Good Morning! I was a non-traditional student and graduated from college in 2006. I have worked get-me-over jobs for the last two years while I interviewing intensely for the "Career" position, which I am proud to say I was just offered. I will begin my new position next week.

The position offers a very good starting salary $55,000 a year and benefits so I will be looking to start investing for my future. Unfortunately like I said I was a nontraditional student and am already 36 years of age with no savings so I feel I really need to "kick it into gear" and start saving a lot.

My company also offers three benefits that I have not received in the past and am not sure how to include these in my portfolio. First the ESOP (Employee Stock Ownership Plan) I will begin to receive this benefit after 1 year of employment and I will not have to pay for this at all. I would be fully vested after 6 years. The thing here is currently I do not know how much to expect from this benefit so it is difficult to add this into my calculations for the future. Also with these plans do I need to be fully vested in them before I move the asset into some other vehicle? Should I move them once I am? I know I don't want all of my eggs in one basket so I feel I might want to sell these stocks when I can and invest that in a retirement fund.

Second is Profit sharing. I will be eligible for this plan after 180 days and then the payout is based on the fiscal year financial performance. Is this taxed automatically or can it be automatically moved into an IRA or some other vehicle without being taxed?

Third is the Flexible spending account (not sure if I am even considered "qualified" under the IRS code section 125 or not. I am wondering if this is the same as the Health Saving Account I have seen here in other forums. They call it a Health care account and it has an annual maximum annual election of $5000 that would be deducted on a pre tax bi-weekly basis. If it is and I choose to participate can I use this money toward non-elective procedures such as corrective laser eye surgery? Is this money taxable at the time of use or will it have to be claimed as income at the end of the year when I do my taxes?

The company also offers a 401(k) program through the Principal Financial Group. The contributions are entirely employee-paid but the company pays all administrative and transaction fees associated with the individuals account. I want to put money into a Roth IRA as much as I can for the rest of this year probably about $200 bi-weekly which will not max out this year’s contribution but in the following years I will be maxing out the IRA and looking to save another $100 per check. First should I automatically choose to invest with the Principal Group because my company will pay for the Administrative costs for these transactions or is that not enough of a benefit to automatically choose that financial group for my investing?
Second, once I have "maxed" out the Roth IRA can I also open a traditional IRA and put the other $200 a month into that or am I limited to one or the other and if so what do I do with the extra $200.

Thank you in advance for any assistance you may have for me. I know that much of this will be explained next week when I begin the job and I will most likely ask many of the same questions at that point but I feel its best to get other opinions.

Have a good day!!


Chris

First off, congrats on making the mid-life move.


Typically w/ an ESOP, you can't move the money out of the plan until after you leave that company. So this will be something that you just let ride until later.


This is tax deferred money to you. Like the ESOP, you typically can't move it out of the plan until you leave the company. The main thing will be to make a well-rounded investment plan using the investment options offered in the plan. Since you have an ESOP, avoid buying company stock in the PS so you're not over invested in the company.


1) No, it's not an HSA.
2) They'll provide you w/ a list of things you can use the flex spending money on, it can vary a little by company (they can be more strict than the boundaries set by the IRS). Generally, yes, elective procedures not covered by insurance are allowed. It also covers doctor visit and prescription drug co-pays. And after a change several years ago, most over the counter drugs (but not vitamins or supplements) are allowed. Like I said, they'll give you a list that will give you some guidance.
3) No income tax now or later, that's the point/beauty of it. The money that's used for qualified medical expenses is entirely pre-tax.


1) If there's a match, be sure to enroll at your earliest opportunity and put in at least enough to get the full match.
2) I assume you mean "should I put my Roth IRA at Principal since they'll not charge me annual fees since I have a 401(k) account there?" If so, that's a personal choice; there are other company's w/ low cost IRA's, but if you like the investment options available to you from Principal, then it would be an okay decision to make.
3) If you mean, should I put money into the 401(k) because they don't charge you fees, well, yes, but that would be making the right decision for a slightly wrong reason. You want to put money in the 401(k) because it's annual limit is entirely separate from the annual limits on IRA's. So you can max out both your Roth and your 401(k) (if you choose). And since the 401(k) is pre-tax, it's better than putting into some other non-IRA account.
4) Again, a well rounded investment plan will be important for your 401(k) money.
5) No, you can't max both a Roth and traditional IRA. They are subject to the same annual limit. You could put part in one and part in the other but you couldn't put the full amount into both.

