Getting Laid Off - What to do with 401K

[financialpeace]

Hello,

I am a long-time lurker of the women in red message boards and have been lurking here in the YM section ever since things got switched over to this site.

Anyway, I am losing my job as of the end of July. It is unlikely I will have a new job by then, and I am not sure what to do with my 401K. I just turned 24, and my vested balance is only $4,417.72. I make less than $25,000 per year despite having two associates and a bachelors degree. I live in a small, poor town with very few good paying jobs. I am married, and my husband is the primary breadwinner. He is a nurse and made about $80,000 last year. I am not really sure what information you want to give me a recommendation, so please ask for any additional info you need.

The last time I switched jobs, the new job did not have a 401K, so I transferred my 401K money into an IRA at my bank. The IRA was a cd and the annual fee was way more than I was earning in interest, so my money was slowly being eaten up by the bank. Shame on me for not doing my homework. I do not want to do that again, but I have no idea where to find a safe IRA that gets a decent return. I am also tempted to just cash out my 401K and take the penalty since the amount is so small, and the cash would make me feel much better with my unemployment situation.

I am the only one in my family who cares about paying down debt and being financially smart, so I have no one to turn to (besides the internet) for help with this. Any input would be appreciated. Thanks in advance.

[❤ mollymouser ❤]

Unless you cash it out, you will want to roll your 401K into an IRA. The IRA can be invested in a CD, or it can be invested in the stock market (mutual funds are a common choice.) While CDs are paying very low interest right now, they would protect your principal.... whereas you could potentially see larger returns if your IRA was in a mutual fund.

Since your job will be ending in July, have you considered job hunting now (before it ends?)
How will losing your income impact your family's budget?
Will you be eligible for unemployment?

[financialpeace]

I have started my job hunt, but I will not leave my current job early for just another crappy paying job. I will get 8 weeks severance and will only leave early if I find a job that more than makes up for it.

I will be eligible for unemployment, but it won't be a lot. I will probably net $800 a month or so.

Thankfully, we pay all bills out of my husband's paychecks. My checks are used for extra debt payoff (We have about $60K in debt: student loans and two vehicle loans) and car insurance savings (we pay six months at a time to get the discount).

I would much rather cash out my 401K than put it in another CD IRA. Where do I find IRAs that use mutual funds? That is where I am most clueless. Should I use the investment group affiliated with the bank I use (and currently work at). How do I know if the group is good?

[Tiny]

Since you're on-line - why not transfer your icky Bank IRA and your 401(k) money to a new IRA at one of the Following places: Vanguard, Fidelity, TRPrice. Google them, visit, and start reading/researching.

[thyme4change]

Follow ATS's advice - go to Vanguard, Fidelity, Schwab, TRowe-Price, or any of those places. Open an account, and tell them that you want to roll over your 401k into an IRA. They will set it up. You will have to do a bunch of confusing paperwork, but you can work through it. It irritates me every time - but I always get through it.

I also agree that you should move your bank IRA money into your new roll-over account. Once you have it set up, every time you change jobs you can roll the money into there - and then pick some good investments.

[Sum Dum Gai]

Open an IRA at an online discount brokerage. Transfer your money there. Invest it in something that doesn't require much upkeep, like an index fund. Then leave it alone. Forget about it for several decades. Hopefully when you come back you have many multiples of your original investment.

[Tiny]

Ok. your head's probably gonna hurt after visiting the various on-line investment places. Don't let that stop you. Choose one. Just as a disclaimer I've used Fidelity for over 25 years. I went with Fidelity cause a sibling was using them and had the snail mail signup sheet handy. 25 years ago you got started by snail mail. I've got a Roth IRA there. A friend has a rolled over 401(k) and Roth at Vangaurd - so I've seen their website - it's alot like Fidelities. Many of the people on here use one of the 4 places (I forgot about schwab). You'll just need to pick one of the places and go with it. Don't spread your stuff across them!! Stick with one place.

[MN-Investor]

Open an account, and tell them that you want to roll over your 401k into an IRA.

Exactly! These are good spots. Let these businesses take the lead on rolling over your 401(k) and your bank IRA. You never want to have a check written out to you. Let the money go from one institution directly to the next.

