So the bulk of my assets are in my old Daily News 401(k). I will just go ahead and tell you how much that is: $93,990.08 as of Friday. I didn’t that much money at the News, but was diligent about not doing the typical New York thing and spending all my money in rent. I lived with a roommate (Tallman), in Queens and in New Jersey for most of my time at the News, as well as the current small 1BR I lived in now.
Anyway, so this money is just sitting there in the Fidelity 401(k) account for now while I ponder my options. Like I said this is by far my biggest asset so this is an impt. decision and I am interested in your advice on it.
They are:
- Leaving it there. That is easy and doesn’t require any action on my part, but I don’t see any advantage. And I am annoyed I get charged $5/year for the company to evaluate what mutual funds should be part of this plan.
- Moving it into a Rollover IRA with a low-cost brokerage like Ameritrade or Banc of America. I’d have like 4,000 mutual funds to choose from and could invest directly in stocks as well.
- Moving it to my new employer’s 401(k) plan with Vanguard when I am eligible to contribute. Obv. I will not have as many choices as if I move it into a brokerage. But Vanguard’s options are pretty reputable and I’m not at all sure I could pick better ones from the whole universe of mutual funds.
The upside to this is that I could take out a loan from the 401(k) plan if I wanted to use the cash to buy an apartment. But maybe that is not a smart idea? My employer offers a 50% match on the first 6% of contributions, so I think if I took out a loan from my 401(k) I’d miss out on making contributions and getting that match.
- Moving the money to a Rollover IRA and then converting that into a Roth IRA. The downside to this is I’d have to pay well over $22,000 in taxes. I could pay for this by tapping my Roth IRA, but that kind of defeats the point. Or I could spead out the conversion over a number of years to ease the tax bite. But I’d be spending money I’d otherwise be putting into a 401(k) or a Roth IRA.
- Just taking the money in cash. Not something I’m really considering ’cause I’d have to pay a 10% penalty on top of the taxes.
- Some combination of options 2, 3 and 4…
So those are pretty much the options as I see ’em. I’m 34, ideally I’d like to be able to figure out how to eventually tap into this money to buy a home… but maybe that doesn’t make sense?
Right now I’m leaning toward the last option, but I’m confused…
not such an expert, but i have read a lot about this stuff…
i’d roll it into an IRA where you can control it. no need to put it into your new employer’s 401(k) – you can contribute there in the future and get matched. as for converting to roth, this has been discussed before. i personally like roth, and if you can afford to convert, you probably should. it doesn’t have to be all at once. if in the future you go above the threshold for contributing to a roth, you also won’t be able to convert it at that time. (I’m not 100% sure of that.) so you may have to keep that in mind, depending on how good this new job is of course!
Isaac’s economics teacher would say to put the money into a reputable bank in the short term. He is predicting stock market losses over the next 6 – 12 months……
I have no idea what you should do but wanted to say congrats for saving so much! Mind if I ask how much you made at the NYDN?
$57k when I started in Oct. 2000, $62.5k when I left last November. Actually $29,072.88 of the 401(k) was rollover from my previous job as a reporter for the Union Leader in N.H., tho.
And believe you me, he didn’t spend it on clothes — or aftershave!
My advice would be an IRA at Vanguard. My own consists of index funds for large-cap value stock, mid-cap stock, small-cap stock, emerging markets, real estate (REITs) and developed (international) markets. Fees make a huge difference over the long haul, Vanguard’s index funds are as cheap as they come. Don’t listen to anyone who tells you what the market is about to do, don’t look for a hot manager and don’t analyze recent returns. Make sure you allocate among the funds in such a way that you have a well-rounded asset allocation that matches your risk appetite. The book “The Intelligent Asset Allocator” by William Bernstein is a great guide, short and not too technical. Don’t go to a broker or “financial planner” as they tend to have conflicts of interest and any educated person can handle this. Vanguard.com is an excellent educational resource. I think instead of a plan with lots and lots of options, what you need is a plan with a few good options. I have also had a great experience with Vanguard’s website and phone service. From what I hear, Fidelity also has low fees and good service. Definitely set up an IRA as it gives you the most control and Roth if you can take the tax hit. Vanguard.com has a calculator to estimate the Roth conversion cost.
It is a big amount dear, Really great that you saved that much.