Please help me in 401K

[cancerian_here]

Hi, I'm a 33 years old male just starting with retirement savings. I want to start my 401K plan and I need some advise. I get paid twice a month $4000 before taxes and my expenses are around 2500 per month, no other savings. My company matches 30% up to 3000. So I am planning to contribute $10K p.a. to get company's full $3000. I'm not sure how to allocate my 401k funds in investing options given by my company. Here are the investment funds options:

Maxim Lifetime 2015 Portfolio II T1
Maxim Lifetime 2025 Portfolio II T1
Maxim Lifetime 2035 Portfolio II T1
Maxim Lifetime 2045 Portfolio II T1
Maxim Lifetime 2055 Portfolio II T1
American Funds Europacific Growth - R3
American Funds New Perspective - R3
Janus Overseas Fund S
Lazard Emerging Markets Open
RidgeWorth International Equity Index I
BlackRock Energy & Resources Investor A
Highmark NYSE ArcaTech 100 Index A
Oppenheimer Gold & Special Minerals A
Virtus Real Estate Securities A
Maxim Index 600
Maxim Loomis Sayles Small-Cap Value
RS Partners A
Goldman Sachs Mid Cap Value Fund A
American Funds Fundamental Inv R3
Invesco Van Kampen Comstock A
Invesco Van Kampen Growth & Income A
MainStay Large Cap Growth R2
Maxim S & P 500 Index
MFS Value Fund A
Sentinal Common Stock A
Maxim Loomis Sayles Bond Portfolio
PIMCO Total Return Admin
Key Guaranteed Portfolio Fund.

any help would be greatly appreciated. Also please guide me on how to gain some knowledge in investing and managing my funds going forward.

Thanks,
San.

[jpg7n16]

Well given that you are new to investing, your best option is likely to go 100% into the target date 2045 fund while you learn about investing.

The main things you wanna learn about are how to allocate among stocks/bonds/cash to find the right mix for your timeframe and risk tolerance. All stocks aren't created equal. There are large cap, mid cap, small cap, international. Learn about asset classes and their risk levels. That's a good place to start.

How comfortable are you with risk?
What's prompting you to learn about investing now? Why this year, not last?

----------------------------------------

On a more important note, it probably comes as no surprise that you're a bit late to the party You're not too late though. By now, you should have about half to two-thirds your salary saved up for retirement.

You should strive over time to save between 15-20% of your salary each year towards retirement (before any company match).

Was it $4,000 total for the month in two $2k paychecks? Or were you saying $4k twice a month?

If its just $4k/month, then putting away the full $10k will certainly be strong progress towards retirement.


What questions do you have about saving/investing?

[kv968]

Welcome San and congrats on getting started on saving for retirement. Better late than never and you're not all that late.

I agree with jpg, in that since I take it you don't know much about investing at this time, your best choice for now, and possibly forever, is one of the Lifetime Funds.

There's a lot you can learn about investing but let me just point out one thing to you right from the start that pertains to your 401k. What I'd like to make you aware of is the funds with an "A" at the end of them. That usually designates that they are "Class A" shares of that fund. Which means they are more than likely what is called a "load fund". What that means is that they charge a commission (usually 4-5.75%) everytime you put money in them.

For example, the Blackrock Energy and Resources Fund has a front-end load of 5.25%. So if you were to invest $1000 with that fund actually only $947.50 would go into it. The other $52.50 would go to the company in fees. The other funds without the "A" probably aren't load funds and won't charge you an upfront fee. They'll have ongoing fees known as expense ratios but all funds have them. You just want to stay away from the ones with a "front-end load".

[cancerian_here]

Well given that you are new to investing, your best option is likely to go 100% into the target date 2045 fund while you learn about investing.

The main things you wanna learn about are how to allocate among stocks/bonds/cash to find the right mix for your timeframe and risk tolerance. All stocks aren't created equal. There are large cap, mid cap, small cap, international. Learn about asset classes and their risk levels. That's a good place to start.

How comfortable are you with risk?
What's prompting you to learn about investing now? Why this year, not last?

----------------------------------------

On a more important note, it probably comes as no surprise that you're a bit late to the party You're not too late though. By now, you should have about half to two-thirds your salary saved up for retirement.

You should strive over time to save between 15-20% of your salary each year towards retirement (before any company match).

Was it $4,000 total for the month in two $2k paychecks? Or were you saying $4k twice a month?

If its just $4k/month, then putting away the full $10k will certainly be strong progress towards retirement.


What questions do you have about saving/investing?

Thank you for the response, I get 4k twice a month before taxes.
I am a foreign national and got a full time placement recently, hence this delay in retirement plan. I am comfortable in taking moderate risk.

How often should I monitor my investment funds, should i be juggling around with the investment options, like removing money from one plan to another, so on...

