Mutual Fund recommendation for young (20s) kid in 401k rollover

[SMHarman]

401k loans are a bad idea because: 1-you are giving up returns which would probably exceed interest you would pay yourself.
2- you are taking bankruptcy protected assets out of protected status.

3. If you lose your job or find yourself unable to repay the loan you are hurting your retirement.


My general suggestion is to never take money out of retirement accounts while working and go bankrupt instead. .

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1. The 5% I am paying myself on my 401k loan that was taken out at the peak of the market last year is a far better return than if I had left the money in the account.

Sometimes you outperform the market with a 401k loan!

2 and 3. Yes they are bankruptcy protected but just because you need a loan does not mean you are insolvent.

 

[geekette]

1. The 5% I am paying myself on my 401k loan that was taken out at the peak of the market last year is a far better return than if I had left the money in the account.

Sometimes you outperform the market with a 401k loan!

2 and 3. Yes they are bankruptcy protected but just because you need a loan does not mean you are insolvent.

Exactly! These are extreme things compared to borrowing a few grand from myself to put a roof on the house. Bankruptcy?? I have saved aggressively, sometimes too much so, but it's my money which has been matched and grown exponentially over time. I've hardly ruined my future. I can also tell you that often the payback of loan on job loss goes to Dec 31. Not necessarily immediate. Borrowing more than one can repay is ill-advised, but few would borrow so much as to foul their cash flow.

Please feel free to pay interest to a bank, I'd rather pay myself to use my money.

 

[geekette]

Bottom line is the match is discretionary meaning sometimes they might match and sometimes not. He doesn't even know how much they match or how much you have to put in for them to match. Nothing in the employee handbook as far as details. What the fees are, etc. Seems strange to me.

At least with the Roth he has control. He can withdraw his principle in case he needs the money for an emergency. (not that he intends to). He got a good start with it. 401k's- you have all kinds of rules and fees and so on.

Anyway, right now he needs to save for a car on a fairly low income. He couldn't afford to have any more money taken out of his paycheck.

When he is in a different position in the future, I suppose he could find out more about the 401k from human resources.

I'm not sure why he isn't already talking to HR about the match. He should understand his options. Deciding it's too complicated to bother with is not necessarily in his best interest. If he can hardly save, I'm not sure why he wouldn't want every last dollop of free money, regardless of how sporadic.

Not sure what rules you're referring to in 401k, but how is he dodging fees in his Roth?

Note also that 401k has much higher annual contribution limit than IRAs. Not much of an issue for those just starting out, but one major difference that can have drastic compounding effects later in the investing continuum.

 

[Jason245]

1. The 5% I am paying myself on my 401k loan that was taken out at the peak of the market last year is a far better return than if I had left the money in the account.

Sometimes you outperform the market with a 401k loan!

2 and 3. Yes they are bankruptcy protected but just because you need a loan does not mean you are insolvent.

So, if you lose your job tomorrow, what are pay back requirements?

401k borrowing should be a last resort. .. why would you do it if you were not insolvent? If you treat it like a piggy bank you have a higher probability of ending up with less.

Interest rates are at historic lows... 5 percent seems a little high in my mind for secured debt..I can borrow on a heloc for less than that.. same goes for mortgage. .if you used money for unsecured purchases, you probably couldn't afford them and shouldn't have bought..if it was for medical bills. . Again bankruptcy is usually better option. . But hey... everyone has the right to make their own choices and I my savings rules and positions might be a little more conservative than some. .

Even if thr market is hitting peaks and valleys. .if you are at a minimum rebalancing regularly you would mitigate some of the risks..







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[Jason245]

Exactly! These are extreme things compared to borrowing a few grand from myself to put a roof on the house. Bankruptcy?? I have saved aggressively, sometimes too much so, but it's my money which has been matched and grown exponentially over time. I've hardly ruined my future. I can also tell you that often the payback of loan on job loss goes to Dec 31. Not necessarily immediate. Borrowing more than one can repay is ill-advised, but few would borrow so much as to foul their cash flow.

Please feel free to pay interest to a bank, I'd rather pay myself to use my money.

Did you ever consider a heloc? Tax deductible interest.. effective rate would be in 2 to 4 percent range depending on factors. .(such as if you itimize )

But everyone has to make their own financial decisions. .

As for people over borrowing. . Um.. that is a fact and it happens all the time..

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[SMHarman]

So, if you lose your job tomorrow, what are pay back requirements?

401k borrowing should be a last resort. .. why would you do it if you were not insolvent? If you treat it like a piggy bank you have a higher probability of ending up with less.

Interest rates are at historic lows... 5 percent seems a little high in my mind for secured debt..I can borrow on a heloc for less than that.. same goes for mortgage. .if you used money for unsecured purchases, you probably couldn't afford them and shouldn't have bought..if it was for medical bills. . Again bankruptcy is usually better option. . But hey... everyone has the right to make their own choices and I my savings rules and positions might be a little more conservative than some. .

