Just Retired, need some help on what to do with my 401k

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Topic Author
dmnhwn
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Joined: Mon Sep 17, 2018 11:53 am

Just Retired, need some help on what to do with my 401k

Post by dmnhwn » Mon Jan 07, 2019 3:02 pm

Hey Guys,

I just retired 14 days ago (I just turned 63 this past Christmas), pretty excited about it as each day passes. I have a 401k with Transamerica through my former employer. There is about $126,000 in it currently. I don't need the money at this time, so I'm thinking I should roll it over into the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). I'm not sure if I should also consider the Vanguard Total Stock Market ETF (VTI)?

I have my IRA in the Vanguard Value Index Admiral (VVIAX) and my wife's IRA in the Vanguard Dividend Growth Fund (VDIGX).

My home is paid off and my social security benefit is enough to pay my bills and maybe save about $500 a month after that. So I'm planning on not touching any of my retirement money until after I'm 65 hopefully ;)

I just received a notice from Transamerica today informing me that I need to make a choice on what to do with that money.

I would love any and all advice.

Thank you very much

DMN

lakpr
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Re: Just Retired, need some help on what to do with my 401k

Post by lakpr » Mon Jan 07, 2019 3:32 pm

You have more than $5000 in the account, so you are entitled, by law, to choose to leave the money within the 401(k) plan. I suggest you explore this option, because the ERISA protections for 401(k) plans are so much stronger than they are for IRAs. Creditors cannot touch the money in all 50 states, whereas the protection varies from state to state.

At age 70.5, the RMDs taken from the plan will have a 20% mandatory withholding for taxes, whereas if you had the same money in IRA you can choose to have no withholding.

Unless the expenses in your 401k plan are very onerous, I suggest to leave the money within the plan, especially given that you do not anticipate needing the money for a few years.

billfromct
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Re: Just Retired, need some help on what to do with my 401k

Post by billfromct » Mon Jan 07, 2019 3:54 pm

You can work with Vanguard to effect a "trustee to trustee" transfer of your 401k to a Vanguard rollover IRA. As I got older, I moved my financial assets to 2 locations, Vanguard & my local credit union. This will make it easier for my kids, who live in different areas, should something happen to me.

You may want to put 60% in the Total Stock Market Index Fund & 40% in the Total Bond Market Index Fund since you may be taking money out of the rollover IRA in a couple of years. That way you can take the money out of the bond fund should the stock market be in a correction or bear market.

I'm starting RMDs this month & have 10-12 years of RMDs in fixed income in my rollover IRA. My retirement accounts are about 60%-62% stocks/38%-40% fixed income. This gives me plenty of flexibility to ride out any stock market correction or bear market.

You can always use a 60%/40% balanced fund if you don't want to manage a couple of different mutual funds. The only issue is if you have to take money out of your rollover IRA during a bear market, 60% would come out of stocks at a potentially low price.

bill

UBP
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Re: Just Retired, need some help on what to do with my 401k

Post by UBP » Mon Jan 07, 2019 3:58 pm

dmnhwn wrote:
Mon Jan 07, 2019 3:02 pm
Hey Guys,
......

Thank you very much

DMN
I have out of this world, mind blowing advice for you, but alas, I am a female. Good luck.

UbP

123
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Re: Just Retired, need some help on what to do with my 401k

Post by 123 » Mon Jan 07, 2019 4:02 pm

While 401Ks provide more protection against attachement in the event of some litigation against you that can come at a cost if an investment costs you more in the 401k than a similar investment in an IRA such as at Vanguard. I'd probably make a decision based on the relative expense ratio of a fund I wanted at Vanguard versus the expense ratio of the same kind of fund at Transamerica. There's a lot of variation on how 401Ks are structured at places like Transameria so in some 401Ks the employees may have higher costs, the costs get built into the share class of the investments available through the 401K. Some 401Ks use investment trust funds that lack a ticker symbol and often have expenses less than Vanguard. You have to weight all that versus the convenience of rolling over the 401K balance into your IRA and just having a single account for yourself. That's what I've done with prior 401Ks, it's all my money and if I'm not associated with a particular employer any longer I see no reason for them to be involved with my money.

I would steer clear away from any offer from Transamerica to help you with your 401K money by converting it into an annuity etc.
The closest helping hand is at the end of your own arm.

retiredjg
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Re: Just Retired, need some help on what to do with my 401k

Post by retiredjg » Mon Jan 07, 2019 4:58 pm

dmnhwn, it sounds like you intend for your retirement portfolio to be 100% stocks. There are situations where that is a reasonable choice, but it is unusual.