Thank you for the informationthat clears up alot!!

I think I may have a bit of a misunderstanding as to how IRAs and 401(k)s differ and how they are structured.


This is my understanding is it correct?

My company offers a 401(k) that is not matched and the Principal Group administers the 401(k). My company offers the other benifits to make up for the matching that other companies offer and they pay for the Administrative and transaction fees if I invest in the 401(k). Do companies usually pay these fees or are there fees when people put money into a 401(k) normally?

But the Roth IRA is a entirely seperate thing from the 401(k)? I can choose any number of different companies to invest the money into the Roth IRA. Within the Roth IRA are there different stocks or are they mutual funds or do Roth IRA's vary in make up like mutual funds have different components?

If I chose The Principal Group to take care of the Roth IRA can I choose any mutual fund to have in that IRA or does a company have 1 specific IRA for all customers and these just vary between investment firms? I guess I don't understand what makes up a "Roth IRA"



Thanks again for the input, very helpful!

The 401(k) and your personal Roth IRA are two entirely seperate accounts.

You can have the Roth at any financial institution that you want. A Roth IRA is simply a special type of traditional IRA, which in turn is simply a special type of trust account that has special tax rules and restrictions. The investment options for your Roth will vary from investment firm to investment firm. Some offer only their own mutual funds, others offer a larger selected listing and others offer anything that's available in the stock market. You'd just have to check w/ Principal or any other firm to see what funds they offer.

The 401(k), Profit Sharing plan and ESOP are plans offered by and run by the company, sometimes using a financial firm such as Principal to help w/ the administration and recordkeeping. And you're correct that you employer is likely using the profit share and esop to balance w/ other companies that might offer a 401(k) match.

As to account fees in a 401(k), it varies but most employers (especially larger ones) pay the basic account maintenance fees. Of course there might still be a few small fees that get charged, like a loan fee if you take a loan later on, but that too will vary from employer to employer.

Thank you very much, I think that explains it for me very well! Much appreciated!

Speaking to the fees in 401ks. There are the admistration fees - which you say the employer will pay. There might be audit, legal and other fees paid by the employer. There are investment management & 12b1 fees charged by the fund managers - YOU will pay those. The plan could use expensive funds to reduce the cost of admin fees paid by employer. What you need to look at is the expense ratio of each fund offered. If there is index fund the expense ratio should be low. Compare the expense ratios of the funds to funds listed - pick up a copy of Money, SmartMoney, Kiplingers Personal Finance, or try sites like Yahoo finance, CNNMoney personal finance, or Motley fool to find articles on how to evaluate the fees.

Thinking about all this is going to make my head explode!! Just when I think I have an idea about these things multiple wrenches are tossed into the equasion lol.

The terms Fund and Plan are usually tossed around pretty genericly in articles I have read and it is confusing.
There are 401(k) Plans
Mutual Funds
IRA Plans

So when you mention the need to "Compare the expense ratios of the funds to funds listed... - " are these Mutual funds within varied Plans whether they be IRAs or 401(k)s?

In general how can you find out more about what a financial institute offers for specific Roth IRAs? I know what types of risk I am willing to take, I am looking to take high to moderate risk investment with the opportunity to make higher earnings in the long run.

I have invested in mutual funds in the past choosing different American funds with the kind of risk/reward ratio I am willing to take, how can I find a Roth IRA with kind of diversification and risk reward ratio I desire?
Continued thanks!

I may add to this reply if I get some more time.....

First - - slow down. You don't need to learn all of this stuff in 5 minutes. You need to master a lot of jargon and not mix retirement with medical plans.

You have blasted us with a half dozen options. That's fine, but, the single biggest thing you need to do to build a strong financial base is to live well below your income! Pay yourself first - and I would move the number higher than $400 per month. You didn't mention wife/kids or other financial obligations - if you don't have any, be a more aggressive saver.

Suggestion: start spending some lunch time with folks at this new job that seem to have mastered the different parts of the plan. They may be able to save you a lot of time.

A 401k with no match is not very attractive. Frankly, there should not be a lot of administrative fees. I would be inclined to go the Roth route and have better control over my investment choices and annual expenses.

You can search this site based upon key words like: beginner, custodian, fees, mutual funds, noloads, etc. Many of the other questions you posted have been addressed before.