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New job, what to do with 401k?

Discussion in 'Off-Topic' started by andrew1220, Feb 9, 2019.

  1. Varmint

    Varmint NES Member

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    Interesting, since I haven't converted my 401k yet, didn't know that was an option. I think our income is much higher than will be in retirement though, so can't do it right now, maybe if we lose a job or something.
     

  2. andrew1220

    andrew1220 NES Member

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    I’ll have to login and see what I can find out. All I’ve ever done when I log in is to look at an occasional statement and check the balance lol.
     
  3. andrew1220

    andrew1220 NES Member

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    Thanks. My dad has a bunch of stocks. Might have to pick his brain...
     
  4. andrew1220

    andrew1220 NES Member

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    Yeah my 65 year old dad says the same thing. Along with my grandparents who are 87 and 88 yo. Except they say before you know it you’ll be in your 80s wondering where your life went[thinking]

    Got a 30 year mortgage which should be paid off when I’m 55 - hopefully sooner...
     
  5. buckfarack

    buckfarack NES Member

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    I’d stay away from stocks and stick to funds, perhaps an index fund. If something comes across your sphere that you just KNOW in your gut will be the next greatest thing, a paradigm shift, then think about dropping $10k or $20k on that stock. Don’t look for the needle in the haystack, buy the haystack. I’ll bet your dad tells you the same thing.
     
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  6. buckfarack

    buckfarack NES Member

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    In a couple of years look into refinancing down to a 15 or 20 year mortgage. It’s amazing how little the mortgage payment goes up and how quickly the mortgage balance gets paid down when you do that. I remember years back having a $1,300/mo 30 year mortgage and when I knocked it down to 15 years it went to something like $1,600 or $1,700.
     
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  7. Rob Boudrie

    Rob Boudrie NES Member

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    If the rates are similar, you can get a 30 year note, pay it off at the 15 year rate, and have flexibility if your financial life turns retrograde.
     
  8. andrew1220

    andrew1220 NES Member

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    This is what my wife and I want to do. But she’s got school loans and other debt while I have none. So we're waiting until we are more situated financially. Which should be by the end of the year or early next year.
     
  9. andrew1220

    andrew1220 NES Member

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    Duly noted. I want to go with something that’s easy and doesn’t require me to track the market like a mad man. I’d like to set it and forget it - for a little while anyway. [laugh]
    Seems like the IRA should be fairly painless.
     
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  10. Varmint

    Varmint NES Member

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    While I think funds are smarter investments for him, buying a couple individual stocks will get him to learn more about investing than just buying index funds, and in this economy, investing is one of the few ways for the working stiff to survive retirement.

    Win or lose doesn’t matter at his age, it’s whether you learn from your mistakes and successes.
     
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  11. JJ4

    JJ4 NES Member

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    Parroting the roll over to IRA.

    A few other thoughts though:
    • I like Merrill Edge because the balance in an IRA qualifies as assets toward Bank of America's Preferred Rewards programs. Keep $100k+ combined balances and credit card bonuses increase 75%. This gives you cards that earn 5.25% on gas and some other chooseable categories, 3.5% at grocery/BJs/restaurants, and 2.625 everywhere else. Keeping $25k gets you 25% bonus, and $50k gets you 50% bonus.
    • The default is to roll into a traditional IRA. But you can convert all or partial balances into a Roth IRA during any year. This essentially lets you pay the taxes on the money now and then it becomes lifetime earnings tax free. A good year to do this would be a lower-income year such as years that you or a spouse are out of work for awhile, go back to school, or have a baby and take time off.
    • Vanguard and Fidelity are my other top choices if it weren't for the Bank of America Preferred Rewards program.
     
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  12. buckfarack

    buckfarack NES Member

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    That too. Although given the small difference between the two payments it’s unlikely IMO that if he can’t make the 15 year payment that the 30 year will make that much difference. If he’s struggling to make the 15 year payment he’ll probably be struggling to make the 30. But I thought along those lines too before I made the switch, which I agonized over.
     