I would suggest you give consideration to holding a healthy dose of bonds, maybe even 40% or 50% of the portfolio.

You might want to check out the link at the bottom of this message for how to get in depth help on portfolio questions.

GrowthSeeker
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Re: Just Retired, need some help on what to do with my 401k

Post by GrowthSeeker » Mon Jan 07, 2019 5:11 pm

If you have any IRAs such that part of the money came from after tax contributions,
AND
if your 401k allows you to roll IRA money into it,
AND
if you don’t want to fill out form 8606 every year that you either do Roth conversion or take an RMD,
THEN
you could roll all of your IRAs into the 401k except for the dollar amount of the after tax IRA contributions. Then I think the next step would be to convert what’s left in any IRAs to Roth (not creating a taxable event since you already paid tax on those dollars).
THEN
do whatever you want with the 401k
Just because you're paranoid doesn't mean they're NOT out to get you.

02nz
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Re: Just Retired, need some help on what to do with my 401k

Post by 02nz » Mon Jan 07, 2019 5:11 pm

How much income do you have now, besides SS? You might be better off holding off on SS benefits until your full retirement age, or even 70. Until then, withdraw your traditional IRA and/or 401k balances at very favorable tax rates (with no other income, the two of you can take out about $100K a year and pay just 9% federal income tax). Remember, you don't have to spend it all, just withdraw what you can at low tax rates. Other advantages of this approach:

- You reduce the required minimum distributions that start at 70.5;
- You reduce or eliminate the amount of your Social Security benefits that are subject to taxation (as little as 0% or as high as 85% of your Social Security benefits get taxed, depending on what other income you have);
- You mitigate the risk that one of you passes and the other gets pushed into a higher income tax bracket; and
- By enabling you to hold off on receiving SS, you get a higher benefit amount, which serves as a form of longevity insurance (that's also protected from inflation).

The one downside is that it can cause you to pay IRMAA for Medicare. But that's likely a price worth paying.

You can "withdraw" - basically cancel - an application for Social Security within one year. Past that, you can suspend benefits. Either way you'll get a higher benefit later.

mrc
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Re: Just Retired, need some help on what to do with my 401k

Post by mrc » Mon Jan 07, 2019 5:16 pm

UBP wrote:
Mon Jan 07, 2019 3:58 pm
dmnhwn wrote:
Mon Jan 07, 2019 3:02 pm
Hey Guys,
......

Thank you very much

DMN
I have out of this world, mind blowing advice for you, but alas, I am a female. Good luck.

UbP

I'm sure the OP meant no exclusion!
Webster: guy

1a : man, fellow

b : person —used in plural to refer to the members of a group regardless of sex
Science is about the pursuit of truth. That always threatens someone.

Topic Author
dmnhwn
Posts: 19
Joined: Mon Sep 17, 2018 11:53 am

Re: Just Retired, need some help on what to do with my 401k

Post by dmnhwn » Mon Jan 07, 2019 7:43 pm

Thank you very much for the responses everyone! (sorry UbP, did not intend to offend)

My 401k is in 2 funds with Transamerica

Fidelity 500 Index Institutional Prem $79,515 (FXAIX) Gross Expense Ratio 0.01% / Net Expense Ratio 0.01%

Fidelity Mid Cap Index Instl Prem $47,337 (FSMDX) Gross Expense Ratio 0.03% / Net Expense Ration 0.03%

Expense Ratio seems low, but it's the only info I can find related to expense ratio. About a year ago my two funds were the two (2) Vanguard funds that they offered at the time. Some where along the line they did away with the Vanguard funds and moved them into these two funds without my consent.

@02nz I have no other income besides my SS. My benefit starts in late February and will be $1,822 per month. I have an emergency fund that kind of got away from me as I got closer to retirement. I kept putting money there instead of investing and it now stands at $40,000 dollars. I figure If my SS isn't enough some months I can always draw from that Ally Emergency fund account. As long as nothing goes haywire, that should get me through the next 3 years along with SS.

@retiredjg my portfolio is pretty simple

Emergency Funds: $40,000 in an Ally Savings Account
Debt: 0
Tax Filing Status: Married Filing Jointly
Tax Rate: 12% Federal 0% State
Nevada
Age: His 63 Hers 53
Currently 100% Stocks / 0% Bonds
Desired 70/30 or 60/40 ?

