Welcome to the MacNN Forums.

sdilley14 · Mar 14, 2012, 10:14 AM

Long story short, I have a friend whose employer stopped the company's 401(k) program, and now she is forced to move the money out of her employer's 401k and start her own "solo" 401k or IRA account. Does anyone here have any experience in setting up this sort of thing? Suggestions on the best companies to use (Vangard, Fidelity, etc.)? She is relatively young and still has a lot of time to get this set up, but would like to get the ball rolling. Maybe there are other investment tools I am overlooking? She isn't interested in investing in stocks and managing her own portfolio or anything like that...just something simple that she can contribute to each month.

Thanks!

Big Mac · Mar 14, 2012, 10:26 AM

She can try out the different brokers with small personal accounts to get a taste of how their systems work. Read reviews on the retirement products the brokers offer. When it comes time to set the account up, make sure she goes over the paperwork carefully and consults professionals as necessary especially if anything is confusing or tricky. You don't want to make a mistake that could have serious tax/financial implications and find out about it after the fact when it could have been prevented. Be aware of the fact that even dedicated retirement departments of major brokerages sometimes make serious mistakes handling these accounts. Sorry for not having any more specific info.

Chongo · Mar 14, 2012, 11:36 AM

When I got laid off from Motorola (our plant was closed), I had the option of a roll over or leaving it in the existing account. Look at a Roth 401(k) as well.

SVass · Mar 14, 2012, 12:38 PM

Either Fidelity or Vanguard is acceptable and relatively safe. Tell your friend to avoid brokers as they tend to push costly, expensive products for which they get a commission. Tell her to call either of the two choices and they will send the paperwork. The money can be invested in no-load, low risk mutual funds which should be primarily stocks such as a S&P 500 index fund for anyone under 40 years of age.
sam

andi*pandi · Mar 14, 2012, 12:53 PM

I think I did converted my old 401k into an IRA when I was last between jobs, and it rolled over nicely into my current 401k. I don't recall which financial institution.

turtle777 · Mar 14, 2012, 01:24 PM

Originally Posted by Chongo

Look at a Roth 401(k) as well.

Or split it 50% Roth IRA, 50% regular IRA.

However, you need to have some money to pay the taxes when putting stuff into the Roth.

-t

sdilley14 · Mar 14, 2012, 06:56 PM

Originally Posted by SVass

Either Fidelity or Vanguard is acceptable and relatively safe. Tell your friend to avoid brokers as they tend to push costly, expensive products for which they get a commission. Tell her to call either of the two choices and they will send the paperwork. The money can be invested in no-load, low risk mutual funds which should be primarily stocks such as a S&P 500 index fund for anyone under 40 years of age.
sam

This is pretty much what I had in mind...something where the money would be invested in moderate risk mutual funds. I'll look into both Fidelity and Vangaurd IRA options.

Thanks!

Chongo · Mar 14, 2012, 09:12 PM

Originally Posted by turtle777

Or split it 50% Roth IRA, 50% regular IRA.

However, you need to have some money to pay the taxes when putting stuff into the Roth.

-t

Roth 401(k) contributions are after tax . My employer started offering a Roth 401(k) last year. I had been contributing 7% in the traditional (pretax) 401(k). It's now 5% Roth 401(k), 2% (+employer match)traditional 401(k) They both have a $17K contribution limit.

turtle777 · Mar 14, 2012, 10:19 PM

Originally Posted by Chongo

Roth 401(k) contributions are after tax .

Yes, but if he/she rolls over an existing 401k (pretax) into a Roth IRA, he/she needs to pay taxes.

Part of it might be withheld by the 401k provider (20%), the rest is due once income taxes are filled. If you have a big chunk of money that's rolled over, that might be a substantial amount.

-t

BLAZE_MkIV · Mar 14, 2012, 11:05 PM

At this stage a Roth conversion probably isn't really gonna help. She's be better opening the account with the regular IRA and then adding a Roth IRA to the account an contributing directly to that with future contributions depending on what any future employers offer. If she has an account with a major bank they may offer IRAs too. Makes it easy to set up automatic contributions.

Patrick · Mar 15, 2012, 01:42 AM

Originally Posted by SVass

low risk mutual funds which should be primarily stocks

Isn't that a bit of a contradiction there? Even well managed stock funds rise and fall with the market, so it's really about how much risk you can tolerate. The lowest risk funds aren't as heavily invested in stocks (funds meant for retirees who don't want to lose money), but a smaller potential loss also means a smaller potential gain. It all depends on your goals for investing the money.

chabig · Mar 15, 2012, 03:17 AM

I think low-risk simply means as compared to the market in general. Market up--fund up. Market down--fund down. That's low risk. And of course you're right that low risk means low reward.

ghporter · Mar 15, 2012, 06:51 AM

Find an independent advisor that doesn't work on commission and explore your options. You may be able to leave your money where it is, and just not have the employer contributions going into it. Take the time to find out what is available and what you can do with your money, plus any costs and fees associated with moving and running the destination fund. Know before you take action and you'll feel a lot better, even if you would have preferred just leaving things alone.

SVass · Mar 15, 2012, 11:31 AM

Originally Posted by ghporter

Find an independent advisor that doesn't work on commission and explore your options. You may be able to leave your money where it is, and just not have the employer contributions going into it. Take the time to find out what is available and what you can do with your money, plus any costs and fees associated with moving and running the destination fund. Know before you take action and you'll feel a lot better, even if you would have preferred just leaving things alone.

If one's rollover is more than some minimal amount (about $3,000) , the annual fee from both Fidelity and Vanguard is zero. The latter has lower fees for their funds and the former charges a minimal amount in index funds.

(Originally Posted by SVass View Post
low risk mutual funds which should be primarily stocks)
Isn't that a bit of a contradiction there? Even well managed stock funds rise and fall with the market, so it's really about how much risk you can tolerate. The lowest risk funds aren't as heavily invested in stocks (funds meant for retirees who don't want to lose money), but a smaller potential loss also means a smaller potential gain. It all depends on your goals for investing the money.

My comment about a stock fund is independent of risk tolerance as one should not invest at all for 20 years if one can not stand any risk. Just buy an index fund and ignore ups and downs. Retirees were not part of the original question. As one, I appreciate Fidelity's free online dashboard app that provides a daily update of mutual fund values and near real time stock prices. I also appreciate their distribution from my IRA account to my taxable account with my selected IRS payment as well as their free wiring of money from the latter account to my Credit Union account when requested online.
Note that Fidelity does allow the purchase of Vanguard and other mutual funds into their accounts for a small fee (about $100). Considering the slightly higher return from some Vanguard funds, that is not significant.

sam