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AlDente67

401k conversion question

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So the wife has an old 401k that was invested in company stock, per the rules of that company.  It is fully vested many years ago and is just sitting there.  The return isn't that bad so far this year (about 7%), but the eggs in one basket thing always bothered me.   Would like to convert to to a freestanding IRA, but what to put it in?

 

Maybe the gold hedge?  I have a Fidelity IRA that I use for my funds that has been pretty good to me, so I'm guessing I can call them to initiate a transfer, but not sure what the plop the cash in.  Any thoughts?  Not a ton of money...maybe 98k.

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If the money is for the long term then I like an inexpensive ETF that covers the broad stock market like VTI Vanguard Total Stock Market. You may have to pay a brokerage fee but that is a one time fee and the fees of the ETF are extremely low.

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I have heard that some of the gold firms will assist with conversion to physical gold, but am extremely leary of the whole thing.  If I take the money and buy physical gold, do I face a tax hit?  How do I know if I'm getting ripped off?  Obviously the spot price can be compared, but without an expensive assay, how do you know you aren't getting tungsten?  I don't care what William Devane says on TV.

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I have heard that some of the gold firms will assist with conversion to physical gold, but am extremely leary of the whole thing.  If I take the money and buy physical gold, do I face a tax hit?  How do I know if I'm getting ripped off?  Obviously the spot price can be compared, but without an expensive assay, how do you know you aren't getting tungsten?  I don't care what William Devane says on TV.

Gold (and silver) is subject to sales tax in NJ but not in PA. Buy from reputable sources and only buy gold affixed to assay cards.

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Gold is a store of value and a hedge against inflation, it offers no return and no growth.  It is not really an investment, it is a speculative hedge.  Why not find a few index funds, or even lower cost index ETF's and be done with it.  When you make the transfer be sure the money goes directly to the investment company not to you first or it can become poisoned if you are not careful and you will pay taxes and penalties.

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So the wife has an old 401k that was invested in company stock, per the rules of that company.  It is fully vested many years ago and is just sitting there.  The return isn't that bad so far this year (about 7%), but the eggs in one basket thing always bothered me.   Would like to convert to to a freestanding IRA, but what to put it in?

 

Maybe the gold hedge?  I have a Fidelity IRA that I use for my funds that has been pretty good to me, so I'm guessing I can call them to initiate a transfer, but not sure what the plop the cash in.  Any thoughts?  Not a ton of money...maybe 98k.

Rollover to an IRA and make sure it has a good balance and don't just bet on gold the volatility is enormous.  Look at Wealthfront.com and take their risk calculator.  If you choose them 10k is managed for free and the rest very discounted.  Most major places have good 401k asset allocation tools that you can use or have them actively manage it.

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If the money is for the long term then I like an inexpensive ETF that covers the broad stock market like VTI Vanguard Total Stock Market. You may have to pay a brokerage fee but that is a one time fee and the fees of the ETF are extremely low.

I don't think there any fees and it's 7 bips in management (cheapest there is) annually.

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I don't think there any fees and it's 7 bips in management (cheapest there is) annually.

 

I think ETF's trade like stocks so you have to pay a brokerage fee on the purchase/sale. But $7.95 at Fidelity is relatively small.

 

One caveat is that the ETF's trade at THEIR market value (which can be at a discount or premium to the underlying asset). This is different than a mutual fund which can always be purchased/redeemed at the net asset value of the underlying asset. There may be issues when you go to sell a very small ETF if no one wants to purchase it. Mutual funds can also impose restrictions at times of very high sales activity.

 

VTI is the 3rd largest ETF and also has one of the lowest expenses. It is very liquid.

 

FWIF: Ben Stein loves ETF's and loves VTI. Any of the Vanguard ETF's (or mutual funds) have very low expenses.

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If you like the stock you don't have to liquidate all of it.  You can transfer it in kind to an IRA and only sell some of it.  But your right to be wary of having too may eggs in one basket.  