[financialpeace]

Thanks for the help. Many of those places popped up on my online search. I was a little overwhelmed and unsure how to tell if they are reliable places or not.

Is there anything in particular to watch for while checking these places out?

My bank IRA money was moved into my 401K about a year ago. I did it as soon as I realized I was losing money every year.

[Sum Dum Gai]

Is there anything in particular to watch for while checking these places out?

If you stick with the bigger name places, not really. They'd potentially lose hundreds of millions of dollars a year if they got a reputation for screwing people out of their money, so they aren't going to swindle you for $5k. That said, they offer a range of investments and some are going to have more fees than others. For now don't make it overly complicated. Pick a low cost target date retirement fund, or an index fund. The target date fund has built in diversification among asset classes. The index fund will be 100% equities. Due to your age the target date fund will be mostly equities too. Either one is fine for now, until you can educate yourself some more and decide on any changes you want to make.

The fees at all the big places vary slightly, but they're pretty competitive, so you won't really save much by going with one over another. You could spend some time looking up their fee schedules though, one might be a better deal for you based on how you plan to invest and how much money you'll be putting in.

[Tiny]

You'll probably want to invest in no-load funds... I'd maybe make it easy and start looking/learning about Target Funds (based on when you plan to retire - even if it seems a million years from now!) It might take awhile to get up to speed on the whole 'investing jargon' so you could start by getting the IRA set up and putting the money into a Target Fund (based on when you will retire) or just into a 'cash account' - low interest like a savings account.
If your money goes into a cash account - you don't want to leave it there for years and years . You want to move it to some other kind of investment fund (like a Target Fund).
The ONLY reason I suggest the 'cash reserves' or 'money market' type fund is so you can have some time to figure out where to park your money for real. Some funds have fees for moving money into and out of them. Sometimes this isn't a terrible thing, but if you keep moving money around it can become a costly thing.

[thyme4change]

Because you have less than $5k - I would make sure that the one you choose has funds you can buy with less than $5k - although if you move your bank one, too and that pushes it over the $5k limit - I would just make sure there aren't too many funds with $10k restrictions, but that isn't as common.

If I were you (which I'm not) I would stick with one of the names mentioned here. They are all big places. Vanguard has a reputation for customer service - you can just call their 1-800 number and ask questions. I use Schwab - they certainly have their pros and cons, but I'm set up there - so I'm sticking with it. The last time I talked to them I had the nicest guy helping me. My husband had a great customer service experience there too. So, they seem to be working on their service.

If you know what kind of investments you want to be in - make sure you are looking at no-load funds, etc. You can pick the firm that has the most funds. Lots of time their low-entry point (i.e. less than $5k) funds will be home-spun. That might bother you. You would have to research each one.

Good luck.

[financialpeace]

Do I have to wait until I get my termination paperwork from my current job to open the account and start the rollover process? My end date is not set in stone. I will be here until they are done with me. My department is being eliminated, so we have to train all new people in a different department and transfer over all our work.

I feel so much better already. The whole idea was a little daunting which is why I was considering taking the easy way out and just cashing it.

[dancinmama]

May 17, 2011 16:53:10 GMT -5 financialpeace said:

Thanks for the help. Many of those places popped up on my online search. I was a little overwhelmed and unsure how to tell if they are reliable places or not.

Is there anything in particular to watch for while checking these places out?

My bank IRA money was moved into my 401K about a year ago. I did it as soon as I realized I was losing money every year.

I would not advise cashing it out if you can avoid it. The money will be much more beneficial to you years from now in retirement than it will be now.

[Sum Dum Gai]

I have my IRA with Sharebuilder and they're not bad either. You don't have the customer service options that the bigger guys give you (no offices to go talk to somebody in person, no free 800 number to walk you through everything, etc.) but their fees are lower too.

The important thing is to get your money invested for the long haul. Doesn't really matter what company you do that through, as long as you pick one that's reputable.

[Sum Dum Gai]

Do I have to wait until I get my termination paperwork from my current job to open the account and start the rollover process?

