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So I'm fairly ignorant when it comes to what I should do with my money. I've been reading threads in this subforum for the last few months and reading about how some people are just godawful with their money and debts, but then look at my situation and am like "Well poo poo, I don't know what I'm doing either!" And I've been thinking that maybe I should get a financial adviser. I don't overspend on things and save roughly half of my monthly income after student loans/rent/what have you. I just switched companies, and have 7.5k in my 401k from my old company (they only matched 50% of 3%). I was there for a little less than two years. My new company matches 100% of 6% after the first year of employment, so I'm already at 6% 401k contributions. My question is this: what should I do with this 401k? I can roll it over to my new company, or I can do an IRA. I understand that if I roll it over to an IRA I can potentially withdraw without penalty to pay for a house down payment, but most of what I've read here indicates that's a terrible idea and to never touch IRA/401k investments. I also still have a few grand in a 401k from a different employer a few years back that I never did anything with and realize that I should do so now. I believe there's a limit of $5,000 per year contribution to a Roth IRA. So, I ask this question: Where does the money better benefit me? I don't have any other retirement accounts besides these 401k's, and I'm 27 years old, and realize that I should pay off my student loans quicker (I'm probably going to throw $25k at my loans instead of looking to buy a house, loans sitting at 6.5% and I just got a large signing bonus from my company.) Rollover to 401k? Rollover to Roth IRA? Spend half my savings on getting rid of student loan debt instead of considering purchasing a house? Help my ignorant rear end, internet! quick breakdown 48,500 student loan debt (Thanks, master's degree) at an average of 6.5% interest Paying about 1100 per month towards student loans 50,000 in savings 7,500 in old employer 401k 1,800 in even older employer 401k
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May 7, 2014 22:18
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| # ? Apr 19, 2024 05:10 |
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I would roll both 401k's to Vanguard. Decide if you want to pay taxes now or later, and either do a traditional or Roth IRA depending on that answer. Make sure you're contributing at least 15% of gross to your new 401k. Or better, do 401k to match, max Roth, and put the diff of 15% into your 401k too. I would reduce your savings to a lower amount until your student loans are paid off. Usually one would say 6-12mo of expenses for an emergency fund, but not when you're 50k in debt. Maybe 1-3mo, depending on your risk tolerance.
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May 7, 2014 22:49
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Where is your $50K right now? Unless you think you might be job searching again very soon I'd put a decent amount of it into your debt--it's hard to beat effectively a 6.5% ROI on whatever you put towards the debt. Not all of it, you want an emergency fund, of course, but even 25K seems like it would still be a 6 month emergency fund.
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May 8, 2014 05:21
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Usually rolling old 401ks into an IRA or nee 401k is a good idea. The only exception is if your old 401k has fantastically low fees (Vanguard ira fees are gold standard, but some 401ks get institutional rates that beat even Vanguard. The second thing to consider on top of fees is if managing multiple accounts is worth whatever benefit you might have by not rolling over. At the amount you have saved I really don't think that any difference in fees will justify the asspain of dealing with the extra account. Roll it over either to an IRA or your new 401k. Compare the fees and investment options in your new 401k to the funds Vanguard offers. If your 401k has the sweet institutional fees (.1% expense ratio and under) then roll into new 401k, otherwise (sadly most 401ks have lovely choices) use an IRA.
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May 8, 2014 05:58
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Well, the $50k was in a checking account. I just got a 15k signing bonus, so before that obviously that account was smaller. I was always willing and eager to throw $25k to my student loans when I could have a decent amount left over, just 'in case'. So I now have $25k sitting in that checking account (put the rest towards the loans and that felt good!), but I'm considering throwing another 10k to loans to get them even lower. If I lose my job (I doubt I will) then I have to pay back the bonus pro-rated based on how many months are left in my first year there. I just want to make sure that I don't do something stupid like spending too much or investing it somewhere I can't get it if I do somehow get let go. I am looking at Vanguard today. My two other accounts were John Hancock (7.5k) and New York Life. I'll check the rates and everything to see where I'm getting my best ROI. As I said, i'm ignorant with retirement, but at least I can stop myself from spending all of my money on useless stuff. Thanks for the replies!