Portfolio $466, 093

Taxable 8.82%
$4,000 Cash (not included in Portfolio number above)
$41,000 VIMAX (.05%)

His 401K 27.21% $126,853
16% Fidelity 500 Index Institutional Prem
11% Fidelity Mid Cap Index Instl Prem

His Traditional IRA 38.37%
VVIAX $178,865

Her Traditional IRA 25.58%
VDIGX $119,248

Hopefully I did that correctly.

Thanks for the help Everyone!

02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Just Retired, need some help on what to do with my 401k

Post by 02nz » Tue Jan 08, 2019 11:35 am

The Fidelity funds have very low expense ratios. I'd just make sure (you have to look in your 401k plan documents) that you're not paying high fees on top. Many plans have an admin fee - flat or a percentage - that is in addition to the funds' expense ratios.

So you have about 300K of tax-deferred balances in your name, and no income besides SS. In your position, I'd undo the Social Security application (and postpone for a higher benefit later), so that you can do Roth conversions at a very favorable rate now. For example, in 2019, with no other income, you can withdraw or do Roth conversions on $43,800, and pay just $1,940 in federal income tax (4.4%). Withdrawing this money while also receiving Social Security benefits will mean paying higher taxes.

ETA: 100% stocks is too aggressive an allocation (although that's not counting your cash balances). No absolute right or wrong answers but most would say 60/40 stocks/bonds is sensible for your age.
Last edited by 02nz on Tue Jan 08, 2019 1:20 pm, edited 1 time in total.

bradpevans
Posts: 546
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Re: Just Retired, need some help on what to do with my 401k

Post by bradpevans » Tue Jan 08, 2019 1:16 pm

02nz wrote:
Tue Jan 08, 2019 11:35 am
The Fidelity funds have very low expense ratios. I'd just make sure (you have to look in your 401k plan documents) that you're not paying high fees on top. Many plans have an admin fee - flat or a percentage - that is in addition to the funds' expense ratios.

So you have about 300K of tax-deferred balances in your name, and no income besides SS. In your position, I'd undo the Social Security application (and postpone for a higher benefit later), so that you can do Roth conversions at a very favorable rate now. For example, in 2019, with no other income, you can withdraw or do Roth conversions on $43,800, and pay just $1,940 in federal income tax (4.4%). Withdrawing this money while also receiving Social Security benefits will mean paying higher taxes.
In addition, *at most* 85% of SS is taxed, so another reason to delay SS / convert to Roth / drawn down 401k.

retiredjg
Posts: 37191
Joined: Thu Jan 10, 2008 12:56 pm

Re: Just Retired, need some help on what to do with my 401k

Post by retiredjg » Fri Jan 11, 2019 8:51 am

dmnhwn wrote:
Mon Jan 07, 2019 7:43 pm
As long as nothing goes haywire, that should get me through the next 3 years along with SS.
Does something change at 3 years?

Is your wife working? Will she have SS at some point?

If SS is your only income, that is a total of about $22k a year. Your standard deduction will be $24.4k So it seems to me you will have no income to pay tax on. The top of the 12% bracket is $78,950 so you should be able to convert a good chunk of money to Roth while paying very low taxes.

The downside is that this other income (the conversion) will make a larger part of your SS taxable. I'm not sure how to bring that into a calculation of exactly what to do.
Emergency Funds: $40,000 in an Ally Savings Account
Debt: 0
Tax Filing Status: Married Filing Jointly
Tax Rate: 12% Federal 0% State
Nevada
Age: His 63 Hers 53
Currently 100% Stocks / 0% Bonds
Desired 70/30 or 60/40 ?

Portfolio $466, 093

Taxable 8.82%
$4,000 Cash (not included in Portfolio number above) <---is that supposed to be $40k?
$41,000 Vanguard mid cap index VIMAX (.05%)

His 401K 27.21% $126,853
16% Fidelity 500 Index Institutional Prem
11% Fidelity Mid Cap Index Instl Prem

His Traditional IRA 38.37%
VVIAX Vanguard Value Index $178,865

Her Traditional IRA 25.58%
VDIGX Vanguard Dividend Growth Index $119,248

I think I would roll the 401k into His tIRA just to simplify things. There is no particular reason to keep the 401k.