I am a total newbie in this area, do you suggest I go with Managed service account, Advised Assets Group, LLC (AAG) is the firm my company recommends.

[cancerian_here]

Welcome San and congrats on getting started on saving for retirement. Better late than never and you're not all that late.

I agree with jpg, in that since I take it you don't know much about investing at this time, your best choice for now, and possibly forever, is one of the Lifetime Funds.

There's a lot you can learn about investing but let me just point out one thing to you right from the start that pertains to your 401k. What I'd like to make you aware of is the funds with an "A" at the end of them. That usually designates that they are "Class A" shares of that fund. Which means they are more than likely what is called a "load fund". What that means is that they charge a commission (usually 4-5.75%) everytime you put money in them.

For example, the Blackrock Energy and Resources Fund has a front-end load of 5.25%. So if you were to invest $1000 with that fund actually only $947.50 would go into it. The other $52.50 would go to the company in fees. The other funds without the "A" probably aren't load funds and won't charge you an upfront fee. They'll have ongoing fees known as expense ratios but all funds have them. You just want to stay away from the ones with a "front-end load".

thank you kv968, there's lot more for me to learn, hopefully I will get there sooner or later.

[jpg7n16]

Thank you for the response, I get 4k twice a month before taxes.
I am a foreign national and got a full time placement recently, hence this delay in retirement plan. I am comfortable in taking moderate risk.

then $10k isn't enough. You should be saving $15-19k. Probably just max the 401k ($17,500)

That will help you catch up on a few missed years.

How often should I monitor my investment funds, should i be juggling around with the investment options, like removing money from one plan to another, so on...

How much do you want to monitor the account?
Do you consider investing more of a chore? or a hobby you're looking to get into?
How comfortable are you with the responsibility of managing the account?
Do you even want to take the time to learn those things?

As far as moving between plans, what do you mean? Moving between another 401k? Or moving between different mutual funds?

I am a total newbie in this area, do you suggest I go with Managed service account, Advised Assets Group, LLC (AAG) is the firm my company recommends.

http://www.advisedassetsgroup.com/AAG/st/pdfs/AAG%20Form%20ADV%20Part%20II.pdf

Based on what I'm reading here, probably not. If I'm reading it correctly, Page 10 describes a max quarterly fee of 0.90%. That's 3.6%/year, well more than you should be paying for advice. Now maybe I just read that wrong, and that's the annual amount, but I don't think I did.

At 0.9%/year, this is a different discussion.

[kv968]

then $10k isn't enough. You should be saving $15-19k. Probably just max the 401k ($17,500)

That will help you catch up on a few missed years.

Jpg's right $10k isn't enough. Not counting your employer's match, that's about 10.4% of your gross salary. That normally wouldn't be too bad, but you're trying to play catch-up so you should be putting in more.

However I have to disagree with maxing out the 401k. I would suggest you max a Roth ($5k/yr.) after you contribute the $10k to the 401k to get the full match.

My reasoning being, most of the funds you have available in your 401k are on the high side as far as expenses go and you could get much cheaper with an outside fund family. Now that's not to say you should just do it because it'll be cheaper but it'll also give you some tax-free income when you retire.

You're probably paying a decent amount in taxes now but I think the added dimension of tax-free money available when you retire would still be beneficial. If you continue to contribute $10k to your 401k that will still keep your AGI within the 25% tax bracket.

Not sure if that all made sense to you but if you have any questions, feel free. I know jpg understands what I'm talking about and I'm sure he'll post if he feels differently.

[cancerian_here]

Hello jpg7, I appreciate you taking time to respond to my queries. Thank you very much.

How much do you want to monitor the account?

Maybe couple of times a year, not sure if its enough.

Do you consider investing more of a chore? or a hobby you're looking to get into?

I want to have control on my funds and how, when and where to invest and stuff like that.

How comfortable are you with the responsibility of managing the account?

I think i can handle it, I can pull in my wife (house maker) as well into this.

Do you even want to take the time to learn those things?

Definitely.

As far as moving between plans, what do you mean? Moving between another 401k? Or moving between different mutual funds?

I mean moving between different mutual funds.

Based on what I'm reading here, probably not. If I'm reading it correctly, Page 10 describes a max quarterly fee of 0.90%. That's 3.6%/year, well more than you should be paying for advice. Now maybe I just read that wrong, and that's the annual amount, but I don't think I did.

At 0.9%/year, this is a different discussion.

Based on the document I got from my company, the charges are based on Acc. balance:
< $100K -> 0.1375%(Quarterly) -> 0.55%(Annual)
Next 150K -> 0.1125%(Quarterly) -> 0.45%(Annual)
Next 150K -> 0.0875%(Quarterly) -> 0.35%(Annual)
> $400K -> 0.625%(Quarterly) -> 0.25%(Annual)

[cancerian_here]

Jpg's right $10k isn't enough. Not counting your employer's match, that's about 10.4% of your gross salary. That normally wouldn't be too bad, but you're trying to play catch-up so you should be putting in more.