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May 8, 2014 15:20
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If I were in your shoes, I'd probably put $40k towards the student loans and aggressively pay off the rest. You could be debt free in less than a year. You'll be saving yourself ~$40k in interest payments, assuming your payoff timeline is about 20 years.
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May 8, 2014 15:29
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Nocheez posted:If I were in your shoes, I'd probably put $40k towards the student loans and aggressively pay off the rest. You could be debt free in less than a year. Payoff timeline was initially 10 years, but I was paying double the payments for the last year and was expecting to be paid off in 4. But right now I'm planning on paying it off by the end of the year, got a few decent raises and that nice signing bonus that will definitely help me.
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May 8, 2014 16:16
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To Vex a Stranger posted:
Are you able to post your current holdings in the 2 401ks? Like.. ticker symbols? John Hancock at least has a horrible reputation for charging 1%+ for things Vanguard charges 0.05%.
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May 8, 2014 18:28
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I'd pay down as much of the student loan debt as you could stand with your cash savings, then budget to pocket about the same amount each month into a savings account to rebuild your down-payment for a home purchase. You should pay off your student loans before you buy a house.
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May 8, 2014 19:13
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I'll check the symbols when I get home. I'm at the bank cashing in some savings bonds I had, then putting that directly to student loans. Overall I'm probably going to put 37k towards them over yesterday and today. Saving a little bit in case I need to buy a car in the near future. Plan is to pay off the entirely by December. Boy hitting submit on paying 25k was painful, but it feels good now.
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May 8, 2014 20:10
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To Vex a Stranger posted:I'll check the symbols when I get home. You're young, you have a bright future and will make money in the future. If you pay yourself first (retirement and other savings) and live within a budget, you will have a good life with much less stress.
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May 8, 2014 20:28
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My John Hancock account seems to be taking a little over 1% and is being put into some lifecycle fund, I'm moving it over to Vanguard along with MyNewYorkLife one. I can't quite figure out what my new company is using as a company, according to all of the FAQs I read, it sounds like they are doing the investments themselves and the fee %'s are .60% for anything under 100k, .40% up to 500k and then .20% for everything higher than that. I'm glad I had the last few weeks 'off' to read through these threads and get some help from you guys. Otherwise I'd have been sinking money into holes for no reason other than "I like big numbers" or "I think I want a house".
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May 8, 2014 20:32
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The forum over at bogleheads will greatly help you decide on index funds if you are interested. They mostly focus, of course, on Vanguard funds. Huge help for anyone that needs it. http://www.bogleheads.org/ Edit: I will also add that my adjusted total expense ratio, being between 4 Vanguard funds is .26% or just above 1/4 of 1%. If you are paying any more than .60% for any fund, you seriously need to relook at alternatives. Anything above 1% and you are giving away the house. If the average return from the S&P 500 is 7.5% for the last century or so, why would you give up roughly 13% of compounded returns? Hope this helps. SpicyUnagi fucked around with this message at 22:15 on May 8, 2014 |
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May 8, 2014 22:11
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SpicyUnagi posted:Edit: I will also add that my adjusted total expense ratio, being between 4 Vanguard funds is .26% or just above 1/4 of 1%. If you are paying any more than .60% for any fund, you seriously need to relook at alternatives. Anything above 1% and you are giving away the house. If the average return from the S&P 500 is 7.5% for the last century or so, why would you give up roughly 13% of compounded returns?
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May 10, 2014 02:38
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Yeah, prepare to have your mind blown: http://401kfee.com/how-much-are-high-fees-costing-you/
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May 10, 2014 12:00
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If you're on a career path that will raise your income quickly, consider converting that rollover IRA to a Roth now, while you're still in a lower tax bracket.
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May 10, 2014 18:16
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| # ? Apr 19, 2024 05:10 |
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Thanks for all the info! A lot to digest and figure out my best path. I rolled over to a Vanguard account (or at least started the process) and hope that makes me more in the long run. I have also paid off 30k in loans, and depending on my next projects location, may throw another 5k at them to pay them off by october/November. As for career path to higher salary, I just barely hit the next bracket with this job change so I doubt very much that I will be hitting another in the next year or two.
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May 10, 2014 18:58
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