Yes and no. You can and should open the account right now. It'll probably take a few days to get set up anyway. You'll have to wait on the rollover though. I rolled mine following a merger not a termination, but you should get paperwork from HR when you're eligible to cash out or move the 401k money. They should send the paperwork you'd need to notify them of your IRA account and that you want all money transferred there.

[Tiny]

I think you can and should get started with the paperwork for your new account (not necessarily the IRA part of it). My account at Fidelity has 2 'sub accounts' for lack of a better word - one contains my after tax investments and the other is a Roth (with money divided up between two funds). I think you can get signed up without actually doing the roll over. That would be something to look for/research

[thyme4change]

I'd wait until your term date is a little closer. I would set the account up and roll the money in the same month.

[flyingdiver]

I would wait until after your term date and any final contributions were made into the 401k before moving...why do it twice?
Pick a target retirement date fund - it's a all in one fund that gives instant diversification accross many markets, so you don't have all of your eggs in one basket.

[azphx1972]

I like Vanguard because of their low fee philosophy, and the fact that they're investor owned.

I would recommend looking at something like their LifeStrategy or Target Retirement funds, or any of their index funds. The fees are ridiculously cheap for all of these funds.

Good luck!

[Mardi Gras Audrey]

I have two IRAs and an after tax account with Vanguard. One of the IRAs was rolled over last year from a 401k and it was very easy. They will even call your 401k administrator with you (three way call) to help you figure out what paperwork you need to do to transfer it (They did this for me and it went very smoothly). Their customer service has been good and their fees are really low. They will waive the annual fee if you sign up for the e-delivery for statements/confirmations. If you still want them to mail the papers to you every year, I believe that the annual fee is only ~$20.

All of their funds are also pretty good. I would recommend the target retirement accounts. Then you can "set it and forget it". If you are more risk adverse (don't want to put as much $$ in stocks), you can choose a retirement date closer to now that will have less riskier options (You can choose retirement 2015, 2045, etc. It's up to you and your risk tolerance...they aren't going to look at your date of birth and tell you that you can only have Target retirement 2050). I have some of my aftertax funds in a Target retirement 2015 account (I am 32). Will I be retiring in 2015? No, but that is when I think I will need the money (for house purchase, new car, etc).

One word of caution, when you open the account, make sure that the account name matches the name on any bank account that you will use to deposit funds EXACTLY. This may not be as big of an issue for a retirement account but for after tax accounts, you have to prove that the account is yours with a signature guarantee from your bank of the names don't match (Mine was simply an issue of my bank account have my middle initial- "Audrey A Jones" while may Vanguard account did not-"Audrey Jones"). It was pretty irritating, especially since I had been depositing funds from the bank account for the previous year with no questions...They only made me get the guarantee when I wanted to withdraw the funds (I guess they didn't realize that was where the $$ came from???)

[phil5185]

I make less than $25,000 per year despite having two associates and a bachelors degree. I live in a small, poor town with very few good paying jobs. I am married, and my husband is the primary breadwinner. He is a nurse and made about $80,000 last year.

What field is your BA in? Is there a way to apply your skills in the Medical Community? (Apparently there is a nearby hospital.)

I would open a Rollover IRA at Vanguard now and move the Bank IRA into it. And then move the 401k to it after you are laid off - put the money into a SP500 Index Fund. And as others said, leave it alone for a few decades.

and two vehicle loans

Car depreciation is the most common cause of financial failures, as the finance books point out, millionaires usually drive older cars. In fact, if you kept a pair of affordable cars for the next 35 yrs, that would result in about a million for you.

[Plain Old Petunia]

<< I would much rather cash out my 401K than put it in another CD IRA. Where do I find IRAs that use mutual funds? That is where I am most clueless. Should I use the investment group affiliated with the bank I use (and currently work at). How do I know if the group is good? >>

I haven't read through yet, and I am sure that this answer has already been given, but let me say it again anyway ...

Roll your 401k to Vanguard. DO NOT cash it out. DO NOT put it into a CD, you are 24 years old. CDs are a place to safely store money you don't need to grow. CDs are a terrible place for a 24 year old to park her retirement money.

