July was a month of peace and it was wonderful. No roof to replace, plants are flourishing, and life was nice and relaxing. Net worth increased 7.7% this month despite retirement accounts falling 1.93% this last month (yesterday’s nearly 3% increase in the DJIA will help correct that), mostly because we didn’t have any major expenses to record for the first time in what feels like a long time.

The only significant expense of the month was a wonderful wedding up by the Finger Lakes region of New York where we had a wonderful time. It was a Friday wedding so we drove up early to stay with a college friend. Her family has a cabin on Lake Canandaigua and she graciously let us stay there the night before. We’ve been up there before for holidays and it’s absolutely beautiful. The weather was wonderful, the water looked refreshing, and we were so glad to be able to have a nights sleep after a six hour drive. The wedding the next day was on Lake Seneca and the weather cooperated wonderfully. Afterwards, we stopped by Cornell as one of our friends showed us around his old stomping ground.

All in all, it was a great little weekend mini-vacation.

Irregular Income

As a full time blogger, I pay taxes on a quarterly basis. This means that my income will seem abnormally large for a few months, then drop down significantly for a month, then seem abnormally large for a few months… you get the picture. This is the case for all independent contractors, which is technically my employment status, and I don’t see a need to adjust earnings to account for this. To smooth things out I could adjust my earnings by a suitable withholding amount, say 25%, to make the number seem smoother but that seems like a lot more work than its worth. At the end of the day, the actual number doesn’t matter as much as the meaning behind it and I’ll know the meaning.

If you have irregular income and track your net worth, how do you manage it for your planning purposes? At the moment my income, while irregular, is still pretty stable within reasonable single digit variances. I think of seasonal contractors or teachers as the ones who face this most often when there is a lull in work, how do you, or if you even do, factor this into your net worth tracking?

Laughable Rollover Story

I’ve rolled over my 401(k)s from my two previous employers into Vanguard Rollover IRAs. With the first employer, I wrote about how you should liquidate your funds and then rollover, because otherwise you might find yourself with some dividends left over. Well, I cashed out the dollar or two in the 401(k) and took the 10 cent hit. Three days ago I received another letter, notifying me that my account still had forty cents in it. Unbelievable.

That, and the 401(k) at my last employer had a dollar or two left in them. Argh.

Oh, and the taxes you pay on the withdrawal isn’t even recordable on your return because it’s less than a dollar (and gets truncated).

The Future

Last month we talked about some super-long-term items and then some not so long term, one of them being a pet. That’s still on hold (along with the tankless water heater!) as we’re going to try enjoying life with what we have now rather than adding to it, but they’re still ideas floating around in our mind. Our dishwasher stopped draining so that’s the current minor headache (don’t know if it’s the solenoid, though we don’t hear the thud, or the actual drain pump failing) on the brain right now.

Update: I ordered the pump assembly from AppliancePartPros.com (I chose economy delivery, 4-7 days but it arrived the next day because their distributor is located in Williamsport, PA) and discovered a piece of plastic stuck in the old pump assembly when I removed it. We are lucky the motor didn’t burn out. I put back the original, turned on the dishwasher, and it drains perfectly! I’m going to keep the part around for a few days (thirty day return policy) just in case but it sounds like this mini-disaster was averted.

Until next month!

(Photo: twcollins)

Ever have one of those days where you crank out a bunch of things on your to-do list? I had one of those last week and it had a retirement and investing theme to it (that’s why I’m writing about it!). It consisted of kicking off the 401(k) rollover process, and researching what we needed to do to change the name on a brokerage account and consolidate multiple accounts. These all had to deal with Vanguard and, naturally, they made it painless.

One thing, above almost all else, I love about Vanguard is the fact that I can call their phone number and talk to someone in minutes. I don’t have to play the “hit 0 until the menu system gives up”-game, I just call and wait a few moments until someone picks up. Today, I spoke with a representative named Fred who was very helpful. After figuring out the exact name of the check for the rollover, I asked about changing names on accounts and consolidating them. Since I had called the rollover phone line, these questions were a bit of a curveball but he was able to help me out by linking up with Brian in brokerage services to figure out what we needed to do. That’s service. Oh, and it wasn’t outsourced to someone in a foreign country reading off a script (and they still only charge relative-pennies for their index funds!).

