I Just Rolled My 401k Into an IRA

Earlier this year I left my job to take a similar role at a company with a better location and hopefully a bit more upside growth potential (and a little bit more money, of course!). In just over four years there, my 401k had grown to nearly $40,000. I let it sit there for the past six months while I considered how I wanted to proceed. Once the COVID-19 induced pullback happened shortly after I left, I was reluctant to move it since I would have to close all my positions at a big loss. The account balance dropped down to about $31,000, which was actually a negative overall invested return at that point (i.e. I had contributed more to the 401k than it was currently worth)! I felt the market would recover most of its losses fairly quickly (I was right… and am happy I invested extra cash in our taxable brokerage accounts during that time) and was concerned some of that recovery would happen while I moved funds around. So there it sat for about 6 months.

I considered rolling it into my current employer’s 401k plan so I could keep it all together. The other benefit to doing this is that I would have a larger amount in my 401k to take a loan out against in case I found the right deal I wanted to pull the trigger on and needed some extra resources (I know most of the literature out there says 401k loans are a bad idea, but I’m not considering it to buy a truck or an RV! This would be exclusively for buying assets like rental properties.).

One thing I don’t like about the 401k’s is that I don’t have that many options to invest my money. With an IRA, I can pick and choose my investments. And in the event I get tired of picking and choosing, or I’m unhappy with my performance, I can always just put my money in some ETF’s or just buy the same mutual funds I used to have in my previous 401k.

As I started to see the power in options trading for increasing portfolio returns, I began to lean much more favorably toward an IRA. I considered rolling it over into a Roth, but my household income is still below the maximum income limit to contribute to a Roth, so I still have the option to fund a Roth going forward without paying a large tax bill now for the rollover. If I ultimately open up the Roth, I will definitely discuss my strategies for that account as well. For now, it’s just another traditional IRA. A final point that I think is worth pointing out is that my wife and I still have 401ks that we contribute to regularly, which gives me more freedom to invest this portion myself.

How I am investing ~$42,000

After the bounce back from the COVID-19 panic, my portfolio climbed back, and eventually comfortably surpassing its previous highs, to almost $42,000. This past Friday morning I opened my account and to my delight found the wire transfer was complete! So much cash! So many possibilities. Without going into too many gory details on how I plan to trade this account, here are the trades I made in day 1:

  1. I bought SPY, QQQ and IWM. These are my reference point. I think it will be fun to always check these holdings to get an idea of where I would be if I had just invested all my cash into one of these (or all three) index funds. The bar has been set!
  2. I sold a put on AAPL. As long as I’ve know what a cash-secured put was I wanted to “write a put” on Apple! Finally I have the resources to do so. I sold the November 20 $106.25 put for a $170 credit. I immediately bought one share of Apple at $120.31.
  3. I sold a put on O. REITS are on my wish list for this account, including O first and foremost. I sold the November 20 $60 put for a $128 credit. I then bought 2 shares of Realty Income at $60.56.
  4. I sold a put on SBUX. Starbucks and Apple. A match made in heaven. I sold the October 30 $85 put for a credit of $100. I then bought one share of Starbucks at $88.70.
  5. I sold a put on T. I sold the November 6 $26.50 put for $45 and then, you guessed it!, bought one share of AT&T at $27.46.

I now have two-thirds of my opening balance put to work, with $1,1512 in long stock, $28,677 being held as collateral, and an extra $75 in cash generated. Things are off to a fine start!

$1 Million Portfolio

Here’s my pie in the sky: turn ~$42,000 into $1 million by the time I retire (which we will say will be 30 years from now). Since my wife and I both have 401k’s, we won’t be able to contribute to this account going forward, which means I will have to do all the heavy lifting myself. In order to do this, I need to achieve a CAGR of 11.2% (or 0.89% compounded monthly). A lofty goal indeed. Let’s see what happens!

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