How to invest it? Easy peasy, put it into Target Retirement 2050. In that one fund, you will own a tiny of piece of thousands of corporations, both domestic and foreign, and hundreds of bonds, with a rock bottom expense ratio of .19%, and an annual fee of $10 until you reach 10k. They will waive the annual fee if you elect to receive all statements on-line. The most important point is that your money will grow for you. While you have "only" $4400 now, if you invest it wisely it could easily double 4 or 5 times before you retire. If it doubled 5 times, it would turn into $140,800. Don't throw it away!

Go to Vanguard.com and roll it yourself, or call their 800 number and they will walk you through the process.

Best of luck to you with your job hunt!

[financialpeace]

My degree is in business administration with an emphasis on management. Yesterday I registered for a medical terminology class. I have been trying to get on at the hospital for awhile, but they don't seem to be interested because I have no medical field experience. My husband suggested the med term class to maybe help me get in the door.

I know the car loans are bad, but it is a battle I lose every time with my hubby. He has a tendency to get a new truck every year ( ). I can't tell him no. He has worked hard for us. He had two or three jobs all through school and killed himself doing it. (I worked full time, but only had one job) In January he traded his 2011 truck on a 2003 truck which reduced the truck loan in half. He is already sick of it though, and wanting a new truck. The only reason he hasn't gone and gotten one is because I am getting laid off.

I wanted to get a nice used vehicle or a cheap new one, but DH wouldn't hear of it. My compromise was I got a vehicle that suits my needs now and will work when we have kids. I plan to drive it until it dies.

[azphx1972]

Sounds like your hubby can use a Dave Ramsey smackdown: www.daveramsey.com/article/saying-no-to-new-cars/lifeandmoney_automobiles/

[Sum Dum Gai]

I wanted to get a nice used vehicle or a cheap new one, but DH wouldn't hear of it.

Ah, to be young and stupid again...

The good news is he'll probably wise up at some point and really regret blowing all that money on something so pointless when he's older. The bad news of course is that you guys are going to blow so much money on something so stupid and regret it later.

[financialpeace]

Haha, I read Dave Ramsey's Total Money Makeover and asked DH to read it. He wouldn't. He told me to just tell him the highlights. I did, but that wasn't enough to get it through his head.

I have resigned myself to the fact that we will probably always have a truck payment. I do what I can with the rest. If he wisens up, we will be that much better off at that point. I'm just trying to work with the idea that it is a fixed expense that will probably always be there.

[azphx1972]

That's too bad. YM doesn't take kindly to people who have sacred cows when they're in debt, I've noticed. I'm sure other, more forceful opinions will be forthcoming. Be prepared. ;D

[phil5185]

In January he traded his 2011 truck on a 2003 truck which reduced the truck loan in half. He is already sick of it though, and wanting a new truck.

Pretty scary thinking. He is blowing over $12,000/yr in depreciation and gasoline, that represents about $16,000/yr gross of his $80,000 salary. And that is just for one vehicle.

If he were to salvage about $6000/yr of that waste it adds to about a million and a quarter in just 30 yrs, you'll be only 54. Over the past 45 years, I've kept my trucks about 200,000 miles each, I bought 3 used and 2 new ones. It was a good way build wealth.

[oreo]

I agree with other posters, you shouldn't cash it out. You roll it into one of the companies mentioned here (I use Schwab and like them but they are all good)

Before the job ends, determine in what company you want to put the money. Once your job ends, you contact that company (I would do it a day or 2 after) and tell them what you want to do--they've all done it a million times. You call them, they set it up, they tell you exactly what to do if you need to get the money for them (if it can't be transferred electronically) and how to have the check written out if it comes to them as a check. They'll walk you through the whole thing. It is quite easy. Most of the companies I'm sure have their own "index" funds (like S&P 500 or large cap, etc) Many people here recommend those. Once you get the money into 1 of these companies you have a lot of options. You can buy individual stocks, ETFs, etc. You'll have unlimited options depending on how much effort you want to invest.

I've done this for the last 2 companies and it has been no big deal. Then, in the future, you can just add money to the IRA as you wish.