Can kids do both 401k and Roth IRA? I think with ShawD, I’ve told her to max out the 401k because there is an employer match. But can she do Roth also? With ShawSon, no 401k in his startup but his equity is worth quite a bit and with luck will at some point be a) worth a lot more; and b) liquid.
The only thing wrong with moving to an IRA, @CountingDown, is that qualified retirement plans are protected from lawsuits whereas IRAs are, I believe, considered assets in bankruptcy and, if I recall correctly, from which a plaintiff can recover from if they win. Admittedly, probably not that important, but worth knowing.
@Hoggirl, I have known a few people who have retired and gone back a bit later because they were bored. I’m thinking of a couple of people who sold their companies in their fifties or so and retired and then unretired. But, I have other friends who have slowed down over time and are still on a couple of boards. One friend though was in the process of slowing down quite happily but was offered the presidency of a university and felt compelled to take it. Probably working harder than ever.
Our S has a 401k as a sole propietor for his part-time job plus 403 and IRAs for his full-time job. He’s managed to sock away a considerable amount over the years in these tax advantaged acvounts.
HR and quick online searches can tell you about annual limits for any situation.
Re: lawsuits. Just like spendthrift trusts, retirement plans are judgment-proof. But distributions from the plans are income, and they are fair game. Of course, if you need real legal or financial advice, consult a lawyer or an accountant, not a message board!
IRAs being protected in bankruptcy is a fairly recent (2005) development (@notrichenough’s info is correct). For most of my career in 401k administration, that was not the case. My former employer ran a group trust with various mutual funds and charged a 1%/year fee for trust operations. Boy, did he hate the new fee disclosure regulations (and reduced the trust fee as a result). That plus the fund expenses added up to a chunk of $$. I know. I had money in my 401k there as an EE. Some employers even charged participants for the 401k valuation and reporting fees (even though they are tax-deductible to the ER).
“Fees in 401k plans eat up the assets. Roll to low-cost mutual funds.”
With companies like Fidelity, that isn’t true. No IRA fees and you can invest in zero fee index funds.
"Can kids do both 401k and Roth IRA? I think with ShawD, I’ve told her to max out the 401k because there is an employer match. But can she do Roth also? "
I don’t see why not. My kid has a 403b and can put the money in either pretax or post-tax (like Roth) and is still eligible to fund a Roth separately.
@doschicos, 401k participants are generally limited to the funds the employers offer. Therefore, my feeling is that when you leave the employer, roll the money to an IRA. Index funds are great for some people; others, such as 20-somethings with risk tolerance and time on their side, may go for something riskier. My point is that one should get out of a 401k with expensive, somewhat invisible fees.
That’s not typical, nre, but it’s certainly a fair and clear disclosure. I’ve typically seen fees disclosed as a percentage of assets, with the fund fees more prominently displayed than the group trust fee (which is buried in the small print).
My 403 from deferred comp that I started over 30 years ago clearly discloses fees. I can’t recall offhand what they are but they didn’t seem unreasonably high. You should be able to get the fees from wherever the funds are being held.
In my experience, there are various types of fees.
Some are fund expense fees, of the ilk which Vanguard and Fidelity tout in their advertising.
There are fees for a third party administrator to produce quarterly reports, statements, process transactions, deal with participants, etc. Some employers eat those fees for the actual pension administration and tax filings; others actually charge the participants for those expenses. Folks using our group trust got significantly reduced administrative fees; plans who had outside funds paid a higher rate. Some plans will charge participants for taking out loans and distributions.
My employer charges a flat percentage of assets off the top as an annual trust fee, which goes to running the group trust (salaries, fees, mandated annual audit, fees to the bank for issuing checks, 1099-Rs and processing trade orders, etc.). The CFP who advised the group trust on which mutual funds to include was paid with a portion of the annual trust fee. Current regs have specific provisions about how funds are selected and the various risk tolerances they must cover.
My employer got commission/rebate checks from some mutual funds as compensation. This is included as part of the fund expense.
Yes, the company can opt to pay the fees themselves. When I setup our company plan — originally with Fido, but moved to Vanguard 5 years later – we told all the employees the company would pay the Admin fees, so 100% of their dollars would be working for them.
Quite frankly, the annual fees were only a few thousand. A drop in the bucket in comparison to medical.
That’s the beauty with a Fido or Vanguard, they each offer 2 dozen+ funds in their standard package. Easily covers any risk to the employer and no need to pay a CFP who is sucking at the trough.
The same fees can be viewed as either pittance or deterrent to investing. $200 a year might not look like a whole much when your balance is in a six-digit range, but for someone who is just beginning to invest a few hundred a month, those $50 a quarter look like they are eating into their hard earned principal. Of course, the financial impact is the same, but the appearance of it can be different.
The fees are divided into “plan administration fees” and “advisor” fees. They have increased as the balance in my account has increased. There’s nothing in the plan docs that explains how they are calculated, that I can find, but as near as I can figure out, they are somewhere between 0.3%-0.4% per year of the assets in my account.
Not just cheap, but probably unethical. I worked at a company once (for a brief time) whose 401k had very limited fund options with extortionate expense ratios. There were also admin fees. I suggested, politely, that perhaps they could consider changing providers. My boss mentioned to me that it wouldn’t go over well with HR, since the provider was providing non-cash benefits (golf, meals, trips, etc.) to the persons responsible for picking the provider.
