Eesh! 100% Company Stock - Help me with my 401k!

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JGrisp88
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Joined: Thu Jul 12, 2018 1:58 am

Eesh! 100% Company Stock - Help me with my 401k!

Post by JGrisp88 » Thu Jul 12, 2018 2:09 am

I recently have discovered this site and have realized I have made a huge mistake: my entire 401k is currently in company stock! (eesh!) I'm trying to decide which funds to pick for my 401(k). I have been reading like crazy over the past two weeks and have just ordered the Bogleheads books online. I can't wait to begin this adventure!

Can someone please give me some recommendation and the allocation % for each? My company will match at 6%. What else do you guys suggest I do in terms of investing?

Salary: $100k
Tax Filing Status: (Married filing Separately)
Tax Rate: 33% Federal, 6% State
Age: 33

Roth 401k through Fidelity - $200k (all company stock)
Contribution - $15k / yr

TARGET DATE FUNDS:
TARGET 2045 FUND, Blended Fund Investments*, 0.06455%
TARGET 2050 FUND, Blended Fund Investments*, 0.06519%
TARGET 2055 FUND, Blended Fund Investments*, 0.07364%

INDEXED FUNDS:
S&P 500 EQUITY INDEX, Stock Investments Large Cap, 0.01283%
SM/MID CAP EQ INDEX, Stock Investments Mid-Cap, 0.02983%
INTL EQUITY INDEX, Stock Investments International, 0.08677%
DOMESTIC BOND INDEX, Bond Investments Income, 0.04073%

I'm also offered actively managed funds too, but that seems against others recommendations.

nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by nolesrule » Thu Jul 12, 2018 7:33 am

For starters, at your tax rate since you aren't maxing out your contributions I would suggest you switch to Traditional 401k and use the tax savings to max out the 401k contributions.

And if you do not have any Traditional IRAs use the remainder of the tax savings to fund a Roth IRA via the Backdoor Roth since I believe you are well above being able to contribute directly to a Roth IRA because you are married Filing Separately.

If those are indeed the expense ratios, you could keep it very simple and use a Target Date Fund, or do a 3 fund portfolio with S&P 500, International and Bond funds. Or instead of S&P 500, you could get closer to a Total US Stock by holding a combination of S&P500 and the Small/Midcap in approximately an 80:20 ratio. However S&P500 and Total US Stock track so closely that some people don't bother with the small/mid-cap for simplicity.

TigerNest
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by TigerNest » Thu Jul 12, 2018 7:49 am

Are you really sure you should be filing as 'Married Filing Separately'? It's not the same as both of you filing as Single. It limits a lot of your deductions, so it's rarely the better solution except for a few edge cases.

Also I just want to make sure you're aware company matches don't count against your $18,500 limit, so you can contribute all the way up to $18,500 and the match will come on top of that.

Those funds all look great. I don't think you can go wrong with one of the target retirement funds.

JGrisp88
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Joined: Thu Jul 12, 2018 1:58 am

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by JGrisp88 » Thu Jul 12, 2018 8:43 am

I should probably clarify the income. My Salary: $100k. Wife's Salary: $70k. Two kids.

My wife and I have some mega student loans & debts ($350k+, excluding house), so we're essentially using her salary to throw at all the debt. Her current employer does not offer a 401k plan. At this point in life, it's just not doable to max out my 401k retirement, but given the amount of time calculated until debt payoff (estimated 10 years) I don't think it's worth cutting back on contributions either.

Given the current Fidelity options, I'm torn between the following:
1) Fidelity Target 2055 Fund (keep it simple)
2) Nolesrule's suggestion (more control): Fidelity 3 fund portfolio with S&P 500 & Small/Midcap (80:20 ratio), International, and Bond funds with a total 80/20 stock/bond ratio. Or should I be more aggressive with a 90/10 stock/bond ratio (what's currently in the Fidelity Target 2055)?
OR
3) Switch to Traditional 401k and use the tax savings to max out the 401k contributions.