 

You can easily diversity with a handful of low cost mutual funds or ETFs.  

 

Good luck.

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Whatever you do, make sure that you keep records that prove that you transferred the funds directly into another tax-deferred account.

 

I did a 401K transfer into an IRA several years ago and the IRS tried to claim that I did a distribution to myself.  Ended up having to get a tax lawyer involved and it took several years to straighten it out.  (It's real nice that the IRS sets hard deadlines with penalties for response from taxpayers, but can take as much time as it wishes for its own responses...)

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I reached out to the Goldline folks.  Very persuasive, which means a ripoff to some degree.  They do send you about $2500 in physical metal for any investment over 75k, which would be nice if all the strings where disclosed.  I'm still hesitant about a gold fund.  Just paper if something happens.  Rather have physical control over it.

 

Then again, brass is a good hedge too, but the IRS wouldn't allow that.

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I reached out to the Goldline folks.  Very persuasive, which means a ripoff to some degree.  They do send you about $2500 in physical metal for any investment over 75k, which would be nice if all the strings where disclosed.  I'm still hesitant about a gold fund.  Just paper if something happens.  Rather have physical control over it.

 

Then again, brass is a good hedge too, but the IRS wouldn't allow that.

If you like Gold or Silver then check out the stock Silver Wheaton (SLW).  It is basically a company that finances gold and silver mines and takes a percentage of the output.  It has no investment in actual production but benefits by the increase in value over the cheap price they take the streams at.

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I think ETF's trade like stocks so you have to pay a brokerage fee on the purchase/sale. But $7.95 at Fidelity is relatively small.

 

One caveat is that the ETF's trade at THEIR market value (which can be at a discount or premium to the underlying asset). This is different than a mutual fund which can always be purchased/redeemed at the net asset value of the underlying asset. There may be issues when you go to sell a very small ETF if no one wants to purchase it. Mutual funds can also impose restrictions at times of very high sales activity.

 

VTI is the 3rd largest ETF and also has one of the lowest expenses. It is very liquid.

 

FWIF: Ben Stein loves ETF's and loves VTI. Any of the Vanguard ETF's (or mutual funds) have very low expenses.

If you get the vanguard mutual fund or etf that track an index the fee is .07% annually. Buying it costs whatever the brokerage charges. You choose a fund vs etf based on tax sensitivities on distributions. There are no tax issues in an IRa so no biggie.

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If you like the stock you don't have to liquidate all of it.  You can transfer it in kind to an IRA and only sell some of it.  But your right to be wary of having too may eggs in one basket.  

 

You can easily diversity with a handful of low cost mutual funds or ETFs.  

 

Good luck.

Yes custodian will do TIFs but if you have mutual funds they don't all have distribution agreements and they may have to be liquidated on transfer.

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ETF's can have lower expenses than the corresponding mutual fund. For example Vanguard VTI has a net expense ratio of 0.05 while the corresponding mutual fund VTSMX has a net expense ratio of 0.16.

 

One of the reasons is that once an ETF is created you are buying and selling them between other investors so the ETF doesn't incur many expenses. On the other hand each time you purchase shares in a Mutual Fund you are effectively buying them from the Mutual Fund company. That means they incur additional costs when there are net sales or purchases (they might have to buy/sell the underlying securities.

 

ETF's are ideal for traders but because they can be less expensive to own they also make good investments for the buy and hold investor.

 

One other downside of inexpensive Mutual Funds is that they don't provide many fees back to the brokerage house (like Fidelity) so Fidelity charges you a substantial $75 fee to purchase them.The fee to just buy the ETF is lower.

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If you need that money in your lifetime, precious metals are probably not a good idea, they can be part of your overall portfolio, but never dump too much into them, they are not the sure thing that "prepper" types want you to believe. 

 

Metals can sink and stay low for generations, just look at any long term chart on metals.   Your kids or grand kids may appreciate it, if you are OK with that.

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