Investing, KISS: Roth 401(k)

For a few months last year while I was trying to figure some things out, I put my 401(k) contributions into the Roth instead of the Traditional. This is super annoying now because the funds that it has are in parallel with the Traditional 401(k), except that they’re tiny amounts, so it gets pennies (ish…) of stable value income each month and a few dollars of S&P 500 and Total International dividends every quarter. In essence: it’s just an annoying paper trail. So I’m going to simplify!

Since my stocks asset allocation is currently a bit overweighted to international vs. US, I’m going to exchange all of the money into the S&P500 index fund. With this move, plus all the stock dividends coming in next week (!), it looks like my entire 401(k) contribution for the next two months will be going to the stable value fund.

Scratch that, I’m going to do a double exchange instead (order of operations is important because of Vanguard’s exchange rules, so the exchanges to the stock index funds have to happen first and the exchange from the stock index fund last):

  1. In Roth 401(k), 100% ($X) from stable value to S&P 500 index fund.
  2. In Roth 401(k), 100% ($Y) from total international to S&P 500 index fund.
  3. In Traditional 401(k), $X + $Y from S&P 500 index fund to stable value.

That will keep things exactly in line (almost) AND reduce the paper trail on the Roth account!

With that little bit of rearranging and the stock dividends this month, I should put 93% of my December 401(k) contribution into the S&P 500 index fund and 7% into the stable value fund. Ignoring that rearranging and just looking at the expected stock dividends, it looks like I should do 50/50 into the S&P 500 index fund and the stable value fund. That’s way off from what I set it at a few months ago (72/28), so I’m going to update it. I’ll probably wait until January I will do the Roth “fixing”, so I think I’ll just update my contribution allocation to 50/50 to be safe and re-visit my contribution allocation for January.

I’ve also already updated my 401(k) contribution % for 2013 to contribute $17,500 [1] since less than that from my December paycheck is going to max it out anyways. I’m pretty excited for the extra $500/year, even though it is a bit under $500/year less that I can use to pay down the mortgage! Readers, have you updated your 401(k) contribution % for 2013?

[1] http://www.irs.gov/uac/2013-Pension-Plan-Limitations

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15 thoughts on “Investing, KISS: Roth 401(k)

  1. We’re not doing the max this year (which would be, let’s see, 6% of our salaries + 6% match + 2*403b limit + 2*457 limit + 2*IRA limit = more than DH’s gross salary), so no updates. In fact, we stopped contributing to DH’s 457 in anticipation of him leaving his job next May.

    • I wish I had only one account and the $1000+ back in taxes. I doubt my marginal tax rate in retirement will be 28%. Plus, this will make a rollover just a bit more annoying.

  2. You might need to ‘splain this to me. The beauty of 401k’s is there is no filing needed or paper trail. So, who cares if you get “pennies” in dividends each quarter? The “pennies” get added into your value (actually, the NAV of the fund will drop to account for this) and life goes on. No taxes are due with dividend distributions within 401k’s and when you go to make a withdrawal, no one cares how much was dividends and how much was capital gains, as it is all taxed the same when a distribution is made. IRA’s are a bit more complicated, as you should keep track of your basis, but that is just the 5498’s sent out each year.

    • You’re right. It is irrational and I’d rather just have the traditional account. But since I can’t change that now, I can consolidate the Roth 401(k) money into one fund.

  3. I used a Roth 401k for a little while, too. I would prefer to just have one account!

    Have not yet updated my 401k amount for next year but I will soon. I only get paid one a month so I have awhile before I need to make the change!

    • One account would be awesome! I only get paid once a month too, but I already updated it since it won’t make a difference on December and I don’t want to forget.

  4. Yes.. I am planning to make out 401K next year also. I will make an adjustment to my allocation next week after my final paystub for the 2012 year is cleared. This year contribution will be $16,997 can’t get any closer to 17K than that.

    Next year will be 17,494.

    It turns out it looks like I can do in service distribution of post-tax 401k… I am going to confirm the details of this in early 2013 and if all goes well. I am also planning to do about $10K to post-tax 401K in 2013 and will roll that over to Roth IRA in 2014 the same.

    • Strange! My employer automatically stops taking money out when I hit the max. I’ve had to round the percentage and have more taken out Jan-Nov and then Dec is never a full one. $16,997 is pretty close to $17k though :) But…mine doesn’t have the post-tax option that yours does, that sounds quite interesting.

  5. What?! You can choose? I can’t seperate the Traditional and Roth in terms of investments. I can pick my allocation and the 401k company splits it that way among both accounts.

    • My 401(k) has three separate accounts: matching, traditional, and Roth. My matching funds are initially put into my employer’s stock, but I move the money into a S&P 500 index fund every once in awhile for better diversification. When I want to exchange funds around, I can choose which account AND then which index fund I want to exchange money/shares out of. That said, the allocation for contributions is the same for both traditional and Roth, though I can easily change that every month (if I want).

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