With my current situation, is it even worth looking at backdoor into a Vanguard Roth IRA?

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Psyayeayeduck
Posts: 107
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by Psyayeayeduck » Thu Jul 12, 2018 8:57 am

JGrisp88 wrote:
Thu Jul 12, 2018 2:09 am
I recently have discovered this site and have realized I have made a huge mistake: my entire 401k is currently in company stock! (eesh!) I'm trying to decide which funds to pick for my 401(k). I have been reading like crazy over the past two weeks and have just ordered the Bogleheads books online. I can't wait to begin this adventure!

Can someone please give me some recommendation and the allocation % for each? My company will match at 6%. What else do you guys suggest I do in terms of investing?

Salary: $100k
Tax Filing Status: (Married filing Separately)
Tax Rate: 33% Federal, 6% State
Age: 33

Roth 401k through Fidelity - $200k (all company stock)
Contribution - $15k / yr

TARGET DATE FUNDS:
TARGET 2045 FUND, Blended Fund Investments*, 0.06455%
TARGET 2050 FUND, Blended Fund Investments*, 0.06519%
TARGET 2055 FUND, Blended Fund Investments*, 0.07364%

INDEXED FUNDS:
S&P 500 EQUITY INDEX, Stock Investments Large Cap, 0.01283%
SM/MID CAP EQ INDEX, Stock Investments Mid-Cap, 0.02983%
INTL EQUITY INDEX, Stock Investments International, 0.08677%
DOMESTIC BOND INDEX, Bond Investments Income, 0.04073%

I'm also offered actively managed funds too, but that seems against others recommendations.

Wow, those are some really good ERs you have available to you. Since you are relatively young, a 80/20 stock/bond allocation would be a good baseline where 20% of your allocation goes towards the Domestic Bond Index and 80% goes towards a combination of S&P 500 Equity, Sm/Mid Cap Eq, and International Eq Indexes. I would probably put more weight on the S&P 500 within your 80% stock allocation and a little less on the international but others would probably argue to have equal parts for all three for diversity reasons. That's what I would do. Maybe...just maybe 5% (at most) towards your company stock if you still want to be involved with the company's stock but even then I'm skeptical.

TBillT
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Joined: Sat Sep 17, 2011 1:43 pm

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by TBillT » Thu Jul 12, 2018 8:57 am

You say a newer Roth-style 401K...so I am out of my comfort zone regarding options for handling company stocks, other than the obvious case you can exchange for other funds. In a regular 401K you might want to hold onto the lower cost shares.

Nate79
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by Nate79 » Thu Jul 12, 2018 9:21 am

JGrisp88 wrote:
Thu Jul 12, 2018 8:43 am
I should probably clarify the income. My Salary: $100k. Wife's Salary: $70k. Two kids.

My wife and I have some mega student loans & debts ($350k+, excluding house), so we're essentially using her salary to throw at all the debt. Her current employer does not offer a 401k plan. At this point in life, it's just not doable to max out my 401k retirement, but given the amount of time calculated until debt payoff (estimated 10 years) I don't think it's worth cutting back on contributions either.

Given the current Fidelity options, I'm torn between the following:
1) Fidelity Target 2055 Fund (keep it simple)
2) Nolesrule's suggestion (more control): Fidelity 3 fund portfolio with S&P 500 & Small/Midcap (80:20 ratio), International, and Bond funds with a total 80/20 stock/bond ratio. Or should I be more aggressive with a 90/10 stock/bond ratio (what's currently in the Fidelity Target 2055)?
OR
3) Switch to Traditional 401k and use the tax savings to max out the 401k contributions.

With my current situation, is it even worth looking at backdoor into a Vanguard Roth IRA?
Are you on a debt forgiveness program?

I would choose either 1 or 2 for your fund choice. Those expenses are so low it almost doesn't matter and the set and forget of the target date funds would be tempting.