Even if thr market is hitting peaks and valleys. .if you are at a minimum rebalancing regularly you would mitigate some of the risks..







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It could come from savings or it could convert to income and, well I'm unemployed in that scenario so the tax would be at my marginal rate not at an excess rate.

It's very hard to get another job if you have declared bankruptcy.

And the 5% is left pocket / right pocket. I'm paying myself, not a bank.

 

[geekette]

Did you ever consider a heloc? Tax deductible interest.. effective rate would be in 2 to 4 percent range depending on factors. .(such as if you itimize )

But everyone has to make their own financial decisions. .

As for people over borrowing. . Um.. that is a fact and it happens all the time..

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One would need to own enough of their home to enable a HELOC and that was not always the case for me. I do now, but not paying enough interest on primary mortgage to automatically itemize and not interested in more debt to increase the level of interest.

People that rent would never have equity to tap.

It is mostly because I over-saved that I needed to borrow from myself. I could have held more cash instead, but I don't see how that would have put me ahead of having saved, received match, pretax treatment and growth, then pop that money out for a bit and pay myself interest back. And, yeah, maybe $75 admin fee. Originating the HELOC was way more expensive than that.

I'm not a rules of thumb gal, I operate in my own best interest which is very specific to my situation. imo, rules of thumb are for those uninspired to dig into the details to do their own research and run their own numbers. That's fine, but I will always be skeptical of what anyone thinks I "should" do and would generally smile and nod and go figure it out for myself.

In the grand scheme of things, popping a few thou out of my 401k a couple times over the course of a 60+ year investing horizon is not going to hamper anything. In fact, I am on track to retire before I thought I could. In great part because I have aggressively saved and ignored one-size-fits-all advice.

 

[Jason245]

It could come from savings or it could convert to income and, well I'm unemployed in that scenario so the tax would be at my marginal rate not at an excess rate.

It's very hard to get another job if you have declared bankruptcy.

And the 5% is left pocket / right pocket. I'm paying myself, not a bank.

In the current economy. . Bankruptcy isn't what it was black mark wise... but every one has to make the right choice for them... I value asset protection and being judgement proof far more than interest self paid.. for me that is the most valuable attribute of retirement accounts. . But that is only applicable to people who have assets

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[SMHarman]

In the current economy. . Bankruptcy isn't what it was black mark wise... but every one has to make the right choice for them... I value asset protection and being judgement proof far more than interest self paid.. for me that is the most valuable attribute of retirement accounts. . But that is only applicable to people who have assets

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Try that black Mark argument in financial services or health care management and see how far you get.

We have different values and needs. Asset / liability management does not mean declaring bankruptcy over a few thousand dollars. That's cashflow management.

 

[SMHarman]

One would need to own enough of their home to enable a HELOC and that was not always the case for me. I do now, but not paying enough interest on primary mortgage to automatically itemize and not interested in more debt to increase the level of interest.

People that rent would never have equity to tap.

It is mostly because I over-saved that I needed to borrow from myself. I could have held more cash instead, but I don't see how that would have put me ahead of having saved, received match, pretax treatment and growth, then pop that money out for a bit and pay myself interest back. And, yeah, maybe $75 admin fee. Originating the HELOC was way more expensive than that.

I'm not a rules of thumb gal, I operate in my own best interest which is very specific to my situation. imo, rules of thumb are for those uninspired to dig into the details to do their own research and run their own numbers. That's fine, but I will always be skeptical of what anyone thinks I "should" do and would generally smile and nod and go figure it out for myself.

In the grand scheme of things, popping a few thou out of my 401k a couple times over the course of a 60+ year investing horizon is not going to hamper anything. In fact, I am on track to retire before I thought I could. In great part because I have aggressively saved and ignored one-size-fits-all advice.

Exactly my thoughts on asset liability management.

Also it is in your (well my) best interest to over stuff the 401k so come college application for the kids time I am asset light. Another reason to put it in there and borrow if needed.

 

[geekette]

I value asset protection and being judgement proof far more than interest self paid.. for me that is the most valuable attribute of retirement accounts.

Interesting perspective. Do you get sued a lot? Not trying to be snarky, but judgement proof is not something I've ever cared about as it is not part of my life, nor is bankruptcy.

I value retirement accounts as very long standing tax shelters, making money on my money is my objective, and I take advantage of them for that reason. The clock is ticking on my ability to contribute (end of earned income) and then the clock ticks down to RMD.

 

[Jason245]

Interesting perspective. Do you get sued a lot? Not trying to be snarky, but judgement proof is not something I've ever cared about as it is not part of my life, nor is bankruptcy.