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  13. buckfarack

    buckfarack NES Member

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    Agreed, but if he’s in set it and forget it mode as he says, there’s little point in stocks at this time. But keep the option open. I’d save the stocks for the paradigm shift stuff, you’re not going to outperform the indexes in the long run trying to pick stocks otherwise, imo.
     
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  14. andrew1220

    andrew1220 NES Member

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    Great advice and I’ll keep that tip in mind regarding converting to a Roth during a low income year. We will be having a kid in the next few years so I’ll have to make sure I remember this down the road.

    And that BOA rewards program seems like a great option. I get rewards on my BOA credit card but that’s much different [laugh]
     
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  15. boiler_eng

    boiler_eng NES Member

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    I fail to see (so feel free to educate me) what the value added is to refinance to the same rate but a shorter term. All you are buying is forcing yourself contractually to pay a higher payment per month and unless you have a 0 cost closing then you are paying to be forced to.

    If you can get a drop in rate, then its great upside because you save interest both close and long term. My parents went from a 30 refinance to a 20 to getting another 15 for renovations, and then ended up paying it all off about 28 years from the start of their original mortgage. If you won't stick to paying down faster, then yes it can have a net benefit financially, however switching your mortgage term doesn't buy you anything financially it just locks you into a payment schedule which you could voluntarily do anyway.
     
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  16. n1bsbri

    n1bsbri NES Member

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    I agree with this, in most cases, mortgages have no pre-payment penalty. If you are not getting a rate reduction, just keep the 30 year mortgage, but make payments equal to the shorter term. It all works out the same, without the need for a new closing. And you get the ability to revert back to the lower payment if needed in the future.
     
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  17. buckfarack

    buckfarack NES Member

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    15 and 20 year rates are lower than 30 year rates so you do save on the rate and should cover the closing cost. If you can afford to refinance down to 15 years you should be in the driver's seat when it comes to getting a good deal. You're forced to pay either way, you're just changing the terms to your benefit. Yes, you can pay more on your mortgage and keep the lower payment obligation if you want, just make sure they know how to apply the extra payment. I prefer the lower rate and the accelerated amortization without the headache. If you're that worried about committing to the slightly higher payment, then maybe it's not the right choice for you. For me, a few hundred extra a month at a lower rate and faster amortization was worth it, particularly as my income grew. If something happened where that extra few hundred bucks a month was going to put me under, my problems would have been much bigger than if I had a 15 or 30 year mortgage. But hey, I had the same thought process before I did it, but in the end I'm happy I did. There is such a thing as playing things too safe.
     
    Last edited: Feb 11, 2019
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  18. boiler_eng

    boiler_eng NES Member

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    I was basing on that with my current 30 year rate, and creeping up of the interest rates over the past few years a 20 year rate is higher than my 30 now and a 15 is barely lower.

    My parents when they refinanced to a 20 went from a 12% to an 8% or something like that.

    So at the end of the day everyone has to do the math against their own loan amounts and income level.

    IF you get a lower interest rate, then its all open for debate. You are leaving something on the table financially with every decision at that point. (Saved interest paid vs. Lower contractual payment)

    IF you have essentially the same rate (because interest rates have risen) then it would be better to pay like you have a 15 yr mortgage plus plow in closing costs.
     
  19. Junior314

    Junior314 NES Member

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    Theory behind 15 year vs. 30 is it forces you to pay it down early. A lot of people say they will treat a 30 like a 15 until they see something they like at the LGS and suddenly the extra in the monthly mortgage payment comes home with you in a box.
     
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  20. Mark from MA

    Mark from MA NES Member

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    This, I started with a 30 at 7% after a few years, then to a 20 at 5%, then to a 10 at 2.8 percent and took some additional money for things at the 10 year loan. Yes, 2.8 percent is cheap money, and improved the value of my home as well.

