To rollover or not – the importance of choice and fees

When you leave a job, you generally have the option to rollover your 401(k)/403(b) to an IRA or to your new 401(k)/403(b) plan.  In our history, I’ve always rolled over our accounts to a Fidelity Rollover IRA.  Dad and I each have one – collecting all of our previous employer plans into one.  They’re at Fidelity because that’s where my first 401(k) was and it’s been convenient.  And currently, Dad’s 403(b) and 401(a) are through Fidelity.

For the majority of my working career, I had a SIMPLE IRA through Fidelity – I was able to buy/sell *anything* Fidelity offered for a $25/year fee (plus commissions, mutual fund fees, etc).  I learned early on to just buy NTF (no transaction fee) funds and save myself that fee, but I didn’t understand mutual fund expense ratios.  I just picked what looked good and was recommended – yeah, I was naive.  Over the years though, I’ve learned better.

When my company moved from a SIMPLE IRA to a “real” 401(k), we had some pretty pathetic choices, I had already learned about mutual fund expense ratios by then, and the lowest possible fee was 0.23% for a Russell 3000 Index private fund (seriously, there was no public ticker symbol for it).  I put 100% of my money into that fund, and made up the rest of our allocation in our Rollover IRAs and in Dad’s 403(b).  What if I didn’t have another option?  I would have had to try to make up my desired allocation from high fee funds ( > 1%) and would have spent dearly for it.

Most recently, up until yesterday, we had had a 5% allocation in REITs – and Dad’s 403(b) offered a REIT fund with what I thought was a halfway decent fee: 0.77% (CSRIX).   With all of our other expense ratios being less than 0.25% (most in the 0.05-0.07% range), I was seriously considering eliminating our real estate allocation.  I did some more research on whether I wanted to keep the real estate in my allocation enough to continue paying the fee.  I also looked through Fidelity’s offerings, and found FSRVX at a 0.09% net and 0.19% gross ER – I pay .09% until Fidelity decides to not discount it anymore.  It gave us exposure to real estate for a lot less.  I sold the CSRIX shares in dad’s 403(b) account and bought FSRVX in my Rollover IRA. We have an agreement that my account maintains higher risk than his does, so I get things like REITS, small cap, emerging markets, etc and his focuses more on bonds and total market.  Since we balance our allocation across multiple accounts, it really doesn’t make any difference.

How do fees play into this?

Most people would agree that a fee of 0.19% is better than a fee of 0.77%, but by how much?  If the fund’s performance was 6% annually, then the fund with .19% fees would actually return 5.81% and the fund with .77% fees would return 5.23% – which would you rather have?  Over 10 years, that’s a huge difference.  The charts below assume a starting contribution of 10k, and no continuing contributions (meaning “the real world” has an even larger difference).

Hypothetical Growth of 10k

 

Interest Rate: 5.81 5.23
After Year: 10000 10000
1 10581 10523
2 11195.7561 11073.3529
3 11846.22953 11652.48926
4 12534.49547 12261.91444
5 13262.74965 12903.21257
6 14033.31541 13578.05059
7 14848.65103 14288.18263
8 15711.35766 15035.45459
9 16624.18754 15821.80886
10 17590.05283 16649.28946

As you can see, there’s a $940 difference at the end of ten years.  It grows to a difference of $4441 if you contribute 10k each year.  And that’s the difference of 0.58% in fees – imagine what you’re paying if you have fees over 1%!

If you have the opportunity to roll over an old workplace plan – unless you’ve got stellar choices already – it sometimes pays to do so.  Most brokerages offer rollover IRAs – pick your favorite low-fee broker and put everything together.  You’ll have access to their full range of funds, and there are very few online brokerages which don’t offer NTF funds of some sort, although Vanguard is well known for their low cost index funds (in my opinion, Fidelity’s Spartan funds are pretty darn close and not worth moving everything).  You’ll still have to pick the best options in your employer plan, but you’ll have the flexibility to buy cheaper funds elsewhere (but still tax advantaged).

And I would be remiss in not mentioning this, but if you have a rollover IRA hanging around – I really don’t recommend trying a backdoor Roth, you’ll get royally screwed on taxes.  This disadvantage can be overcome by rolling any IRA you have into a current employer’s plan.

Cash Back Shopping Apps

And I don’t mean the credit card kind.  I mean the apps that are available like ibotta, checkout51 and Walmart’s new Savings Catcher.

I don’t earn a lot, but in the last few months, I’ve earned about $20 between the three of them.  Sometimes, I earn a “cash back” on one item multiple times through the different apps – it depends on what it is.

Ibotta especially focuses on name brand items, but occasionally has “generic” items available, like milk, bread and eggs.  Checkout51 pretty reliably has bananas every week, as well as the occasional milk and bread. Ibotta is store specific, ALDI’s isn’t an option there, but Costco (and the local liquor store) is.  Checkout51 doesn’t care where the receipt is from as long as it’s pretty obvious that you bought the item in question.

