Mapgirl’s Fiscal Challenge

With the closing of my old 401k plan and the purchase of BRKB, I’ve had to rethink my entire portfolio allocation.

I was overexposed to international stuff before, like 50+% of the old 401k plan. The remaining money was in either an S&P500 index fund or a domestic large cap fund. Either way, all of it stank up the universe for the first half of 2008.

Now that my money is in BRKB, a US large cap company, I need to rethink where my money is going in my current 401k.

Currently, it’s about $4K since I started with my company in January. I’m not maxing out my contributions since I’m trying to pay down my credit card debt at the moment. That $4K is half in international funds, 10% company stock fund, 5% REIT, 5% dividend growth fund, and 5 and 10% slices to some international region specific funds, and some actively managed funds that I wouldn’t normally be able to buy since I don’t meet the minimum account balance. (But my 401k plan is large enough that they let us buy it anyway.)

Now that I’m completely out of an S&P index fund, and I don’t have an S&P500 specific fund, I’m now putting 40% of my ongoing contribution to a total stock market fund. I am also starting to put 5% of my post-tax salary into an employee stock purchasing plan which gets me a 5% discount. I don’t feel the need to stop buying into the stock fund as that is tax-sheltered. I will rethink that if my total company stock holdings are more than 10% of my entire investment portfolio, but that won’t be for a few years anyway.

Along with those two domestic stock investments, I am still putting 5% into a REIT and dividend fund, and small 5 and 10% slices to the same small places as before.

It’s not the most scientific way of doing things, but I’m ok with lots of risk.

The only cash I’m holding is in my rollover IRA for whatever was left over after buying the Berkshire shares and I’ll probably just sit on it till I find something else that’s good to buy.

One other thing I’ve noticed is that I’ve crossed the threshold mark of having over $25K in assets with one investment house. It doesn’t really gain me a whole lot since I don’t have enough to get a break on commissions, but if I was an active trader it would. (Which I’m really not. Like 5 trades a year.)

Now that I covered the non-financial side of my departure from my last job, I will cover the financial side as much as I can. Every place is different. Each time is different but I hope I can offer you something here for your next transition.

The first thing is that I was leaving around the holidays. Holidays are paid vacation days, so I made sure that I was going to save up as much vacation time as I could so I could receive a payout on those days from my company. Not every place does it, but a lot do. I took every paid holiday that was available to me, except the floating holiday that I get to use on January 1st every year. That would have been another 8 hours of vacation saved for me to receive as cash, but I didn’t want to ask my boss to approve it and then let me take the day as a 2007 vacation day. That would have been ethically shady. Either way though, I had two days for Christmas Eve and Christmas, two days for New Year’s Eve and Day, and two days post-Christmas. In two weeks, I only worked 4 days. Not too shabby.

The second thing is that I was leaving before bonus season and I had to gauge what bonuses would be like. Would they be a paltry sum or would they be the maximum amount available? Word on the street was very quiet. I couldn’t tell, so I assumed that meant they weren’t going to be that good. I weighed the opportunity cost of waiting with the present value of a higher salary. No, I didn’t do the firm mathematical calculations, but I decided the present value of a higher salary was going to be worth a lot more to me, as well as better benefits with the new firm.

The third thing is what to do with your 401k money. I knew I was forfeiting a decent chunk of my corporate match by leaving before fully vesting, but since the match is so low, it didn’t really matter. In a month or two at my new pay rate, I’ll have made that money back. I am going to pull this money out and roll it over into an existing Traditional IRA I have already. Never leave your money behind at your old company’s plan. You usually have 90-days to figure out what to do. By then you can see what your new company has in equivalent investments and roll your money into the new 401k plan, or into an existing IRA (with some restrictions).

Along with that is to double check if you have restricted funds. I just found out that due to some small transfers into an International fund, I cannot sell without a small penalty. I have to wait 60-days from my last purchase/influx of funds to sell without the penalty. C’est la vie. That’s just a calendar item for me in a few weeks. What I needed to do, was stop contributions to that fund entirely, but hopefully the market will do better anyway before I sell.

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Per the commenters on my dental financing post, I needed to look into IRA contributions more carefully. Without getting too specific about what I make in income, I am hitting to the phase out point. Over the last few years, the contribution rules have changed and apparently, I’m behind the times. I needed to do some more research on the rules.

It turns out that my AGI will be well over the 2007 Single Filer limit for IRA deductibility, which is an AGI of $52K. WOW. I have totally not been paying attention. Even if I was maxing out my 401k contribution, I don’t think I’d be under $52K. Investopedia has a nice chart with the 2007 IRA contribution limits. Scroll to the bottom to read the table.

I also found this IRA contribution calculator at Smart Money and when I punch in my info, it tells me that I can no longer deduct Traditional IRA contributions. I am left with ROTH IRA contributions only. Bummer.

Why is this a bummer? Well, I’ve put $900 into a Traditional IRA account for some stock market mad money. Now I know, I can’t keep adding to that account and get a deductible benefit. So there’s no point in having Traditional IRA accounts anymore. Nuts. Welcome the world of great income, Mapgirl. GOOD JOB!

I am now stuck holding two low value Traditional IRA accounts and I think I should consolidate them by closing my stock trading account and roll it into the existing Fidelity account I have. I am going to have to think about this since I would be selling stuff off at a serious loss. I wish I had thought about this earlier in the year, I would have closed the stock account sooner before this summer’s wacky performance.

Everything is a mixed blessing in this world. Now I know. I have to open a Roth IRA.