I would also choose 3 and switch to traditional 401k in the future. Unless you are expecting debt forgiveness I would be looking at the interest rates on the loans and deciding whether to invest or not above any match. Remember any money not put on the debt is in effect borrowing money to invest in your 401k.

Independent George
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Joined: Wed Feb 17, 2016 12:13 pm

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by Independent George » Thu Jul 12, 2018 9:49 am

JGrisp88 wrote:
Thu Jul 12, 2018 8:43 am
I should probably clarify the income. My Salary: $100k. Wife's Salary: $70k. Two kids.

My wife and I have some mega student loans & debts ($350k+, excluding house), so we're essentially using her salary to throw at all the debt. Her current employer does not offer a 401k plan. At this point in life, it's just not doable to max out my 401k retirement, but given the amount of time calculated until debt payoff (estimated 10 years) I don't think it's worth cutting back on contributions either.
That's a good plan - but to reiterate an earlier question, why are you filing separate? MFS puts your wife's ~58k (after std deduction) in the 22% bracket, and your $88k (net of standard deduction) in the 24% bracket; combined, your 146k (net of $24k std deduction) would be entirely in the 22% bracket. Itemized deductions change things a bit, but on the face of it, I don't see the advantage of filing separately.

Also: what interest rates are you paying on the loan and mortgage? Do you have enough home equity to refinance and pay off loan balances?
Given the current Fidelity options, I'm torn between the following:
1) Fidelity Target 2055 Fund (keep it simple)
2) Nolesrule's suggestion (more control): Fidelity 3 fund portfolio with S&P 500 & Small/Midcap (80:20 ratio), International, and Bond funds with a total 80/20 stock/bond ratio. Or should I be more aggressive with a 90/10 stock/bond ratio (what's currently in the Fidelity Target 2055)?
OR
3) Switch to Traditional 401k and use the tax savings to max out the 401k contributions.

With my current situation, is it even worth looking at backdoor into a Vanguard Roth IRA?
1. Are you restricted in when you can trade your company stock? Depending on the circumstances, it might be better to hold off on selling if there is a penalty for it.
2. I'd definitely switch to traditional 401k and try to reduce your taxes. It sounds like you're pretty stretched with 350k in loan debts; this will free up some additional cash to pay that down.
3. I would probably go with the Target 2055 fund just for simplicity. Asset allocation really matters less right now than diversification, and I prefer to not fiddle with a 401k.
4. Why a backdoor Roth? The MAGI limit for MFJ is $189k - another reason to file jointly instead of separate.

alter
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by alter » Thu Jul 12, 2018 10:54 am

I would NOT transfer (or rebalance) any of your company stock in your 401k until you read up on Net Unrealized Appreciation (NUA) and find out whether or not it could eventually apply to you and work in your favor to use that. If your company stock has been held a long time and appreciated a lot, then its very important to maintain it's cost-basis for NUA.

What I would do immediately is for all future contributions, allocate a large percent to a low cost s&p500 or total market fund.

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C4NT
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by C4NT » Thu Jul 12, 2018 11:00 am

alter wrote:
Thu Jul 12, 2018 10:54 am
I would NOT transfer (or rebalance) any of your company stock in your 401k until you read up on Net Unrealized Appreciation (NUA) and find out whether or not it could eventually apply to you and work in your favor to use that. If your company stock has been held a long time and appreciated a lot, then its very important to maintain it's cost-basis for NUA.

What I would do immediately is for all future contributions, allocate a large percent to a low cost s&p500 or total market fund.
This is an important point that the OP needs to investigate; however, regardless of the impact do you think it is a good idea to have 200K, 100% of their portfolio, in a single stock?

I do not. I would figure out what the NUA would cause and move as much as possible to other funds in addition to future contributions.