The WalMart Savings Catcher is a relatively recent addition to my phone – it “scans” through published ads and matches them to items on your receipt – so you don’t have to remember your ads or remember to ask them to match.  From what I can tell, it doesn’t cover WalMart’s entire ad matching policy (doesn’t allow non-branded items like produce and meat), but it gets the rest.   Other than Costco, WalMart is my primary grocery store, so it was worth looking at (and I can still get ibotta/checkout51 rebates on the same receipt).

I’m not hugely brand loyal, so I don’t get a lot of money from these things, but if you are brand loyal or even brand agnostic, you might be able to “make” more than I do.  I don’t even bother to look at the apps until after I’ve already purchased my groceries, so I don’t tailor my shopping to meet their lists. I get the brand I want or the cheapest option – the 25-50 cents that I get from the apps doesn’t make up for the price differences usually.

Disclaimer: I just use these apps, I have no affiliation with them in anyway.  I also know that they are recording what some people refer to as sensitive information, and folks aren’t OK with that.  As I see it, the stores can already trace my purchases back to me via my credit card, so it’s not a privacy issue for me.

Does anyone else use the cash back shopping apps?  Or am I the only one willing to take pictures of my receipt and scan barcodes for some cash back?  Any other apps I should look at?

Detailed Financial Picture – December 2014

November’s Numbers

As of December 4, 2014, we are $14,000 in debt without a mortgage to speak of (yet).  We currently have $536,285.88 in assets.  Our investment accounts are at $423,630.36. Our Net Worth is $522,285.88, up from $504,813.87 last month (3.46% increase).

November was a relatively quiet month.  We spent more than usual because we bought all our Christmas gifts (but it was only about $600 more than usual), but still quite low spending for us (yay no house!).  We’re paying storage fees at the moment, and our mortgage plus “escrow” will be almost twice the storage fees.

Dad had his annual review a few days ago and will be getting a nice  bonus and 2.something% raise.  We might open a Roth for 2014 for him if our AGI allows us to.  Or we might use it to fully fund our HSA at the beginning of the year.  Dad doesn’t get to contribute to his HSA via payroll deductions, so we have to manually contribute after-tax dollars and then claim the deduction on our taxes.  I’m debating on whether to contribute to the HSA his company uses (Optum bank) or open our own separate one for our contributions.  We can’t get access to the investment options or documents until we open the account, and we can’t open the account until 2015 when we’re covered by the new plan – not that I’ve been able to find anyway. Anyone have an HSA “bank” they’re particularly happy with?

Debt (in the order we’re paying it down):

  • Line of credit (8.75%): $0.00
  • Chase (4.99% for life): $ 0.00 
  • Student loans (aggregated 4.21%):  $0.00 
  • Car loan (0%): $14,000 (-500.00)
  • Mortgage (4.125%): $0.00 

Total paid off in November:  $500

November 2014 Early Retirement Progress

GOAL!

We contributed $4,817.72 this month to our retirement accounts  We gained $6,479.76 in investment gains this month. 

We’ve now contributed over our annual goal of $40k into our accounts – one month early.  One big thing that helped us is that my company match changed from 4% to 8%.  The other thing that helped is that both Dad and I are now maxing out our 403(b) plans.

I learned something interesting during open enrollment for Dad – he has a “mandatory” 2% contribution to a 401(a) plan – and it doesn’t count “against” the IRS limit of 17,500 (for 2014).  The IRS limit is for “elected” contributions, and the 2% isn’t elective, so he’s really getting to put aside almost $20,000 through his company’s plan this year.  We just clicked the “take the maximum out” checkbox in February and left it at that.  And as of January 1, 2015, he’ll be fully vested in his 401(a)/403(b) plans.  I still have to wait three years to be vested in my 8% match.

Next year, we’re hoping to contribute up to $70k via company plans, Roths, an HSA and our taxable accounts.  We *might* squeak out $75k.  I’m inordinately excited about how much we can save towards our retirement next year! That makes me weird in a good way right?

2014 Totals

So far, for 2014, we’ve contributed $40,891.98 (102.23% of our goal of 40k), and we’ve made $32,079.22 in investment gains (158.33% of our planned total).

Thanksgiving

This time of year is when most people wax nostalgic about what they are thankful for – aren’t we thankful the other 364 days of the year?  Not that I’m any different, but Thanksgiving reminds us to be actively thankful, and tell those people we’re thankful for what they mean to us.

This year, I’m thankful for the opportunities I’ve been given to change our lives and make a new start.  I’m thankful for my support system (Dad and my mom) for helping see me through my Post-Partum Depression and the stresses of moving.  And I’m thankful to Daughter Person for making me a mother – one that I hope she will appreciate in the years to come and as she becomes a mother herself.

