Starting the Perm Port Soon

[rhymenocerous]

How do I find out if my employer will let me do this?  What is the right question to ask?

Should I ask a benefits person at my company, or the 401k people (Fidelity for me)?

I've found that the regular HR people at my company are pretty clueless about these sort of specifics.  I would check with Fidelity first.  My 401k is with Vanguard, and I only found out about it by accident.  I logged into their site and started reading the 401k plan rules that pertained to my company's plan, specifically about the withdrawal options.  I noticed that there was an after-tax option that allowed for 2 withdrawals annually.  It took some digging to figure out what this was at the time, but I'm glad I noticed it.  It's really quite valuable and allows you to stuff a lot of money each year into a Roth.

I get confused myself with all the terminology, but if you are speaking with a person at Fidelity, it's important not to confuse this with the Roth 401k option that some employers allow now.  Those contributions are also after-tax, but this is completely separate/different.

Edit: Also, when I'm setting what % of my paycheck to put into my 401k, there's an option for "all pre-tax" and "all after-tax."

[rhymenocerous]

Why would it be beneficial to max the 401k then roll it into a trad ira then roth, instead of just going from a traditional to a roth?

We are talking about two different things here.

Total 401k contributions = $17.5k elective deferrals (Roth or Traditional) + employer match + after-tax employee contributions

The $17.5k elective deferrals is what you are currently contributing to with your paycheck deductions.  This cannot be rolled out of your 401k each year unless you leave your job.  I was talking about the after-tax employee contribution part, which is different.  This is after-tax money that you'd normally just put into a taxable account (ie. you've already maxed your $5.5k IRA and $17.5k 401k).  Instead of putting the money into a taxable account, you put it in the 401k.  There's a special rule that some 401k plans have that allow you to roll these after-tax contributions to a traditional IRA periodically throughout the year.  You then convert the traditional IRA to a Roth IRA and just pay the tax on any gains.  This allows you to stuff more money into the Roth each year beyond the $5.5k limit.

Please note, however, that my previous post about traditional vs Roth 401k contributions pertained to the $17.5k portion.  This is something completely separate.

[MediumTex]

How do I find out if my employer will let me do this?  What is the right question to ask?

Should I ask a benefits person at my company, or the 401k people (Fidelity for me)?

I've found that the regular HR people at my company are pretty clueless about these sort of specifics.  I would check with Fidelity first.  My 401k is with Vanguard, and I only found out about it by accident.  I logged into their site and started reading the 401k plan rules that pertained to my company's plan, specifically about the withdrawal options.  I noticed that there was an after-tax option that allowed for 2 withdrawals annually.  It took some digging to figure out what this was at the time, but I'm glad I noticed it.  It's really quite valuable and allows you to stuff a lot of money each year into a Roth.

I get confused myself with all the terminology, but if you are speaking with a person at Fidelity, it's important not to confuse this with the Roth 401k option that some employers allow now.  Those contributions are also after-tax, but this is completely separate/different.

Edit: Also, when I'm setting what % of my paycheck to put into my 401k, there's an option for "all pre-tax" and "all after-tax."

Looks like I can't do anything like this.  The plan has provisions for in-service distributions, but only after age 59.5.

(Also, there is no option for "after tax" contribution to the 401k in my contribution form.)

Most plans don't permit after-tax non-Roth contributions.

[notsheigetz]

The plan has provisions for in-service distributions, but only after age 59.5.

Our plan has this and it's a great feature once you hit the age limit. It allows me to put all my contributions into a low-cost index fund and then roll it over into my SEP-IRA if/when the re-balancing band is hit (which I'm about ready to do again since I'm at 34.7% stock).

[dlauth]

Im also with Vanguard for my 401k and under contrabutions, I have the following options:
PRE-TAX DEFERRALS
Roth Defferals

They both can be set up to 75% of my paycheck each

1. This is not the option you were talking about correct? Its a contribution from an outside source instead of your paycheck?

I do have the following withdraw option though:

This service provides the ability to automatically shift pre-tax paycheck deductions to after-tax sources when the limit on the pre-tax contributions has been reached for the tax year.