I value retirement accounts as very long standing tax shelters, making money on my money is my objective, and I take advantage of them for that reason. The clock is ticking on my ability to contribute (end of earned income) and then the clock ticks down to RMD.

In the usa.. you only need to be sued once for it to hurt. Have a bad car accident and kill someone. .. judgement greater than insurance... give a bad yelp review and get sued (I have seen people get sued for this)... have a medical emergency and not enough insurance. .. Maybe it is someone comming to visit and dieing in my pool. .

For me it isn't about getting sued it is about being prepared in case I am sued. .. legal fees alone could wipe me out depending on what it relates to..

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[SMHarman]

In the usa.. you only need to be sued once for it to hurt. Have a bad car accident and kill someone. .. judgement greater than insurance... give a bad yelp review and get sued (I have seen people get sued for this)... have a medical emergency and not enough insurance. .. Maybe it is someone comming to visit and dieing in my pool. .

For me it isn't about getting sued it is about being prepared in case I am sued. .. legal fees alone could wipe me out depending on what it relates to..

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So as geekette highlights get the money, all the money. Into those accounts and borrow if needed. Instead of having some in taxable accounts.

With that mindset why not put your house into a llc so only the llc could be sued when someone drowns in the pool.

 

[Jason245]

So as geekette highlights get the money, all the money. Into those accounts and borrow if needed. Instead of having some in taxable accounts.

With that mindset why not put your house into a llc so only the llc could be sued when someone drowns in the pool.

I live in Florida. . My home is protected asset already. .



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[geekette]

In the usa.. you only need to be sued once for it to hurt. Have a bad car accident and kill someone. .. judgement greater than insurance... give a bad yelp review and get sued (I have seen people get sued for this)... have a medical emergency and not enough insurance. .. Maybe it is someone comming to visit and dieing in my pool. .

For me it isn't about getting sued it is about being prepared in case I am sued. .. legal fees alone could wipe me out depending on what it relates to..

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Gotcha, good explanation. I do not share your concerns, however, although I agree this has become a sue for anything nation.

 

[VacationForever]

An umbrella policy gives you a good first line of defence in this sue anybody nation.

 

[Jason245]

An umbrella policy gives you a good first line of defence in this sue anybody nation.

Have one...

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[WinniWoman]

Exactly! These are extreme things compared to borrowing a few grand from myself to put a roof on the house. Bankruptcy?? I have saved aggressively, sometimes too much so, but it's my money which has been matched and grown exponentially over time. I've hardly ruined my future. I can also tell you that often the payback of loan on job loss goes to Dec 31. Not necessarily immediate. Borrowing more than one can repay is ill-advised, but few would borrow so much as to foul their cash flow.

Please feel free to pay interest to a bank, I'd rather pay yself to use my money.

I just use an emergency fund for that.

 

[WinniWoman]

I'm not sure why he isn't already talking to HR about the match. He should understand his options. Deciding it's too complicated to bother with is not necessarily in his best interest. If he can hardly save, I'm not sure why he wouldn't want every last dollop of free money, regardless of how sporadic.

Not sure what rules you're referring to in 401k, but how is he dodging fees in his Roth?

Note also that 401k has much higher annual contribution limit than IRAs. Not much of an issue for those just starting out, but one major difference that can have drastic compounding effects later in the investing continuum.

Most 401k's have management fees in addition to the fees in the underlying no-load and load mutual fund within the 401k, where as in a private Roth account (like with Vanguard or T Rowe Price) you only have the underlying small fees in a no load mutual fund (which hopefully was chosen) or a load fund.With 401k's you would have to take out a loan to get your money and so on. When older there are rules as to when you can withdraw in terms of age and so forth to avoid penalties. With a Roth you just withdraw the principle- not that you want to anyway.

Yes-401ks have higher contributions but when you don't have the extra money to invest it doesn't matter.We are talking about a yearly salary of under $30,000 per year here with my son. Heck- even my husband and I only do a Roth (max) and the 401k to the match. We maximize our Health Savings account and some savings and investing in regular savings accounts (home remodeling and emergencies) and I bonds for the future. Some money for travels and nothing left after that.

As for why my son hasn't gotten all the info. about the 401k match anyway- well- all I can say is he marches to the beat of a different drummer. I guess he figures he will deal with it when he can possibly save in it at some point in the future. I am hoping he will pick himself up and try to get a better paying job.

 

[3kids4me]

Exactly my thoughts on asset liability management.

Also it is in your (well my) best interest to over stuff the 401k so come college application for the kids time I am asset light. Another reason to put it in there and borrow if needed.

If the college takes the CSS Profile, they ask you for your balances in your 401k and IRAs, as well as how much you are currently contributing. So, I don't know how much these assets are actually "protected" from their calculations for financial aid. However, your second point about borrowing if necessary is a good one, depending on what kinds of rates are being offered on student loans at that time.