This year has been long and difficult, and we still have to live at my mom’s until at least March, but I’m thankful that I have a mom to annoy me and drive me bonkers.

I’m also thankful for the community of bloggers that I’ve gotten to know in the last few years.  Good luck to each and every one of you on your journeys to wherever you wish to go.

Now go out and tell your loved ones why you are thankful for them.

Milestone in my Taxable Account

I finally hit a milestone in my taxable account: enough money to buy into a mutual fund.

I had previously been buying ETFs 1-2 shares at a time, leaving anywhere from $20-$80 in cash, and not really working for me.  Today, I deposited enough to bring me above the magic $2,500 for FSTMX.  I left my two “raw” stocks (MCD, ADM) invested because they would cost me ($7.95 each trade) to get rid of them, and they’re throwing off (small) dividends.

At the end of the day, Fidelity will have me owning just over $2600 in FSTMX.  I’ve changed my auto-transfer from my bank account to an auto-purchase of the fund as well, so that’ll continue to keep growing. The auto-investment ability into the mutual fund is what decided me.  I can “set it and forget it” to a certain extent.

I had a devil of a time picking between FSTMX and FUSEX. Similar expense ratios (0.10% gross, .10% and .095% net), FUSEX throws off more dividends, but it’ll mean the difference of $10/year for me at my level).  What really made the decision for me was that FSTMX is total market rather than just S&P500, and FSTMX only has 1% turnover vs the 3% of FUSEX.  In a taxable account, that can be a big difference.

This money is nominally earmarked for retirement, but could be used for other goals as they come up.  The goal is to build this account up enough to survive from when we retire at about 50 to 59.5 when we can start withdrawing from our tax-advantaged accounts without penalty – we have a long way to go!

Next milestone?  $10,000 to get into the advantage class of shares (FSTVX)!

Do you tend to invest in mutual funds or ETFs?  Why?

Framed House

Framed House

Framed House

We obviously have an extremely fast framing crew – apparently, we were assigned the Amish framing crew (which means quickly and high quality).  This picture was almost exactly one week after the previous picture with just the foundation.  I know the majority of the walls were delivered already put together, but I think this was *fast*.

They’re still telling us that we can move in at the end of March – based on what I’ve seen, we might be moving earlier, but I don’t know anything about building houses.  My guess is that they’re working extremely quickly to get the houses under roof and with the siding on before the weather turns too bad, then progress will slow down a bit.  The day before and the day after this picture was taken, there was a dusting of snow on the ground (not for long).

There’s already one mistake on the house (a missing window on the right side), and I’ve reported it to the sales guy and production manager – in writing.  They knew about it, and they expect it’ll be fixed in the next two weeks – as soon as the window arrives.  That’ll be interesting to see how they just cut a hole in the framing and put a window in.  I wonder if they’ll try to put the siding on that side last.  There are a few other places I’d like to see windows (like the two front upstairs bedrooms), but they weren’t options, so those’ll have to wait until it really bothers me to do something about.

The Cash Problem

This topic has come up in conversation many times, but the gist is, what do you do with a large sum of cash that you may or may not need soon (ie. emergency fund)?  Next year, we’re going to put aside almost $1000/mth towards our Roth IRAs – except we won’t know until March/April 2016 if we can contribute to our Roths or not (due to income limits).  There’s a really good chance we will be able to based on our deductions, but it’s not a 100% chance, so I don’t want to put money into a Roth to have to pull it back out again at tax time because we made too much.

$1000/mth is a lot of money to not have working for us.  Our best interest rate is 0.79% at CapitalOne360 (to give you an idea, we’re getting $45/mth on the 85k waiting for our house purchase).  If we put the money into our taxable investment account, I’m not sure that I’d go through the effort of taking it out as I’d pay a short term trading fee on at least $3k of that (I’m a buy and hold investor).  I need to research if Fidelity will let me transfer in-kind between the taxable and Roth accounts – then I can just move over $5500 of FSTMX and be done with it.  If we can’t contribute to a Roth for the previous year, it’ll just end up in our taxable account anyway.

The Roths are only going to have a max of 11k annually (unless we get another limit bump from the IRS), but our emergency fund will have almost 60k in it.  That’s a lot of unemployed little green workers.  I’m tempted to split how we deal with it and put 5-6 months in actual cash, and the rest in a taxable investment account with a relatively low risk.  I know we don’t want to be losing it all in a market crash, but at the same time, I feel bad for not putting it to work for us.

What do you do with your “cash” buffers/emergency funds?  Do you just leave them in a checking/savings/money market account or invest them more conservatively? 