Here are my withdraw options:
AGE 59.5 WITHDRAWAL CONDITIONAL ROTH IN-PLAN TRANSFER ROTH IN-SERVICE WITHDRAWAL HARDSHIP WITHDRAWAL AFTER TAX WITHDRAWAL FORMER EMPLOYEE WITHDRAWAL ROTH AGE 59.5 WITHDRAWAL ROTH HARDSHIP WITHDRAWAL ROTH FORMER EMPLOYEE WITHDRAWAL ROLLOVER WITHDRAWAL ROTH ROLLOVER WITHDRAWAL

2. Which one of these are you talking about? I can give more info on each of these if you see the one your using.

3. Since I would be putting so much of my income into my 401k, I could just do the stocks and bonds into the 401k and the gold into my Roth. Once it comes time to buy more gold, I could then buy bullion since I would then have my core gold position in bullion and the liquid gold in the roth.

4. Would going to 40/10/50 in my 401k work for my bond and stock portion? Institutional, extended and TBM

5. I can then have all my funds, except for cash, in shielded accounts.
Still an issue with rebalancing, but I guess I could make it work. Helpful advice on rebalancing with everything in its own account?

6. So it would be wiser to do my company Roth 401k instead of the trad 401k since this would drop me into the 15% tax bracket? Or would it be better to stay in the 25% bracket with just enough 401k contributions, then put the rest into the roth 401k?

Thanks!

Total= 6 questions

[rhymenocerous]

1. Everything that goes into a 401k comes from a paycheck deduction.  However, I don't think Roth deferral is what I was referring to (I think it's the Roth 401k). 

2. Under withdrawal options, I think it's "AFTER TAX WITHDRAWAL."  What do the plan rules say for that?

4. For my own purposes, I consider TBM to technically be under "cash," which is cheating a little bit.  I'd still want to hold both LTTs and gold in the Roth.  Your split may be off in the beginning since you are just getting started building up your balance.  Also note that rebalancing is very rare.  You are mostly going to rebalance by adding new contributions to the asset that is the lowest % of your portfolio.

[dlauth]

1. So the option you are talking about is not available to me or is the roth option of my paycheck deduction I should be using? There is a spot which says once I hit my $17.5k contrabutions, it will automatically start with post tax contributions. This is the additional $30k I can put in correct?

For example: I do 75% paycheck withdraw into my companys roth 401k, I hit the $7.5k limit with $3500 company match. I also max out my roth Ira with $5.5k. This would mean the auto-roll over would go until it hits $34500 which I can withdraw at anytime and do the 401k>ira>roth option.

2. AFTER TAX WITHDRAWAL
This withtrawal option requires plan sponsor online approval No
Distribution methods allowed
Check.
Electronic bank transfer.
Distribution sent via Regular U.S. mail
Withdrawal frequency Unlimited daily; reference the prospectus for All Funds
Minimum amount required for withdrawal Not applicable
Restriction for
All Funds and All Sources if status is Terminated - paid out.
All Funds and All Sources if status is Terminated - payment deferred.
All Funds and All Sources if status is retired - receiving installments.
All Funds and All Sources if status is Terminated - stop vesting.
All available loans must be taken before a withdrawal can be made No

My accounts will never be balanced due to the following:
almost $20k a year would be going to either stocks or cash in my 401k
I can only put $5.5k into my Roth IRA for either the LTT or gold
I would clear only a few hundred dollars per month after bills and all my contrabutions so I couldnt bump the gold or LTT in a taxable account

What about an answer to question 6?

Thanks for all your time, I really do appreciate it!

[notsheigetz]

Due to the age 59 1/2 provision mentioned above I don't personally have much of a problem with the 401k/PP juggling act but I think if I was in your situation, and especially at your age, what I would do is just leave the 401k in the low cost 2040 fund you talked about and build my PP outside of it. Unless you plan on working at your current job for a long time, eventually you will be able to roll the 401k money into an IRA where you will have more control over things. If you're like most people you will do this several times before you retire.

[dlauth]

Thats another option, but I would then have to either put a ton of money into taxable accounts or put the $17.5k into the 401k fund, which I would then be very heavy in stocks.

[notsheigetz]

Thats another option, but I would then have to either put a ton of money into taxable accounts or put the $17.5k into the 401k fund, which I would then be very heavy in stocks.

Assuming you are not going to spend it until retirement, at age 23 I think there is absolutely no way to predict whether the tax bite will be greater on the deferred account or the taxable. As I'm nearing retirement I am actually more worried about the tax-deferred for reasons you don't even need to think about.