I'd like to hear the answers to the questions before suggesting anything else.

retiredjg
Posts: 37191
Joined: Thu Jan 10, 2008 12:56 pm

Re: Just Retired, need some help on what to do with my 401k

Post by retiredjg » Fri Jan 11, 2019 8:56 am

Do I understand correctly that your living expenses are about $16k a year?

Is your health insurance included in that?

Monster99
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Joined: Tue Aug 29, 2017 10:28 am

Re: Just Retired, need some help on what to do with my 401k

Post by Monster99 » Fri Jan 11, 2019 9:35 am

I retired last year, and find it much easier to convert my 401k to the roth 401k with my current plan administrator. The down side is that at age 70.5 I will need to roll over to a roth IRA or take distributions...

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telemark
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Re: Just Retired, need some help on what to do with my 401k

Post by telemark » Fri Jan 11, 2019 1:12 pm

dmnhwn wrote:
Mon Jan 07, 2019 7:43 pm
Thank you very much for the responses everyone! (sorry UbP, did not intend to offend)

My 401k is in 2 funds with Transamerica

Fidelity 500 Index Institutional Prem $79,515 (FXAIX) Gross Expense Ratio 0.01% / Net Expense Ratio 0.01%

Fidelity Mid Cap Index Instl Prem $47,337 (FSMDX) Gross Expense Ratio 0.03% / Net Expense Ration 0.03%
You can certainly roll that over into an IRA if you like, but with those funds and expense ratios I wouldn't feel any urgency about it.

Topic Author
dmnhwn
Posts: 19
Joined: Mon Sep 17, 2018 11:53 am

Re: Just Retired, need some help on what to do with my 401k

Post by dmnhwn » Thu Jan 17, 2019 4:01 pm

Thanks again for the help everyone!

@retiredjg
retiredjg wrote: Does something change at 3 years?
The 3 years was in reference to possibly pulling money from my emergency fund (currently $40,000) to help in the event the $1822 a month from SS wasn't enough. I could pull $1,000 a month for 36 months if I needed.

My wife doesn't work, that's a long story, even though she is 10 years younger, she will continue to be a homemaker. ;)
retiredjg wrote: Do I understand correctly that your living expenses are about $16k a year?
I would say to continue to live the way I have for the last few years, yes I should come in a bit under that number.

Health Insurance was the key to me being able to retire. Thanks to the premium tax credit, It is very affordable and, yes it is a part of that 16k. With my projected income and not pulling from my retirement accounts to change that projected income, I benefit from that tax credit.

That is why I don't want to start pulling from my retirement accounts until probably after I'm 65 which will be in 2 years.

One thing that I'm concerned with is my wife's tIRA. The VDIGX Vanguard Dividend Growth Fund's expense ratio is 0.26%. She is 53, I'm wondering if there is a better place to move that tIRA.

I just noticed this edit in your reply...
retiredjg wrote: $4,000 Cash (not included in Portfolio number above) <---is that supposed to be $40k?"
No, that is what is currently in my checking account. I don't know why I put that under the taxable category. There is $40,000 in the Ally Emergency Fund.

Thanks alot for your time and advice!

DMN

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BL
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Re: Just Retired, need some help on what to do with my 401k

Post by BL » Thu Jan 17, 2019 5:08 pm

Every month you delay SS means you (and later your spouse or survivor) get an increased COLA'd SS for the rest of your life/lives. I know the increase is about 8%/year after FRA and maybe slightly less before FRA.

Seems like your emergency fund plus the 40k in VIMAX would support quite a few years before you run out and either hit Medicare age or have to start SS. I was looking for something to keep taxes low. If income is too low, are you forced to take Medicaid? I don't know, but have heard about trying to get income neither too high nor too low.

I would try to work at least 40% bonds or cash (MM) into the IRAs or 401k.
Total stock market should be fine for stock component, unless you want international.

Topic Author
dmnhwn
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Re: Just Retired, need some help on what to do with my 401k

Post by dmnhwn » Fri Jan 18, 2019 9:36 am

BL wrote: If income is too low, are you forced to take Medicaid?
In 2019, if your income is $22,700 or less, you must take Medicaid. If your income is $22,800, you get a premium tax credit of $1,374.11 per month. If you make more than $22,800 for the year, your credit comes down. I think the cap on income is around $69,000 for the year to still qualify for the credit.

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