Rolling Over 401(k) to Vanguard

Rolling over a 401(k) to Vanguard, and I suspect any other brokerage, is painless. Simply call up your 401(k) provider and tell them that you’d like to terminate your account and initiate a Trustee to Trustee rollover. For Vanguard, the name on the check is Vanguard FTC; check with your IRA provider for their legal name (this is very important, putting the wrong name can delay the rollover process). My 401(k) provider was CitiStreet and they are required, either by their policy or my employer’s, to mail the check to me. I then forward it to Vanguard’s PO Box (Vanguard Group, PO Box 1110, Valley Forge PA 19482-1110), which will add two or three days to the process. One thing I do need to add to the check package is a Letter of Instruction indicating how they should deposit the funds. Here’s what mine said:

To Whom It May Concern:
   Included is a 401(k) rollover check that I would like deposited into my Rollover IRA account #XXXXXXXXXX. Please deposit the funds into these funds:

      50% into 0533-XXXXXXXXXX (VEIEX)
      50% into 0699-XXXXXXXXXX (VFIFX)

If there are any questions or concerns, please contact me at XXX-XXX-XXXX.

Easy as pie! Unfortunately, I did this last Thursday and missed the post-Google rally by the market on Friday… but one shouldn’t time the market!

Changing Name on Accounts

This is a bit of an extension onto the changing your maiden name after marriage because I never discussed brokerage accounts. To change your name, seek out the “Change of Ownership” section and select the reason you’re changing names - for us it’s Marriage but there are options for death, divorce, gifting, financial planning, and other. Selecting marriage will automatically select the reason “From an individual nonretirement account to a joint account” (there is only one). After that, you select the from accounts, for us it’s a mutual fund account, and then it’s onto the forms (we opted to download and print them, rather than mail which can take up to 10 days!).

send in a copy of your marriage certificate and a Letter of Instruction indicating that you want your name changed from X to Y along with a signature guarantee or medallion guarantee. You can get a signature of medallion guarantee at your local bank and it’s different than a notary. We will be mailing that form to the same PO Box 1110 as the Rollover check.

Here’s our Letter of Instruction for that one:

To Whom It May Concern:
   Please change the legal name on account #XXXXXXXXXX from Jim’s Beautiful Fiancée to Jim’s Beautiful Wife.

If there are any questions or concerns, please contact me at XXX-XXX-XXXX.

Consolidating Accounts

Lastly, we have account consolidation. At the moment, both my wife and I have accounts at Vanguard. In the near near future, we would like to consolidate those accounts into a single sign-on and be able to manage it through one account. To consolidate, we need to change the ownership of her account from an individual to a joint. To do this, there is a change of ownership form on Vanguard.com that we will need to print out and get signature guarantees for. This is necessary because we cannot consolidate accounts until I am considered an owner of the account. The signature guarantees are required because she is essentially surrendering ownership. This was all explained very plainly by Vanguard, which I appreciated.

And can you imagine, that entire phone call took about fifteen minutes (including two minutes of hold time while Fred got Brian on the line). This is why Vanguard is on the list of companies I’d promote for free.

It’s been over a year since my last Monthly Review and I believe it’s time to bring them back. While other bloggers have continued their monthly income statements and balance sheets, I stopped a year ago because I felt it had become counter-productive. The reality is that the numbers themselves are irrelevant because they don’t apply to anyone else and they don’t help people make better decisions or learn from my mistakes. In fact, I felt that the numbers may be a distraction from the ultimate purpose of my monthly reviews, which was the explain both the good choices I’ve made as well as the bad choices.

So, in this return of monthly reviews, I’m going to simply outline the good, the bad, and the ugly of the decisions thus far. From here we’ll see how the month to months go.

Good

• Marriage: Since my wife and I got married this year, our tax situation for 2007 was unchanged. We are, fortunately or unfortunately depending on your perspective, are one of the many couples affected by the “marriage penalty” created by uneven tax brackets (married filing jointly brackets are not double the single brackets). Additionally, since the house and mortgage are both in my name, I was itemizing while she was claiming the standard deduction. Next year, we will be hit with the marriage penalty plus the loss of a standard deduction… considering its something we didn’t have much of a choice about it (hush those anti-marriage folks in the crowd!) we’ll just roll with it.
• Going with Accounting Pro: I’m now working with an accountant to handle some of my business taxes and help me become legit with the online enterprises. There comes a time when you just have to pay a professional and it’s now time for me to pay (rather than to be the professional/consultant!). It’s not cheap but it forces a rigor that is far superior than the record-keeping I had been doing before.