So maybe split the difference - half into the 401k, half into taxable? That would start building you a nice PP and like I said, eventually you will be rolling your 401k's over into your PP nest egg as you change jobs.

Oh, and for the record I had the equivalent of a 401k (they didn't call it that back then) at one of my first jobs and left it there having forgotten all about it. It was almost ALL stock and about 25 years later after they tracked me down it had increased 2100% in value. So I wouldn't worry about being a little stock heavy due to your 401k, especially at your age.

[dlauth]

I dont think im going to be at the current job much longer, so that is one reason to max the 401k out.

I also dont want to be stock heavy since im really trying to pursue the PP and I also believe the stocks are riding on thin air ATM.

I guess an option would be to like you said, split between the 401k and the taxable brokerage account. I would then buy gold in the taxable, split the 401k between the TBM fund and stocks, then put my Roth into LTT and gold as the allocation is needed.

Roth 401k or 401k (get down to the 15% tax bracket)

Thoughts on all this?

[rhymenocerous]

I'm really not trying to make this confusing for someone just starting out, so I will try to distill everything I've said into the simplest possible message.

1. Can you save $5.5k in an IRA and $17.5k in a 401k each year?  If the answer is no, then max our your Roth IRA and contribute at least 6% to your 401k to get the company match.  I think striving to max out your IRA and 401k is a great starting point to begin putting away some serious money for retirement at a young age.  I personally make the sacrifice to ensure that both are maxed out.

I don't know the answer to Roth 401k vs Traditional 401k.  I personally max out the traditional 401k and use a Roth IRA.  For some more discussion on this topic, see these threads:

http://www.bogleheads.org/forum/viewtopic.php?t=75619
http://www.bogleheads.org/forum/viewtopic.php?t=14166
http://www.bogleheads.org/forum/viewtopic.php?t=58790

Based on the info you've given, I'm going to assume you can max out both.  You currently have:

Roth - $8300 + $2.5k to max out for 2013 = $10.8k
401k - $5550
Cash- $11000 - $2.5k for Roth IRA = $8.5k
Total = $24.8k => $6.2k for each asset

For now, put your entire 401k in stocks, contribute $6.2k to LTTs in your Roth, contribute $4.6k to gold in your Roth, and keep all your cash on hand.

As you make contributions to your 401k and Roth IRA, you can re-evaluate the location of each asset.

2. Let's say you can contribute more than the $5.5k IRA and $17.5k 401k limit each year.  Instead of putting the money in a taxable account, use that "AFTER TAX WITHDRAWAL" option you mentioned and periodically roll the extra money into a Roth IRA.

[notsheigetz]

I also dont want to be stock heavy since im really trying to pursue the PP and I also believe the stocks are riding on thin air ATM.

It's all riding on thin air. Always. The fact that you are thinking so deeply about these things at age 23 tells me you'll be just fine unless you drive yourself crazy thinking about it.

I manage my 25-year-old stepson's 401k for him and it's all in a stock-heavy portfolio, even though I am 100% PP.

[Rien]

2. Im only 23 so I can tolerate a little bit more volatility, so I was thinking of doing a 30 split on everything and 10 on cash. This shouldnt change the returns much and would give me better exposure.

The discussion so far has become fairly technical and unique to the US situation. I cannot contribute to that.
But I have listened to the HB investment radio shows (about half of them) and I was impressed by how much HB emphasizes that a PP is to keep your assets safe. He is very adamant that one should not speculate with the PP, start the PP as early as possible and keep doing it until you need the money.
To me, that part made a lot of sense.

[dlauth]

Opinions on the following for the LTT and cash.

BSV EDV
VGLT VGSH

[Early Cuyler]

Opinions on the following for the LTT and cash.

BSV EDV
VGLT VGSH

I am certainly no expert like some others on this board, but here is what I think:

Edv- longer duration because the fund holds zeroes. This has, in the past, lead to a little too much volatility. Also a bit thinly traded, but that is minor issue. Consider adding a bit more cash if you use this one.

Vglt- the duration on this is a bit lower than tlt and it also holds some agency bonds if memory serves. That being said, I wouldnt lose any sleep if I had to use this one. Also thinly traded.

Vgsh- also holds agency bonds, should be fine. Volume is a bit low.

Bsv- it holds corporates and the duration is too long for cash IMO. Avoid.