However I have to disagree with maxing out the 401k. I would suggest you max a Roth ($5k/yr.) after you contribute the $10k to the 401k to get the full match.

My reasoning being, most of the funds you have available in your 401k are on the high side as far as expenses go and you could get much cheaper with an outside fund family. Now that's not to say you should just do it because it'll be cheaper but it'll also give you some tax-free income when you retire.

You're probably paying a decent amount in taxes now but I think the added dimension of tax-free money available when you retire would still be beneficial. If you continue to contribute $10k to your 401k that will still keep your AGI within the 25% tax bracket.

Not sure if that all made sense to you but if you have any questions, feel free. I know jpg understands what I'm talking about and I'm sure he'll post if he feels differently.

Thank you kv968, I will try to get some knowledge in Roth and will post if I have any questions. I appreciate you guys.

[kv968]

Based on the document I got from my company, the charges are based on Acc. balance:
< $100K -> 0.1375%(Quarterly) -> 0.55%(Annual)
Next 150K -> 0.1125%(Quarterly) -> 0.45%(Annual)
Next 150K -> 0.0875%(Quarterly) -> 0.35%(Annual)
> $400K -> 0.625%(Quarterly) -> 0.25%(Annual)

Those aren't bad rates but personally I'd say don't do it. First of all, you're paying higher than normal expenses on the funds as it is. Secondly, just going through the PDF jpg posted (assuming that's the program they'll be using for you) they're either going to:

1) Give you "guidance" which is just you using some of their tools to basically figure out your asset allocation. (You can do this on your own with many tools that are currently out there for free).

2) Give you "advice" where, using their "proprietary" computer program, they'll tell you what funds you should be invested in according to your personal situation. (That might be a little helpful, but again, nothing you can't do on your own.)

or

3) "Manage" your account and take control over what funds you invest in and when. (You said you want to do it yourself so this option would be out).

My biggest problem with this is they'd only have the funds available in your 401k to suggest what you should be investing in. Not counting the Lifetime Funds (which would probably mimic the allocation they would give you for the individual fund allocation anyway), you have 23 other funds available and out of them, 10 (44%) of them are load funds and you shouldn't invest in them even if they advised you to.

What I'm getting at is if feel you their service would be beneficial then sign up for it. However I think if you're willing to learn a bit about investing you can do just find without their guidance. For now I'd say put all your money in the appropriate Lifetime Fund and get on with your learning

[jpg7n16]

Hello jpg7, I appreciate you taking time to respond to my queries. Thank you very much.


Maybe couple of times a year, not sure if its enough.


I want to have control on my funds and how, when and where to invest and stuff like that.


I think i can handle it, I can pull in my wife (house maker) as well into this.


Definitely.


I mean moving between different mutual funds.

Based on what you said here, you're not looking for a managed account. And although its your money and you can withdraw it whenever you need, managed accounts have complete control over what to buy/sell - so that you don't have to do it yourself. (Also protects you from making bad decisions if you don't know what you're doing.) But you said you want control, have a desire to learn, and can spend the time to rebalance a few times a year. You also stated you're comfortable with the responsibility at current levels (might change if you build up a few 100k).

Those indicate someone who should manage their own account, but get minimal guidance along the way as they learn to do it themselves.

Ultimately once you're choosing your own funds, you'll want to rebalance a few times each year. Maybe 1-4. More than that's prob too short term focused.

Based on the document I got from my company, the charges are based on Acc. balance:
< $100K -> 0.1375%(Quarterly) -> 0.55%(Annual)
Next 150K -> 0.1125%(Quarterly) -> 0.45%(Annual)
Next 150K -> 0.0875%(Quarterly) -> 0.35%(Annual)
> $400K -> 0.625%(Quarterly) -> 0.25%(Annual)

Those are competitive charges, but it doesn't matter - cause the products not right for you and your concerns for the account.

I'd likely start you off in the target date account, while you learn more about asset allocation. Same thing kv suggests, so maybe we're on to something

Jpg's right $10k isn't enough. Not counting your employer's match, that's about 10.4% of your gross salary. That normally wouldn't be too bad, but you're trying to play catch-up so you should be putting in more.

However I have to disagree with maxing out the 401k. I would suggest you max a Roth ($5k/yr.) after you contribute the $10k to the 401k to get the full match.

...

I know jpg understands what I'm talking about and I'm sure he'll post if he feels differently.

For some reason, I was thinking OP was a single male. Oops! Either misread the original post, or that was just a bad assumption on my part.