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blaugranamd
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by blaugranamd » Thu Jul 12, 2018 11:16 am

Keep it simple. You said you are just learning, so use the target date fund that matches your planned retirement date closest. Spend a year or two learning. More control of a portfolio is often more dangerous than advantageous early on. You will not miss out on anything substantial during that time.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

alter
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Location: Chicago

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by alter » Thu Jul 12, 2018 11:24 am

C4NT wrote:
Thu Jul 12, 2018 11:00 am
alter wrote:
Thu Jul 12, 2018 10:54 am
I would NOT transfer (or rebalance) any of your company stock in your 401k until you read up on Net Unrealized Appreciation (NUA) and find out whether or not it could eventually apply to you and work in your favor to use that. If your company stock has been held a long time and appreciated a lot, then its very important to maintain it's cost-basis for NUA.

What I would do immediately is for all future contributions, allocate a large percent to a low cost s&p500 or total market fund.
This is an important point that the OP needs to investigate; however, regardless of the impact do you think it is a good idea to have 200K, 100% of their portfolio, in a single stock?

I do not. I would figure out what the NUA would cause and move as much as possible to other funds in addition to future contributions.
I'm not advocating he keeps 100% in one stock, I even suggested changing future contributions immediately to a large percent in an index fund. I'm just advocating he read up and understand the implications of doing something he may regret before realizing all of his options.

Edit - I re-read the post and noticed the entire balance was in a Roth 401k contribution...I'm not sure how that affects it but it seems like NUA was intended for pre-tax contributions, but I still recommend researching it.

JGrisp88
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by JGrisp88 » Thu Jul 12, 2018 2:43 pm

Some More Details about the Target Fund:

Target Retirement 2055 Fund
  • Fund Category / Average
    • Cash 2.28% / 3.73%
      Convertibles 0.00% / 0.04%
      Domestic Bond 6.53% / 4.94%
      Preferred Stock 0.01% / 0.07%
      Foreign Bond 3.32% / 1.54%
      Foreign Stock 33.53% / 31.41%
      Others 0.34% / 4.52%
      Domestic Stock 54.00% / 53.75%
  • Top 10 Holdings
    • Vanguard Total Stock Mkt Idx Instl Pls 54.47%
      Vanguard Total Intl Stock Idx InstlPls 35.35%
      Vanguard Total Bond Market II Idx I 7.22%
      Vanguard Total Intl Bd Idx Institutional 2.96%
It seems like a very good Target Fund, but I'm concerned with the low bond percentage. Does that outweigh manually managing a 3-fund portfolio? To answer the question about company stock, there are no restrictions other than a fee for sale of them - Commission on stock trades: $0.029 per share.

ponyboy
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by ponyboy » Thu Jul 12, 2018 2:53 pm

Im curious how 2 people rack up over $350k in student loan debt?

JBTX
Posts: 4259
Joined: Wed Jul 26, 2017 12:46 pm

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by JBTX » Thu Jul 12, 2018 2:57 pm

JGrisp88 wrote:
Thu Jul 12, 2018 2:43 pm
Some More Details about the Target Fund:

Target Retirement 2055 Fund
  • Fund Category / Average
    • Cash 2.28% / 3.73%
      Convertibles 0.00% / 0.04%
      Domestic Bond 6.53% / 4.94%
      Preferred Stock 0.01% / 0.07%
      Foreign Bond 3.32% / 1.54%
      Foreign Stock 33.53% / 31.41%
      Others 0.34% / 4.52%
      Domestic Stock 54.00% / 53.75%
  • Top 10 Holdings
    • Vanguard Total Stock Mkt Idx Instl Pls 54.47%
      Vanguard Total Intl Stock Idx InstlPls 35.35%
      Vanguard Total Bond Market II Idx I 7.22%
      Vanguard Total Intl Bd Idx Institutional 2.96%
It seems like a very good Target Fund, but I'm concerned with the low bond percentage. Does that outweigh manually managing a 3-fund portfolio? To answer the question about company stock, there are no restrictions other than a fee for sale of them - Commission on stock trades: $0.029 per share.
Perhaps look at the 2050 or 2045 fund. They will probably have a slightly higher percent of bonds if that is a concern.

At your tax rate traditional is probably best, although it is always hard to foretell the future. Like others I am confused as to why you file married filing separately.