    I've got a few years left, and more than enough in the bank to pay it off, but would rather keep the money in the bank at.....yes...2.6 percent, now that the interest rates are back up. So..... Essentially a wash, so I'm not paying interest, but still have money liquid if i need it.
     
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  21. Mark from MA

    Mark from MA NES Member

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    This is a consideration...but the 15 year note will always be better interest rate than the 30. Your saving money.

    In my case it was a no brainer, the interest rates kept falling. However, since I was refinancing, on top of the rate cut, I went forwards, which meant the payment was more.....which was OK. A lot of people take the rate cut and cash out, or go backwards. Not good really, unless you find a nice investment for the money.

    Now its really OK. I consider it done anytime I want. But since Im not technically paying interest....money is better in the bank than tied up in the real estate.
     
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  22. Pyromancer

    Pyromancer

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    Merrill Edge has limited free trades @ 50k combined BOA/ME accounts
     
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  23. Pyromancer

    Pyromancer

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    Hi, I'm in the same demographic. 30s, with State, 10+ years in.
    Default Smart plan is pretax (also a Roth 457 available), seems to work ok but limited mutual funds are available unless you open a brokerage window
    Can you roll over your 401k into the smart plan?
    Keep in mind you're probably putting about 10% of your income into the State Pension plan.
    Good luck, there's a bunch of a**h***s at State!

    Interesting points from the smart plan website:
    The Plan is established under the Internal Revenue Code Section 457, which allows eligible employees to save and invest before-tax or Roth 457 contributions through salary deferrals.

    The Massachusetts Deferred Compensation SMART Plan is a voluntary retirement savings program. Retiring employees may defer accumulated sick pay, vacation pay and back pay into their SMART Plan account.

    Employees separating from service may defer accumulated vacation and/or back pay.
     
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  24. Talon3

    Talon3 NES Member

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    That can be rolled over into a 457B for state employees, without making regular payroll deductions at the moment. The 457B is limited it cannot be borrowed from or used as collateral as a traditional 401k. If upon leaving state service, it could be rolled back into a 401k or left in the 457B. It is a pretax deduction, and upon retirement disbursements are state tax free in Ma and at present 14 other states.
     
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  25. andrew1220

    andrew1220 NES Member

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    I believe I can roll my 401k into the smart plan if I want to. But it seems I’d get a better return going with the IRA?

    11% I believe is what I’m putting in. I’m sure there are plenty of ass***** but the people im with seem really nice so far. Today was my first day....

    Wow 10 years in already? So you’ll be eligible to retire at 55. I think 60 is the earliest for me since I joined after 2012?
     
  26. andrew1220

    andrew1220 NES Member

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    Thanks. Sounds like you work for the state also?
     
  27. andrew1220

    andrew1220 NES Member

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    Yep this has def been my problem lol.
     
  28. Pyromancer

    Pyromancer

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    Check the smart plan website. I think there's a Roth 457 option.
    Either you pay taxes now (Roth) or you pay taxes later (401, 457). Your roll homie.
    You might want to consult your tax person, but if you transfer your 401k into a Roth type account, you may have to pay back owed taxes on income and gains? Someone help me out, I'm just a dumb State Employee!
     
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  29. andrew1220

    andrew1220 NES Member

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    I found out that I can roll my traditional 401k into the 457 SMART Plan. My boss is really pushing me and fellow young new hires to enroll in the 457 SMART Plan and not to push it off until later.

    Seems like this might be the way to go. I just need to figure out traditional 457 or Roth 457 and as you said, if there are any owed taxes etc.
     
  30. Pyromancer

    Pyromancer

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    Compounding interest is especially powerful when you're young-Einstein was a big fan of it, and he was way smarter than any NESer.
    If you start sooner rather than later, you'll likely reap a greater reward than any complicated tax/backdoor/timing strategy.
    Check out investopedia.com . Read a few articles. Good luck!
     
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