Given that, OPs income would have been in the upper 25% maybe even 28% bracket, and thought the tax benefit and ease of one account was worth it.

But I was WRONG with OP married and no 2nd income, he could be in the low 25% maybe 15% bracket. And the Roth would make more sense just as you said.

[kv968]

For some reason, I was thinking OP was a single male. Oops! Either misread the original post, or that was just a bad assumption on my part.

Given that, OPs income would have been in the upper 25% maybe even 28% bracket, and thought the tax benefit and ease of one account was worth it.

But I was WRONG with OP married and no 2nd income, he could be in the low 25% maybe 15% bracket. And the Roth would make more sense just as you said.

Actually we were BOTH wrong since I thought OP was single too. Man, we gotta read these things better

Even with him being single I was still willing to go the Roth route. Since he's making $96k/yr, putting $10k in a 401k would knock his AGI to $86k. Even if he just uses the standard deduction, that would knock him below the 28% tax bracket of $85,650. Granted he'd still be in the high 25% but again, I would be willing to trade off that tax savings on the $5k for some tax-free money in retirement. Just my opinion.

However since he's married AND his wife doesn't seem to have an income, a Roth looks all the more attractive since that would put him squarely in the 25% bracket.

And cancerian, don't get worried. We DO read your posts. Some things may just elude us at times If we interpret anything the wrong way, please correct us.

[cancerian_here]

Actually we were BOTH wrong since I thought OP was single too. Man, we gotta read these things better

Even with him being single I was still willing to go the Roth route. Since he's making $96k/yr, putting $10k in a 401k would knock his AGI to $86k. Even if he just uses the standard deduction, that would knock him below the 28% tax bracket of $85,650. Granted he'd still be in the high 25% but again, I would be willing to trade off that tax savings on the $5k for some tax-free money in retirement. Just my opinion.

However since he's married AND his wife doesn't seem to have an income, a Roth looks all the more attractive since that would put him squarely in the 25% bracket.

And cancerian, don't get worried. We DO read your posts. Some things may just elude us at times If we interpret anything the wrong way, please correct us.

I can't thank you guys enough and I am sorry for not posting complete details earlier, I didn't even think these things matter. Now that you know I am married, I also have a 2yr old and another one due in july, would this make any difference in planning out the investments.

BTW I got my first paycheck and because I have not made any decision on 401k yet, I did not contribute any on this check. 4041.67 is gross pay, 3109.96 after taxes, so approx. i pay 23% taxes.

[kv968]

I can't thank you guys enough and I am sorry for not posting complete details earlier, I didn't even think these things matter. Now that you know I am married, I also have a 2yr old and another one due in july, would this make any difference in planning out the investments.

BTW I got my first paycheck and because I have not made any decision on 401k yet, I did not contribute any on this check. 4041.67 is gross pay, 3109.96 after taxes, so approx. i pay 23% taxes.

Being married and having kids would change things in that it brings up some other questions such as, do you have an emergency fund in place (although you should have one regardless of marital status and kids anyway)? Do you have life insurance for yourself? Will you be able to continue that amount of retirement savings when the other child is born? Etc...

As far as WHAT you invest in for your retirement, I'd say no those things don't really affect what your allocation should be. Although I'd urge you to discuss with your wife how you're planning on investing.

[jpg7n16]

I can't thank you guys enough and I am sorry for not posting complete details earlier, I didn't even think these things matter. Now that you know I am married, I also have a 2yr old and another one due in july, would this make any difference in planning out the investments.

Congrats on the upcoming child

BTW I got my first paycheck and because I have not made any decision on 401k yet, I did not contribute any on this check. 4041.67 is gross pay, 3109.96 after taxes, so approx. i pay 23% taxes.

Well, not exactly. That means you're withholding 23% for taxes. That doesn't mean that's what you're actually paying, or directly calculate to how much you'd save if you contributed to a 401k vs a Roth.

Do you get a refund each year? This is the difference between what you paid, and what you actually owed (meaning you paid too much). If this is more than a couple hundred, you should update your W-2.

IRS Withholding Calculator

I'd do your $10k to get your match, and start maxing Roth IRAs as you can (1 for you, 1 for the wife)

Being married and having kids would change things in that it brings up some other questions such as, do you have an emergency fund in place (although you should have one regardless of marital status and kids anyway)? Do you have life insurance for yourself? Will you be able to continue that amount of retirement savings when the other child is born? Etc...

As far as WHAT you invest in for your retirement, I'd say no those things don't really affect what your allocation should be. Although I'd urge you to discuss with your wife how you're planning on investing.

Agreed to (almost) all the above.

Slight exception being, having another child may make you rethink your risk tolerance, and/or if there's no EF in place, could indicate a need for a more conservative portfolio. Something to consider if you're managing your own account.