I would not worry about back door Roth until you can maximize your 401k and still have some left over. If you have good 401k choices and low expenses, there are reasons a 401k may be better than a Roth or a traditional IRA.

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blackfish
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by blackfish » Thu Jul 12, 2018 3:02 pm

JBTX wrote:
Thu Jul 12, 2018 2:57 pm
JGrisp88 wrote:
Thu Jul 12, 2018 2:43 pm
Some More Details about the Target Fund:

Target Retirement 2055 Fund
  • Fund Category / Average
    • Cash 2.28% / 3.73%
      Convertibles 0.00% / 0.04%
      Domestic Bond 6.53% / 4.94%
      Preferred Stock 0.01% / 0.07%
      Foreign Bond 3.32% / 1.54%
      Foreign Stock 33.53% / 31.41%
      Others 0.34% / 4.52%
      Domestic Stock 54.00% / 53.75%
  • Top 10 Holdings
    • Vanguard Total Stock Mkt Idx Instl Pls 54.47%
      Vanguard Total Intl Stock Idx InstlPls 35.35%
      Vanguard Total Bond Market II Idx I 7.22%
      Vanguard Total Intl Bd Idx Institutional 2.96%
It seems like a very good Target Fund, but I'm concerned with the low bond percentage. Does that outweigh manually managing a 3-fund portfolio? To answer the question about company stock, there are no restrictions other than a fee for sale of them - Commission on stock trades: $0.029 per share.
Perhaps look at the 2050 or 2045 fund. They will probably have a slightly higher percent of bonds if that is a concern.

At your tax rate traditional is probably best, although it is always hard to foretell the future. Like others I am confused as to why you file married filing separately.

I would not worry about back door Roth until you can maximize your 401k and still have some left over. If you have good 401k choices and low expenses, there are reasons a 401k may be better than a Roth or a traditional IRA.
I too am relatively new to this site, I've heard it is best meet your company match in your 401k and then focus on maxing out a ROTH IRA (if eligible) before going back to increasing your 401k contribution. Why do you say otherwise, because he has such good investment options in his 401k? I'm sure there is some good literature out there on the subject if you can point me towards it.

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blaugranamd
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by blaugranamd » Thu Jul 12, 2018 3:57 pm

ponyboy wrote:
Thu Jul 12, 2018 2:53 pm
Im curious how 2 people rack up over $350k in student loan debt?
Probably a professional/advanced degrees. Private undergrads can also add up fast.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

nolesrule
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by nolesrule » Thu Jul 12, 2018 4:01 pm

blackfish wrote:
Thu Jul 12, 2018 3:02 pm


I too am relatively new to this site, I've heard it is best meet your company match in your 401k and then focus on maxing out a ROTH IRA (if eligible) before going back to increasing your 401k contribution. Why do you say otherwise, because he has such good investment options in his 401k? I'm sure there is some good literature out there on the subject if you can point me towards it.
The advice is to fund an IRA after getting the 401k match (whether Roth or Traditional is a different question entirely and based on individual circumstances). However this advice to fund the IRA after getting the full match is generally predicated on the fact that you can get better investment choices in an IRA account than in the 401k.

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C4NT
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by C4NT » Thu Jul 12, 2018 6:02 pm

alter wrote:
Thu Jul 12, 2018 11:24 am
C4NT wrote:
Thu Jul 12, 2018 11:00 am
alter wrote:
Thu Jul 12, 2018 10:54 am
I would NOT transfer (or rebalance) any of your company stock in your 401k until you read up on Net Unrealized Appreciation (NUA) and find out whether or not it could eventually apply to you and work in your favor to use that. If your company stock has been held a long time and appreciated a lot, then its very important to maintain it's cost-basis for NUA.

What I would do immediately is for all future contributions, allocate a large percent to a low cost s&p500 or total market fund.
This is an important point that the OP needs to investigate; however, regardless of the impact do you think it is a good idea to have 200K, 100% of their portfolio, in a single stock?

