Question about our 401k options....

Discussion in 'UPS Discussions' started by pwjuggernaut, Jul 15, 2008.

  1. pwjuggernaut

    pwjuggernaut New Member

    Im a full time driver and would love to be able to transfer my money to a Roth IRA. I know all the steps involved but Im curious as to if anybody has actually done it before?

    401k--to--Rollover IRA
    Rollover IRA--to--Rollover Roth IRA (paying taxes in the meantime)

    Then your home?


  2. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    I am not 100% positive but I don't think you can touch your 401k money until you are 59 1/2. To do so before will cost you a 10% penalty and 20% toward taxes. Once you reach 59 1/2, you should then be able to do what you had talked about with no problem.
  3. drewed

    drewed Shankman

    I think he'll have to pay the taxes on it but not get penalized since hes rolling into another account and not using the money...
  4. The Mook

    The Mook New Member

    I cashed in to "buy" a new house. Got my check then............. the deal fell through. OOPS. Got the documents at Office Max to buy the property. Now I pay back my 401 k at a fast pace ( no penalty ) and socked money elsewhere. Just a thought. It is your money.
  5. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Buying a new home is one of the approved cases in which a loan is available. I borrowed heavily from my 401k when my kids were going to college. I have it all paid back and have been watching it dwindle during the past 6 months or so but continue to direct 25% to it so that when the economy does turn around I will be ahead of the game.
  6. dupa

    dupa On-Road Integrated Optimization and Navigation.

    upstate is correct, dont stop putting in your 401k. even though your losing money you are still gaining shares and faster as they go down
  7. mountaingoat

    mountaingoat New Member

    Yes - Dollar Cost Averaging is a wonderful thing. The pessimist looks at his portfolio and says, "I'm 16% down this year." The optimist says, "I'm getting my shares at a 16% discount right now!"

    As you move closer to retirement (or when you intend to start using the money), then you need to move into less volatile funds. I don't plan on moving heavier into bond funds until I'm about 5 years away from retirement, but that's me.
  8. JonFrum

    JonFrum Guest

    And the Realist says, "My several hundred thousand dollar nest egg is down 16%, but I'm buying several new shares at a 16% discount."
  9. WhatPCM

    WhatPCM Insubordinator

    This whole 401k business completely boggles my mind. I have been putting money into it since the day i was eligable. But whether im putting it into the right funds or not is beyond me. Im young and i want to get it right from the start so that i can retire when im old enough. I have thought about looking into getting help with it. Like an accountant? Am I getting to far into this? Any suggestions would be great. Thanks
  10. mountaingoat

    mountaingoat New Member

    You can talk to an accountant or better yet, a financial planner. If you're looking for some advice regarding investment here ya go...

    1. Determine when you need to cash your money out. The length of time between the day that you need to cash out and today is called your time horizon. If that time is 1 year from now (and it doesn't sound like it based on your post), you should be into more conservative funds (i.e. less risk, but less return). If your time horizon is 5 years or more, you should be into a long-term strategy (i.e. more risk, more return).
    2. Based on your time horizon, if it's short-term, you want to be more heavily invested in bond funds (say, 75% bonds, 25% equities). If it's a long-term time horizon, you need to be more aggressive (90-100% equities, 10% or less bonds).
    3. From an equities standpoint, it doesn't mean that you need to invest in individual stocks. I'm a firm believer in index funds. But make sure that you diversify among those that you are given. Say, 25% each in a large cap (S&P500 index), International (EAFE index), Small cap (Russell 2000), and midcap (S&P 400).
    4. Make sure that you rebalance at least once a year. That way, you force yourself to take the profit that you earned on your better-performing funds, and purchase shares in funds that have not done as well. Each index will perform differently depending on the economy.
    5. It sounds like you're doing it, but put aside money each month into the 401K. Not only will it reduce your taxable income each month, but the money grows tax-deferred and you are dollar cost averaging. That means that you're buying the same dollar amount of a fund no matter the cost. Over time this will pay off.

    Good luck!
  11. mountaingoat

    mountaingoat New Member

    I agree that if I look at my portfolio now, it can be discouraging. But unless you plan to cash it in within a very short time horizon, it really was only worth that "on paper." When your time horizon gets much shorter, I would stress that you need to move into more conservative investments to protect your principal, which haven't gone down 16%.
  12. WhatPCM

    WhatPCM Insubordinator

    Thank you for the advice. I will be looking into it.
  13. browniehound

    browniehound Well-Known Member

    I'm 34 and have been directing 5-15% of my pay into stock funds (100%) for the past 6+ years. I was doing really well for a while. I started investing near the bottom of the last bear cycle (Jun of '02) so I didn't experience the nasty bear market of 00'-02.

    Now, I afraid to look at my statement, where before I would check it online on a weekly basis. All I know is the DOW is dangerously close to where it was when I started investing (within a 1000 pts.?) :sick:.I'm staying the course with 100% stock funds until I make my loses back (I have 25 years to retirement, it has to rebound, right?:sad-very:). I'm hoping this occurs before my 40th birthday at which time I plan to ease up on the stocks and put a little in cash and bonds (like 15-20%) at first.

