401K - Advice from the Experts Please

[asphaltgambler]

Bear with my financial simple-tom here. My employer is offering 401K, but there are only 2-3 funds and matching is only 1%. Plus 100% vesting takes 5 years of continuous employment. I have been here 1 year last week. I plan to leave as soon as possible. I do not currently have an existing IRA

Can I pick my own IRA outside of the company and contribute ?? If so can someone here point me towards a good / safe fund in these troubled times?

[Hugh R]

You can do a personal IRA outside of your employer. Look at the Schwab, "No Load, No Fee" funds. The best strategy is to invest when you're young and put money in every year.

[cstreit]

That's a pretty poor deal if you ask me. 1%? 5 years vesting on that 1%.

I don't know your industry but the norm from where I work is 25%, 4 years, 30+ funds.

[masraum]

IRAs are employer independent. There are two types, regular (which is tax deferred like a 401k) and Roth (not tax deferred). If you make too much money, you can't contribute to a regular. I think it's something like $100k or something like that. If so, you can only do a Roth.

401k are employer dependent, and it doesn't sound like you'd lose much by not electing to participate.

Ill let others address the "which fund" question.

[Bill Verburg]

Originally Posted by asphaltgambler

....

Can I pick my own IRA outside of the company and contribute ?? If so can someone here point me towards a good / safe fund in these troubled times?

Yes!

low cost is extremely important as is diversification and asset allocation

for low cost and diversification a no load Index fund is going to be at the top of the list
Vanguard S&P 500 Index fund is a good start, add a total bond market fund and a global stock fund as assets accumulate.


an alternate strategy is a low cost balanced fund, this adds instant asset allocation control to the mix, though at the cost of slightly higher fees

good choices
Dodge & Cox Balanced
FPA Crescent
Vanguaed Wellington
Oakmark Equity & Income

[asphaltgambler]

great advice all - will digest and research

[widebody911]

Can you convert a "regular" IRA to a Roth?

[Hugh R]

Yes, last year and this year, but you have to pay the income taxes as if you withdrew the money.

[Z-man]

Are you sure about the company match of 1%? That seems WAY WAY low. My company matches 75 cents on the dollar, which is unheard of these days.

Still, if you invest $1000.00, the company is going to contribute $100. And then the $1100 gets invested in the funds you choose. Not a big incentive, but it is 'free' money.

The vesting tenue is about right. That's mostly for pension calculation anyway...

Even if you are only planning on staying short-term with the company, if the funds you can invest in match what you seek in long-term investments, I would still do a 401k. Most companies will allow you to roll-over your 401k from your old company into their plan. And the $$ you put into a 401k helps with your income tax return.

Long term investments like 401k's are often not looked upon as important, especially with folsk who are not close to retirement. If you don't get involved in a 401k soon enough, it will be too late.

Just my $0.42,
-Z-man.

[Hugh R]

$10

[widebody911]

Could I just open a new Roth to avoid the taxes?

[krystar]

Originally Posted by widebody911

Can you convert a "regular" IRA to a Roth?

u can....u just gotta pay the taxes. is it worth it...depends on situation

[krystar]

Originally Posted by widebody911

Could I just open a new Roth to avoid the taxes?

roth ira is funded from post-tax moneys. you've already paid income tax it.

traditional ira is funded frmo pre-tax moneys. paycheck deductions

[asphaltgambler]

I am still in (unfortunately) the car business - typical b/s. "oh yeah - we have 401K"

[MattKellett]

Also, don't forget that you can have a "roll over" IRA too, which is a traditional IRA that you have sent your 401k funds into. This can be a good option if you don't want to move your 401k from employer to employer.

[Z-man]

Originally Posted by Hugh R

$10

Opps - yeah - $10. Which is why I suspect that the company match has got to be more than 1%.

Originally Posted by asphaltgambler

I am still in (unfortunately) the car business - typical b/s. "oh yeah - we have 401K"

So am I -- I suppose it all depends on the car maker...

-Z

[Tidybuoy]

Just my $0.02 cents worth:

1) regardless of whether your going to leave the company or not, I would still join the 401k (unless you have a certain leave date that is near). I say this because lots of people plan to leave their job and then don't (at least not right a way). I can remember a company I workd for for 21 years...in th beginning, I frequently stated I would be leaving soon.

2) the 5 year vesting period is lousy - but it is only on the 1% match. Your contribution is always yours.

3) get a Roth IRA anyway. It's a good way to start saving, even if you only put in a little.

4) put in as much as you can in the 401k. If your young and feel you can part with much, start with 2% and then increase that % every time you get a raise. This way, you won't notice the hit. The key is to get started (no matter what your circumstances are).

[74-911]

Originally Posted by Hugh R

Yes, last year and this year, but you have to pay the income taxes as if you withdrew the money.

You were able to convert a regular IRA to a Roth in past years but there were a lot of limits on income and other rules which really limited who qualified to do a rollover conversion. Last year (2010) and this year they just eliminated the income limits and other rules which allows anyone to do a Roth conversion. As Hugh said, you gotta pay the taxes on the rollover amount as regular income (Although this year they allowed you to spread the taxes over two tax years).

I have no idea what the Roth conversion rules will be in 2012 ??

As someone else stated, whether or not a Roth conversion is good depends on your individual circumstances - like most things in life it depends.. You really need to do some research on the pros and cons as there are definitely some gotchas in the rules.

[masraum]

So, is it .01 on the dollar or is it that you can put in a certain amount (like 5%) and they will then put in 1% essentially matching 20% of your contribution?

I've been places that phrased it that way. If you do only get one cent on the dollar, that's pretty sad.

[djmcmath]

401K -- funds matching or not -- is pre-tax. I don't know what the rest of your financial situation is, but for some people it makes a lot of sense to put as much as possible in to the tax shelter.

Note that IRA money and 401K money can co-exist in your retirement portfolio: you can put a bunch of money into an IRA and a bunch of money into a 401K.

...So the fact that your employer doesn't match funds is a raw deal, sure, but I'd still put as much as I could afford into both.

My employer has a great plan, BTW: they match 5% of my salary, whether I contribute or not, and there's no vesting. So if I contribute $0.00, they still put in money every month, and it's my money from day 1. Great benefit, but horribly uncommon.

Dan