Multiple accounts stagnant after quitting job.

Question

So I made the move to quit my job of over 10 years a few months back and have never been happier. My one problem is that I now have some accounts that I feel that I could be doing more with.

I had been slowly building a 401K (only up to about $20,000) and had been purchasing discounted company stock (up to about $8,000). I also have about $35,000 sitting in a savings account not really doing anything for me right now. I do have a student loan of about $12,000 that will shortly start billing me.

My question is multipart and might best be answered through multiple posts but here goes:

• What is my best bet with the 401K? I know very little about retirement plans and don't plan to ever touch this money until I retire but could this money be of better use somewhere else?
• The stocks? Just let them ride? I don't plan to buy more since the discount is no longer available to me.
• The student loans.... pay them off in one shot? I have the extra money and it would not be a hardship to do so unless that money can be best used somewhere else?
• With the money just sitting in the bank I get a little sick feeling thinking that I can be doing something better with that.

I guess that I am looking for some direction. I don't have enough money for a financial adviser and too much to just let sit in the bank. I am young enough (38) to take a little bit of risk but old enough to be thinking about not losing it all and having nothing when I retire.

Ideas, links, thoughts.... I am willing to do the leg work if I only knew where to start.

Thanks.

Answer 1

Adapted from an answer to a somewhat different question.

Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over your 401k assets into an IRA. But I don't think that is the case here. If you had a Traditional 401k, the assets will roll over into a Traditional IRA; if it was a Roth 401k, into a Roth IRA. If you had started a little earlier, you could have considered considered converting part or all of your Traditional IRA into a Roth IRA (assuming that your 2012 taxable income will be smaller this year because you have quit your job). Of course, this may still hold true in 2013 as well. As to which custodian to choose for your Rollover IRA, I recommend investing in a low-cost index mutual fund such as VFINX which tracks the S&P 500 Index. Then, do not look at how that fund is doing for the next thirty years. This will save you from the common error made by many investors when they pull out at the first downturn and thus end up buying high and selling low. Also, do not chase after exchange-traded mutual funds or ETFs (as many will likely recommend) until you have acquired more savvy or interest in investing than you are currently exhibiting.

Not knowing which company stock you have, it is hard to make a recommendation about selling or holding on. But since you are glad to have quit your job, you might want to consider making a clean break and selling the shares that you own in your ex-employer's company.

Keep the $35K (less the $12K that you will use to pay off the student loan) as your emergency fund.

Pay off your student loan right away since you have the cash to do it.

Answer 2

What is my best bet with the 401K? I know very little about retirement plans and don't plan to ever touch this money until I retire but could this money be of better use somewhere else?

You can roll over a 401k into an IRA. This lets you invest in other funds and stocks that were not available with your 401k plan. Fidelity and Vanguard are 2 huge companies that offer a number of investment opportunities. When I left an employer that had the 401k plan with Fidelity, I was able to rollover the investments and leave them in the existing mutual funds (several of the funds have been closed to new investors for years). Usually, when leaving an employer, I have the funds transferred directly to the place my IRA is at - this avoids tax penalties and potential pitfalls.

The student loans.... pay them off in one shot?

If the interest is higher than you could earn in a savings account, then it is smarter to pay them off at once. My student loans are 1.8%, so I can earn more money in my mutual funds. I'm suspicious and think something hinky is going to happen with the fiscal cliff negotiations, so I'm going to be paying off my student loans in early 2013.

Disclaimer: I have IRA accounts with both Fidelity and Vanguard. My current 401k plan is with Vanguard.

Answer 3

What is my best bet with the 401K? I know very little about retirement plans and don't plan to ever touch this money until I retire but could this money be of better use somewhere else?

If you don't know your options, I would suggest reading some material on it that might be a little more extensive than an answer here (for instance, http://www.getrichslowly.org/blog/ has some good and free information about a myriad of financial topics). With retirement accounts you can roll it over or leave it in the current account. Things to look at would be costs of the accounts, options you have in each account, and the flexibility of moving it if you need to. Depending on what type of retirement account it is (Roth 401K, Traditional 401K, etc, you may have some advantages with moving it to another type).

The student loans.... pay them off in one shot? I have the extra money and it would not be a hardship to do so unless that money can be best used somewhere else?

Unless I was making more money in a savings/investing/business opportunity, I would pay off the student loans in a lump sum. The reason is basic opportunity cost (economics) - if a better opportunity isn't on the horizon with your money, kill the interest you're paying because it's money you're losing every month.

With the money just sitting in the bank I get a little sick feeling thinking that I can be doing something better with that.

Outside of general savings you could look at investing in stocks, ETFs, mutual funds, currencies, lending club loans (vary by state), or something similar. Or you could try to start a business or invest in a start up directly (though, depending on the start up, they may not accept small investors). Otherwise, if you don't have a specific idea at this time, it's best to have money in savings while you ponder where else it would serve you.

Keep in mind, having cash on hand, even if it's not earning anything, can bail you out in emergencies or open the door if an opportunity arises. So, you're really not "losing" anything by having it in cash if you're patiently waiting on opportunities.

Answer 4

You ask multiple question here.

The 401(k) - move it to an IRA. As others stated,this will lower your costs, and open up a potential I didn't see mentioned, the conversion to a Roth IRA. A year in which your income is lower than average is a great opportunity to convert a bit of the IRA enough to "top off" the lower bracket in which you may find yourself.

The company stock? If you never worked for the company would you have bought this stock? Would you buy it now? If not, why keep it?

The loan is the toughest decision. Will you sleep better if it were paid in full? What's the rate? 6% or more, I'd pay it off, under 4%, less likely. I'd invest much of the cash and the $8000 in stock in a Dilip-recommended VFINX, and use the dividends to pay the loan each month.