    I'd welcome any opinions or advice if anybody would like to respond.
    Thanks in advance,

  14. mountaingoat

    mountaingoat New Member

    I'm not a CFP, but from what you posted, it appears that you're on the right track. Based on your time horizon (25 years until you plan to cash out), keeping it 90% or more in equities is a sound strategy. It would have to tank for the next 25 years for it not to rebound. I have 14 years, and I'm 100% in equities.

    When you get about 10 years away, start slowly putting your investment into bonds. Maybe do 5% a year for the first five years, and then 10% a year after that. That should leave you with 75% in bonds and 25% in equities. You'll need the higher returns in equities to offset inflation in retirement.

    Good luck.
  15. Anon1

    Anon1 Guest

    I know they say to stay the course if you are young. But we are in a recession. I would put some into bonds no matter what age I was under these conditions. Looking out a few years, it looks ugly. About the only way interest rates can go is up. Most of my friends are staying pretty close to home with $4-$5 gas. Think what that is going to do to corporate profits. From what I have read, the housing problem is not over yet. Are people still spending money? Of course. But I think they are being more selective. I hope I am wrong and the market turns around. I hate being pessimistic about financial matters.
  16. browniehound

    browniehound Well-Known Member

    Thanks Mountain,
    I like your investing style and the assurance that I'm on the right track!
  17. browniehound

    browniehound Well-Known Member

    If you are 14 years out and still 100% then I feel validated in my decision to be 100% in equities.

    My thinking was to go for maximum growth while I'm young and to continue to do it when I'm not so young.

    As a UPS driver my body (knees, hands, upper back, feet) are hurting at a young age. I need to get out as soon as possible. The only way I see this happening is if I invest 100% in equities and contribute the maximum allowed by law into the 401k plan.

    With a little luck in the market in future years it could become a reality. The difficult is contributing the Max. When we only make 55-65 per year, its difficult to contribute the 15,000 allowed by law even if it is pre-tax.

    Obviously if the pension fund is still alive and social security provides what it promises in our yearly statement, then those of us UPSers who contribute to our 401k's every week will b doing quite all right in our mid-late 60's.

    Its very scary that I think about my life in my 60's when I'm only 34:dissapointed:. Its like I'm wishing my life away:sad-little:
  18. packagestud

    packagestud New Member

    An important aspect of the 401k program that most people are not aware of is that with the 401k when you retire at age 55 you can start withdrawals without penalties. If you role the funds over into a ira you are stuck with the 59 1/2 rule. With many of us retiring early, this early cash flow can be important to supplement our standard of living.
  19. mountaingoat

    mountaingoat New Member

    I know that investing in something that's going down at the moment may seem counter-intuitive, but you need to look at two things (maybe you already have, but I'll post them here so that others can see):
    1. You mention "young", so I assume that you have a large time horizon before you need the money. All the more reason to invest in equities. No asset class has surpassed the equities for overall ROI. Sure, bonds may beat them some years, but if you look at a 25-year time horizon, you'll get a greater return from the equities.
    2. Bonds help preserve your capital, but they generally don't earn more than 3-5%. You need more interest than that so that you can beat inflation over the long haul. You want to be able to put in $100k over your life span and cash out with $900k (and I'm only using these numbers as examples - my point is that you want the compounding interest from the equities, not the principal from the bonds).
    3. Hard assets (such as a house) have been the traditional wealth-building mechanism for middle-class America for years. The housing bubble has burst, and now we're into declining housing values. Have they bottomed out? Probably not, but remember how we were all hootin' and hollerin' about how we doubled our house value in 4 years? That's not happening anymore. A hard asset like a house typically ran about 4-5% per year. 25% per year was outrageous! Yet, let the tech bubble that burst, we all saw that as the new paradigm. When banks started making money easier to obtain, it created artificial demand for properties, and that led to too many dollars chasing the same amount of properties. That led to bidding up of housing values to an unobtainable level. Now they're coming back to a reasonable level.

    Yes, people are paying $4-$5 per gallon of gasoline. Yes, they may be staying closer to home for vacations this year. The bottom line is - people will still spend money. The money that was spent leading up to this recession was fueled with home equity loans from increased property values. Now that money has dried up. It doesn't mean that people won't buy cars - it means that instead of a BMW, they may buy a Honda, etc.

    Bottom line in my opinion - holding equities as the major asset class in your portfolio when you have a long time horizon is a good thing. On paper it doesn't look good right now because they're declining, but through dollar cost averaging you're getting more shares for your money.
  20. brownmonster

    brownmonster Man of Great Wisdom

    I'm 11 years out but my money has to last 40 years. 100% in stocks. Have faith in the American consumer. Look around, people don't mind spending money they don't have on things they can't afford.