Our Temporary Budget

We’re socking away a lot of money over the next few months. And I think we’ll have way more than we need come March based on a recent closing estimate from our mortgage lender. We use You Need a Budget for zero-based budgeting, and live on last month’s income, so I know at the beginning of the month exactly what we have to spend. We don’t have a “normal” monthly budget; it varies based on our income in the previous month. However, we do have some baselines each month that I then modify as needed.

Income

Our income is after taxes, 401(k) contributions and other paycheck deducted items (like an FSA, health insurance, and my parking pass). Our after-tax incomes will change again next year as we will no longer contribute to an FSA, but to an HSA instead.    This is November’s budget – which means, this is all of the income we earned in October’s paychecks.  The reimbursements is the guaranteed money we get from the FSA for daycare.  We spent the 5k legal limit early in the year (by April based on DC daycare prices), and I already filed the reimbursement, so we get $192.31 every two weeks until the end of the year.  We budget based on two paychecks per month for Dad (although he gets paid bi-weekly), and in those months where we have 3 paychecks, we use that entire paycheck (~$2100) for paying down debt, or putting more to investments, etc.

Salaries 8,625.15
Reimbursements 384.62
Interest 43.00
Total Income 9,052.77

Expenses

Our Expenses are relatively low since we’re not paying a mortgage or most of the utilities (although I keep telling my mom to tell me how much she wants us to contribute to the Internet, Water, and Electricity bills – I’ve just been contributing $50/mth to her checking account).  Many of these expenses are not spent in a month, like car insurance – we pay it every 6 months – but we set aside the money on a monthly basis so it’s there when we need it.

We’ll also be saving less as we start paying on a new mortgage in the March timeframe (estimated principal, interest, escrow is $2200) along with all the other expenses that come along with owning a house – although, there’s a top to bottom warranty for everything in the house for the first year from the builder, so I don’t expect we’ll be spending much in repairs.

We use a VoIP phone line through CallCentric, and we brought it with us – that’s where the “Phone and Internet” line comes in.  We pay $1.50/mth for E911 service, and per minute for all other calls.  We tend to spend about $2 in phone calls since Dad works from home – it’s nice because he uses a softphone to join conference calls from his laptop.  I budget $5/mth which is a bit overkill, but covers are heaviest usage months.

Food
   Groceries 300.00
   Restaurants 150.00
   wine & Beer 60.00
Recreation
   His fun money 200.00
   her fun money 200.00
   entertainment 50.00
Debt (car payment) 500.00
Pets 40.00
Daughter Person
   Daycare 800.00
   Clothing 25.00
   Misc 50.00
   College 50.00
Personal
   Life Insurance 50.00
   Doctor/Dentist 20.00
   Prescriptions/meds 15.00
   Gifts 25.00
   Misc 50.00
   Memberships 80.00
   Clothing 25.00
Transportation
   Gas 300.00
   Car Insurance 100.00
   Repairs & Maintenance 50.00
   Inspection 11.00
   Registration/Property Taxes 25.00
Housing
   Storage 1,014.80
   Utilities 50.00
   Phone & Internet 5.00
   Cell Phones 95.26
   E-mail/hosting accounts 8.00
Charity 20.00
Total Expenses 4,369.06

Savings

We have a separate section for savings – money that we’re not planning on spending in the near future, or are earmarked for a want and not a “need” (although, a lot of the above are for wants as well).  These are things like saving for our new house down payment – and the appliances we’ll need to be buying, money we send to our after tax investment accounts, and money that gets added to the emergency fund.  Right now, the money sitting waiting for moving costs and the down payment is acting as our emergency fund, and anything left after I allocate the rest of the money goes to the emergency fund.   Once we’ve moved and have an idea of where that fund stands in relation to our car payment and investments, we’ll likely throw any “extra” to the car payment or (more likely) the taxable investments.  Until we’ve moved and settled, I’d rather have a large cash buffer though.

Emergency Fund 883.71
Investment 300.00
Moving 2,000.00
New “stuff” (House) 1,500.00
Total Savings 4,683.71

If you made it this far, you are a saint. I know there is a lot of room for improvement, but we’re limited in what we can do at my mom’s house as far as buying in bulk to save on the grocery budget, or using less gas (because she’s far away from everything). I’m hoping to lower our expenses somewhat once we’ve moved and settled, along with selling several things and bringing in some extra money.

Our House has a Foundation

I drove past our new home site after work the other day, and the walls of our foundation/basement look to be completed. It was getting dark and my phone took horrible pictures, but I was able to lighten it up and you can sort of see our “house” as it stands now.

There are 4-5 houses in mostly the same stage of construction on the street. The lumber has been delivered for one of the houses, and it looks like ours is just one step behind it. The sales guy said that once the lumber arrives, the house goes up quickly, yet they’re still estimating that we’ll be ready to move in in March. I’m new to the home building process, but I don’t see why it wouldn’t be done earlier than March if it goes quickly once the lumber is delivered.

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