As you all know, I’m trying to learn more about investing. I’m not quite ready yet, but would like to learn.
I met with a financial advisor today who told me, that I can take my rollover IRA, that I’ve contributed funds to after taxes, and roll back into my 401(k) on the job. Now, I’m not that knowledgeable but to my understanding this is a no-no and can be viewed and double dipping. I remember reaching out to a Fidelity adviser who informed me it wouldn’t be best to do that.
What’s your thoughts? I’m just looking for your input, and will definitely review on my own as well.
Financial Advisor
November 19th, 2019 at 11:13 pm
November 20th, 2019 at 12:35 am 1574210113
NO, you do not want to take post-tax money and roll it into your pre-tax 401k account. It might be allowed but you're setting yourself up for an accounting nightmare down the road. Plus, why would you want to do that anyway? You have complete control over your IRA and have virtually unlimited investment options. In the 401k, you're stuck with the choices they give you and odds are the fees are higher.
I hope you didn't spend much for this wonderful advice.
November 20th, 2019 at 12:58 am 1574211502
Now you stated that you put additional funds (post tax) into a rollover IRA? I definitely would not move this back to a 401K, primarily because you have commingled 'new funds' into it. I'm pretty sure I advised against this at some point to you. Because it my mind once you do that you never have the option of rolling back to a 401K. And as Steve said, it's very messy at tax time. If you want to invest in your current 401K at work, just add more money each paycheck.
November 20th, 2019 at 02:20 am 1574216457
November 20th, 2019 at 04:05 am 1574222749
November 20th, 2019 at 01:26 pm 1574256411
#1, as Steve pointed out, you have contributed post-tax money to the IRA as well. If you had a separate rollover IRA that was all pre-tax and another that was post-tax, it might be worth considering in certain circumstances (discussed below).
#2, generally higher fees than you can get on your own
#3, always fewer investment choices
(just to repeat what others have said)
Reasons some people might want to (tho really for just pre-tax money):
Additional creditor protection. 401ks are protected by the ERISA laws and are safer in that sense than IRAs. But as long as you are not in a field where you are likely to be sued, that is unlikely to be a big concern.
More generally: a couple of things to look for when dealing with an advisor: look for RIAs, Registered Investment Advisors rather than Broker-Dealers. Ask how they are compensated. The answer you are looking for is "Fee-ONLY," and NOT "Fee-based." If you are dealing with an RIA, ask for the "ADV," which is a brochure where they will spell out the dealings of their operation and how they are compensated. These vary tremendously, so they are worth reading. You want one that has low fees and simple and straightforward and not a whole bunch of different programs under which clients get charged.
Also, look for a CFP, Certified Financial Professional, for someone with broad training that incorporates lifestyle elements. A CPA may have tax expertise, a CFA is an investment expert, and a ChFC, Chartered Financial Consultant is a CFP on steroids (they have all the CFP training and then some). The CFP and ChFC are the designations to focus on for retirement advice. Above all, you want a fiduciary, who will ALWAYS operate in your best interest. CFPs, ChFCs, and RIA offices will work under this standard.
The advisor may not have had bad intent, but may not have paid attention to the fact that you had funds in the IRA that included your post-tax contributions.
November 20th, 2019 at 02:29 pm 1574260180
November 20th, 2019 at 11:02 pm 1574290969
November 21st, 2019 at 02:27 am 1574303240
You said that you're trying to learn more about investing. Ultimately, it really isn't that complicated. People make it far more complicated than it needs to be but you can learn all you need to know in a very short amount of time. And the forums here are an excellent place to ask questions and have things that you don't quite understand explained better.
One of the biggest drivers of investment success is keeping expenses low. As soon as you add a paid advisor into the mix, you immediately put yourself at a disadvantage.
November 21st, 2019 at 07:35 pm 1574364917
November 22nd, 2019 at 02:26 am 1574389566
I’m not planning to invest anytime soon; however, I’d like to understand investing and what it entails, I’m simply just trying to educate myself, lol. I’m sure the day will come when I’m more financially fit to do so, so figured why not learn now and be ready. I’m behind on the eight ball with retirement and it scares me.
November 22nd, 2019 at 09:14 pm 1574457289
1) Andrew Tobias, The only investment guide you'll ever need will give you a broad background.
2) Allan Roth, How a Second Grader Beats Wall Street will give you the basics of an easy DIY portfolio for accumulating income in low-cost, broad-based mutual funds or ETFs--one so easy that a second grader could implement it. Then look at the following article for an update on the portfolios: https://www.portfolioeinstein.com/allan-roth-second-grader-portfolio/. This latter page has allocations that also adjust the portfolios for risk. Obviously a second grader has a huge time ahead until retirement and if you are near or over 40, you don't want to be invested that aggressively and should suggest an allocation that is more moderate.
3) The Boglehead's Guide to Investing would be my next suggestion, again focusing on low-cost broad-based mutual funds and ETFs.
That should give you a good start. While I agree with Steve that you can do this on your own for now, I disagree with him that a financial advisor is always a "disadvantage." Note that I do work in the industry, though I am not yet an advisor myself. Advisors CAN provide value, but they do so more for people with large portfolios, who are business owners or executives with equity compensation, who are nearing or in retirement, or who otherwise have complex situations. While you are in the accumulation phase of saving for retirement, investing should be easy--it's a matter of setting aside as much as you can in your retirement plans and
(while not putting in so much that you don't have any liquidity for covering life events that occur), then finding an appropriate asset allocation, and checking and rebalancing the portfolio back to your target percentages once a year. At this point, that's all you need.
Most financial advisors make their MONEY by advising your investments but the real VALUE that can be added comes from help in decision making--for example, how to determine the amounts to save for your children's education and your own retirement when you don't feel that you earn enough to fund either as much as you would like; how to choose a Social Security filing strategy (which is more complex when you are married, widowed, or divorced), how to optimize your expected tax situation, particularly in retirement, how to have a strategy that will give you the confidence to stay the course once there (inevitably) is another recession. Investing in the accumulation phase is the easy piece--it's managing your life with limited resources especially in the distribution phase that is the much tougher part.
November 23rd, 2019 at 12:33 am 1574469219
I agree that there are times when major decisions need to be made, like with Social Security as you noted, when professional advice may be beneficial.
November 23rd, 2019 at 12:39 pm 1574512791