Hospital 401K with Principal Financial

[DevinC12784]

I'm a first year resident and just opened a Roth 401K with my hospital through Principal Financial.  I then read chapter 10 about investment fees and I assume they are too high since it is primarily an insurance company.  I'm debating my current options:  1.  Allocate all funds to the lowest expense accounts like index funds and bonds 2. Just hold steady and wait until after my 3 years are up then rollover to a Vanguard account.  3.  Invest in a Roth IRA with Vanguard instead of 401K

 

I'm unsure of the best option and would appreciate the input.

 

[Dicast]

It all depends on how high the fees are with your hospitals roth 401k investments, matching, and vesting.  Just because it is administered by an insurance company does not mean that the investment is poor.  Looking at the principal site their s&p500 index fund has an expense ratio of 0.49% with up to what would appear to me to be a 1.5% load but not all plans necessarily have to have that load.  If it is a load inside your 401k I'd say get whatever match if it is available for sure and after that I'd see how much I could stuff in a Roth IRA.  If you max the IRA and still have money left over the question is "Do you invest despite the load?".  I'd have to say that with your tax rate as a resident your money would likely provide more of a benefit in a loaded Roth 401k than going taxable...or could you just use that money to pay off loans?

[Joseph]

You will need to look at the investment options.  Feel free to post of list of the names and their expense ratios. That will be telling.

Most of the time even a terrible 401k menu is going to be better than nothing at all.  Especially since this is short-term for you.

[RetiredERdoc]

How much do you plan to invest in the 401k? You can certainly fund a roth ira for you (and spouse if there is one) first, then work on maxing out the 401k.

Of course do the 401k to the match if there is one.

[ACN]

Also, read your 401k options very closely from the hospital.  We are offered a retirement plan here, however, residents DO NOT qualify for employer match.  Thus, I choose to open a Vanguard Roth IRA instead.

[litovskyassetmanagement]

Devin Carroll wrote:

I’m a first year resident and just opened a Roth 401K with my hospital through Principal Financial.  I then read chapter 10 about investment fees and I assume they are too high since it is primarily an insurance company.  I’m debating my current options:  1.  Allocate all funds to the lowest expense accounts like index funds and bonds 2. Just hold steady and wait until after my 3 years are up then rollover to a Vanguard account.  3.  Invest in a Roth IRA with Vanguard instead of 401K

 

I’m unsure of the best option and would appreciate the input.

 

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Sometimes retirement plans offer a brokerage window.  I use these quite often when the menu is too expensive.  This way you can invest in a portfolio of index funds (I prefer ETFs because these are much cheaper though brokerage windows).  This information should be part of your plan's enrollment materials.

If there are some basic choices, take what you can.  Worst case, invest just to get the match, and invest in a Roth IRA and after-tax instead if the fees are outrageous.  Remember that it is not just the cost of investments that drags your down - actively managed funds often underperform the index funds by a lot more than just the fee spread.

Sometimes there is nothing to pick in the menu that's low cost.  I would suggest complaining to the hospital administrators as well. Making noise is always a good idea.  After all, with all of the lawsuits of retirement plans with high fees they should listen.