Bad

• Capital Gains: I made a mistake last year in selling some funds for capital gains but then not offsetting them with some capital losses that we should’ve taken, that was a big mistake. We took on about $5,000 in short term capital gains without offsetting it, whoops. That was entirely my fault.
• Stupid Fees: In all the marriage madness and my own ignorance, we took five months of $3 fees for having less than $300 in our savings account at Bank of America, despite having more than enough in our checking account. Dumb dumb dumb. We got $15 back, for three months, but they said they couldn’t go back farther. I was going to push for the other $6 but they wouldn’t budge and, honestly, I don’t blame them. One month I can understand, five? Hmmm… I screwed up.

Ugly

• Stock Market Suckage: This is ugly not because we made any bad decisions but only because it’s happened. In our taxable brokerage account, we’ve had about an 11% in loss on the holdings stretching back into Q4 of last year. That’s pretty gnarly, but nothing we can do, and we’re just going to set it in forget it.
• Honeymoon: Honeymoon is expensive and one of my vices is splurging on vacations. You only get married once right?

The Future

• Rolling Over 401(k)s: We need to investigate the rolling over of all of our legacy 401(k)s to our Vanguard, each of us has one legacy 401(k) to move. It’s not a difficult process, we just need to hammer out the specifics of doing the trustee-to-trustee rollover process for each account. Don’t want to take a disbursement… that’d be ugly (and foolish).
• Consolidating Accounts: We also need to start consolidating all those excess accounts so we can simplify our finances. The process is made much more difficult as my wife is changing her name so we’ll have to wait for those to shake out before we can finalize all of these. I personally have too many accounts to keep track of so it would be good to start cleaning these up.

I hope this satisfies the voyeurs out there, at least for now, but look for more updates starting in May.

If you roll over your 401K into a rollover IRA as I have just recently done, be aware of any dividends that might be coming your way. I held a few shares of stock in a self-directed account associated with my 401K and I believe I rolled over my account after the ex-dividend date but before the actual dividend payout date. Now, if you hold shares of stock on the ex-dividend date then you will get the dividend payout, usually a couple weeks later, deposited into your account. This presents a unique problem for folks rolling funds over because now you have, essentially, orphaned funds sitting in your 401K that is likely under the rollover threshold.

This is exactly what happened to me and I had a little more than a dollar orphaned in my self-directed investment account, far less than the $1,000 threshold. What this means is that in order to get the money, I’ll have to take a lump-sum withdrawal which will be subject to income taxes and a 10% penalty; which is exactly what I did.

Now, this isn’t such a big deal for me because of how little that amount is, but if you’re talking about a 401K that you’ve had for thirty years, this dollar amount could be pretty sizable if you have some of it individual stocks. How can you avoid this? Since you can rollover at anytime after you leave your job, simply double check that you aren’t between the ex-dividend and the dividend date.

Now I have to figure out what I can spend my 99 cents on!

So I recently started the 401k to IRA rollover process, moving my assets from my former employer’s 401k plan to a Rollover IRA at Vanguard, and just today I received the check for the value of my assets that I would be sending off to Vanguard. The check is easily the largest single legitimate check I’ve held in my hand (beating a check that was the down payment for my house a year and a half ago) and I kind of wondered why the plan administrator would mail something so important in regular first class mail.

Anyway, I was very very tempted to just slap a thirty-nine cent stamp on the letter and mail it off but I thought better of it. While I’m pretty sure that there was a 99% chance the letter would make it there without any problems (I have faith in the USPS, even if Nick doesn’t), do I really want to deal with the hassle in that 1% case?

Let’s compare…
99%: I save myself a few bucks.
1%: I’d have a headache. First, it would take me a little while to learn that the check was lost, then I would have to request that my 401k plan administrator void the original check and reissue a new check. That request would likely come with some sort of (unreasonable) fee. Then, after I lose about three or four weeks of appreciation on a pretty sizable sum (to me anyway), I’d send it via certified mail this time. So… I think certified the first time is the route to go.

So, frugality can be a fault and in this case, saving a few bucks could potentially cost me a lot in terms of time, hassle, and money.

Ever since I left my job, I’ve been contemplating rolling over my 401k into an IRA (and then perhaps to a Roth IRA, or just leaving it in the IRA) and came to a realization that if you roll over your account, all of your 401k’s holdings will be liquidated. This isn’t a huge revelation, because you can reach it by realizing that your current brokerage will be sending your new brokerage a check, but it’s something I didn’t even really think about when I was researching the process.

This usually isn’t a big deal if you’re invested in mutual funds (and have no psychological attachment to them and their valuations), part of my 401k is locked up in stock positions that are currently in the red (about -4%). So, do I really want to rollover the 401k now or wait until the position improves?

I’m going to let it sit because I have no real pressing need to rollover my assets. The account is still performing well, the funds are up, and I’m happy with the fees and the services in general.