I do not. I would figure out what the NUA would cause and move as much as possible to other funds in addition to future contributions.
I'm not advocating he keeps 100% in one stock, I even suggested changing future contributions immediately to a large percent in an index fund. I'm just advocating he read up and understand the implications of doing something he may regret before realizing all of his options.

Edit - I re-read the post and noticed the entire balance was in a Roth 401k contribution...I'm not sure how that affects it but it seems like NUA was intended for pre-tax contributions, but I still recommend researching it.
Gotcha

JBTX
Posts: 4259
Joined: Wed Jul 26, 2017 12:46 pm

Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by JBTX » Thu Jul 12, 2018 6:31 pm

blackfish wrote:
Thu Jul 12, 2018 3:02 pm
JBTX wrote:
Thu Jul 12, 2018 2:57 pm
JGrisp88 wrote:
Thu Jul 12, 2018 2:43 pm
Some More Details about the Target Fund:

Target Retirement 2055 Fund
  • Fund Category / Average
    • Cash 2.28% / 3.73%
      Convertibles 0.00% / 0.04%
      Domestic Bond 6.53% / 4.94%
      Preferred Stock 0.01% / 0.07%
      Foreign Bond 3.32% / 1.54%
      Foreign Stock 33.53% / 31.41%
      Others 0.34% / 4.52%
      Domestic Stock 54.00% / 53.75%
  • Top 10 Holdings
    • Vanguard Total Stock Mkt Idx Instl Pls 54.47%
      Vanguard Total Intl Stock Idx InstlPls 35.35%
      Vanguard Total Bond Market II Idx I 7.22%
      Vanguard Total Intl Bd Idx Institutional 2.96%
It seems like a very good Target Fund, but I'm concerned with the low bond percentage. Does that outweigh manually managing a 3-fund portfolio? To answer the question about company stock, there are no restrictions other than a fee for sale of them - Commission on stock trades: $0.029 per share.
Perhaps look at the 2050 or 2045 fund. They will probably have a slightly higher percent of bonds if that is a concern.

At your tax rate traditional is probably best, although it is always hard to foretell the future. Like others I am confused as to why you file married filing separately.

I would not worry about back door Roth until you can maximize your 401k and still have some left over. If you have good 401k choices and low expenses, there are reasons a 401k may be better than a Roth or a traditional IRA.
I too am relatively new to this site, I've heard it is best meet your company match in your 401k and then focus on maxing out a ROTH IRA (if eligible) before going back to increasing your 401k contribution. Why do you say otherwise, because he has such good investment options in his 401k? I'm sure there is some good literature out there on the subject if you can point me towards it.
In many cases 401ks will have higher fees and poor choices, thus in that case it may make more sense to fund an individual personal IRA or Roth (or backdoor if not eligible for Roth). In the OPS case he has good choices and may actually have lower fees than a personal account. You find this sometimes, usually with larger Companies that get access to institutional fee rates for 401k funds.

If the 401k has low fees the advantage of a 401k is that in some states they have better creditor protection (lawsuits, bankruptcy).

JGrisp88
Posts: 4
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Re: Eesh! 100% Company Stock - Help me with my 401k!

Post by JGrisp88 » Thu Jul 12, 2018 6:37 pm

blaugranamd wrote:
Thu Jul 12, 2018 3:57 pm
ponyboy wrote:
Thu Jul 12, 2018 2:53 pm
Im curious how 2 people rack up over $350k in student loan debt?
Probably a professional/advanced degrees. Private undergrads can also add up fast.
Yes, unfortunately that's exactly it. Both my wife and I have advanced degrees from private schools. Nobody taught either of us about money growing up. Essentially go to a good college, get a good job, and worry about student loans later. "It's just part of life." Unfortunately, we know two couples worse off ($550+k) in student loans and they continue to ignore it and spend money likes it's not there. Something clicked with me this year and I refuse to continue to live this way. Thanks again to everyone for lending me their knowledge!

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