

Unless of course, poorly customer service isn't a deal breaker for you and squeezing the last cent in fees takes precedence. Then vanguard will work for you.

student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Helping friend with 401k rollover to Vanguard

Post by student » Mon Oct 02, 2017 10:27 am

Although Vanguard is good, there are other options. If you are willing to go with ETF, you can do with a discount broker with the most transfer bonus. If you ask them, they are also willing to pay for the closing fee. For info about transfer bonus, see viewtopic.php?t=196884 You can buy Vanguard, ishare low-cost ETF at these discount brokers. Most will also give you free trades to start, which you can use to construct your portfolio. Merrill Edge will give you some free trades every months if you have at least $50,000 with them via Preferred Rewards with Bank of America. See viewtopic.php?t=150033

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

Re: Helping friend with 401k rollover to Vanguard

Post by delamer » Mon Oct 02, 2017 11:38 am

trixit wrote:
Sun Oct 01, 2017 11:01 pm
fnmix wrote:
Sun Oct 01, 2017 10:39 pm
(1) Your friend should look at a target retirement (aka lifestrategy) fund. He/She should also consider a three-fund-portfolio (see https://www.bogleheads.org/wiki/Three-fund_portfolio). The choice depends on what other assets he has (e.g. taxable brokerage account)
(2) Rollover should have no tax consequences as long as the rollover is done correctly (see https://www.bogleheads.org/wiki/401(k)#Rollovers)

At the expense ratios that you shared, your friend should run, not walk, from the current 401k setup.
trixit wrote:
Sun Oct 01, 2017 10:22 pm

He has basically 2 questions for kind fellow bogleheads (thank you so much in advance!):
1) What type of single solution fund would you recommend?
2) Also, will there be any tax consequences for him? He plans to rollover the entire amount without withdrawing anything.

Thank you for much for your fast answer. Yeah, I told him he needs to RUN from there. We are going to work on it this week. We plan on doing it through Vanguard's website and call them as well. Any recommendation of the Target Retirement or Life Strategy fund?
The Vanguard service rep will be able to tell you if the funds he has now can be transferred "in-kind" from the 401(k) or whether he needs to sell them first. In either case, there will be no tax consequences and he can pick his new fund(s) at Vanguard. They can handle the paperwork. Vanguard has a low cost model, and that combined with their rapid growth means their customer service isn't great if your friend needs a lot of handholding. But things will get done.

You can see the asset allocation for each Vanguard fund on the website, and your friend can decide what he is comfortable with. One difference is that the target date funds reduce their stock exposure (and so increase their bonds) over time while the LifeStrategy funds maintain a constant exposure.

pkcrafter
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Re: Helping friend with 401k rollover to Vanguard

Post by pkcrafter » Mon Oct 02, 2017 3:52 pm

trixit:
My friend is 57 years old and plans on retiring in about 10 years. He is looking for fairly conservative portfolio but also leans to holding stocks for some growth potential now and after he retires.
"Fairly conservative" can mean a lot of things to different people, so rather than recommend a specific allocation, I'll just suggest he look at VG Lifestrategy funds, or Target retirement funds. LS fund remain fixed at their allocation, TR funds will automatically reduce stock allocation as they get closer to the TR date.

Also, your friend could also consider Fidelity Freedom Index funds. Where ever your friend decides to go, he should call the company and ask to set up a custodian to custodian direct transfer. He needs to be sure the new company handles all the funds he has now, or he could sell them now and just transfer cash.




Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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fnmix
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Location: Northern California

Re: Helping friend with 401k rollover to Vanguard

Post by fnmix » Wed Oct 04, 2017 7:01 pm

Apologies for a delayed followup. If choosing a target retirement (life strategy fund), your friend should start with thinking about the year that he is going to retire and investigate the appropriate fund (e.g. https://personal.vanguard.com/us/funds/ ... IntExt=INT if the retirement year is 2035).

The above is an approximate answer at best because your friend's ability to retire in any given year depends on his expenses, available assets and appetite for volatility.
trixit wrote:
Sun Oct 01, 2017 11:01 pm
Thank you for much for your fast answer. Yeah, I told him he needs to RUN from there. We are going to work on it this week. We plan on doing it through Vanguard's website and call them as well. Any recommendation of the Target Retirement or Life Strategy fund?
Keep it simple

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