Should I not sign up for 401k?

[Fallen]

Probably best to start with a 5k and work your way up from there.

 

[AznTrojan]

put up the company match in the 401k.. then max out a roth ira.. then put whatever's left into the 401k...

 

[AznTrojan]

Roth's are great, except for the limits. This year I think it is $127K. If you make more than that, you can't contribute to a Roth. I think it's on Modified Adjusted Gross Income, but could be wrong.

you can always fund an IRA and then go backdoor to rollover into a roth ira

 

[BORCAT]

Sign me up TS.

 

[MASShole]

Cheers.

So you don't personally get to choose who manages the money, your employer chooses for you, is that correct?

The company you work for will contract with an outside investment firm, and they will collaborate with the company to choose investments inside your 401k for you. For example, I work for company X, and they partner with firm Y who will be the fiduciary of your funds. Company X will withdrawal the 401k investment amount in total, send it to company Y (within 30 days, most of the time immediate), and company Y will invest it according to the funds you have designated. You can access company Y's website and see how you're doing, change investment allocations, etc.

Most of the time there will be choices across the Morningstar style box, and then specialty funds, along with target date funds. For my 401k I generally invest in the lowest cost index funds for large, mid, small caps, and an international index. This time I got a good PIMCO bond fund in my 401k so I put 10% or so into that.

For us an IRA is like your "salary sacrifice", but there are several different types of IRAs (Roth, Traditional, non-deductible) with a limit of $5500 for the calendar year 2013. The one to invest in depends on each person's individual situation, like total income for the year, etc.

 

[osudude]

I like that 15% tax rate on withdrawals for retirement. Ours is claimed as regular income and is taxed at your appropriate rates upon withdrawal.

There is an after-tax option called a Roth IRA (or Roth 401k, which is rare) so you can have tax diversification for withdrawals. If anyone asks, I generally say invest in your 401k up to your match, then max out your Roth IRA, then if you need to, invest more in your 401k up to the max.

My employer is offering Roth IRA for the first time starting next year and I'm thinking I'm going to do exactly that.

 

[MASShole]

My employer is offering Roth IRA for the first time starting next year and I'm thinking I'm going to do exactly that.

Cool. My employer offers traditional 401k and Roth 401k. I split my 401k investments between the two. Tax diversification, baby!

 

[Lead]

401k is a corporate lie
Don't fall for that nonsense.

If you don't believe me, ask all the employees that listed ENRON on their resume as well as many other corporations that took advantage of the economic crises and then filed for bankruptcy shortly after.

Do you know anything about what your talking about?

A 401k doesn't even have to buy stock or mutual funds. As of right now, the small amount I put in is sitting in the account until I find the right place to invest it. Until then, I'm making a 50% match every month for what I put in.

So even without investing/risking the money I put it, I make 50% on every deposit.

But yea, Enron is really what the entire nation is looking like when it comes to 401ks :icon_lol:

 

[GrenadeEffect]

you can always fund an IRA and then go backdoor to rollover into a roth ira

You can convert from a traditional IRA to a Roth but that

 

[MASShole]

You can convert from a traditional IRA to a Roth but that’s a taxable event. You can’t do a direct rollover from a traditional to a Roth. Also with IRA’s (assuming you’re under 50 years old) the yearly contribution limit is currently only $5,5000.00 per year. With a 401K you can actually contribute up to 15% of your salary (obviously most people can’t afford to do this).

Also with the money you are contributing to your 401K you are reducing your taxable income (not the case with a Roth IRA). And as it’s been mentioned most employers typically will match the first 3-6%. Also if you ever need money you can borrow against it.

So TS yes, diversify in various mutual funds and in the long term you should be good. Ideally you should have both a 401k and a IRA.

Mostly correct.

You can contribute all of your salary into a 401k, up to $17,500 for people under 50 years of age (50+ gets a $5000 catch up allowance).

There are ways to avoid tax implications on Traditional to Roth conversions, but most of the time you will ending up gaining "income" that you have to report on the conversion. It is kind of a pain in the ass, and almost everyone should talk to a professional regarding it.

Here's a good calculator to determine your taxable income on a conversion if you choose to do it: http://www.schwab.com/public/schwab...ding_iras/ira_calculators/roth_ira_conversion

 

[ElKarlo]

No they are not required to contribute to our 401k plan. Usually most offer a match though, like I put in 4%, they match and add 4% as well.

They are required to contribute to social security though. We have to pay into social security 6.2% up to $117,000 in income with each check, and they add 6.2% on that as well.

Most only out in 50% of what you put in. At most jobs you put in 5-6% whatever is the max for matching and they put in 2.5-3%

 

[MASShole]

Most only out in 50% of what you put in. At most jobs you put in 5-6% whatever is the max for matching and they put in 2.5-3%

Yes, I'm aware. The 4%/4% was an example.

 

[GoatGoat]

you can always fund an IRA and then go backdoor to rollover into a roth ira

Yes, having to claim it as income and pay taxes is a concern though. I know you can split it between two tax years, but it still would be a hit. I have 3 Roths right now and about 1/2 my retirement is in those, with the other 1/2 being in traditional. I'm assuming when I start to withdraw from my traditional, I'll have a much smaller income so my tax rate would be considerably lower.

 

[Omegaboy13]

Hell yeah you should. Shit do 401k, Roth, and pretax deferred comp on top of savings. Don't for a second think that a 401k is enough to live off of. Most 401ks and retirements average about 60% of your salary or pay when you're retired. Can you live off of 60% of your pay...... before you answer that ask yourself what the tax rates and inflation will be 20-30 years from now. My retirement is 10% and my employer match is 8%, free money.

It's your money.

 

[RJ43]

To really touch on the TS point is seems as though he's afraid of the government defaulting on everything and everyone losing their shirts.

401k's are not FDIC insured so there is always some degree of increased risk in investing in them. There are other layers of insurance for many holdings within a 401k, but you could conceivable lose a great deal of your wealth under rare circumstances.

That being said I don't think the risk is real enough to justify opting to something insured like a CD unless liquidity is an issue for you. I believe the likely pertinent points are that 401k holdings are likely to ebb and flow per usual and will turn a significantly higher return than anything that is insured.

In general my 2 cents (and it's worth about that much) is to carve out as much disposable income as you can, and then break that down into portions something like:

- Debt Paydown as top priority (Credit Cards, Loans, Mortgage if your rate is brutal)
- Liquid emergency fund in the form of CDs or high yield savings.
- Balance to a long-term retirement account that you rarely monitor.

Do those things and you'll be leaps and bounds ahead of most Americans if the stats are remotely true.

 

[ElKarlo]

Yes, I'm aware. The 4%/4% was an example.

I gotcha. Just staging equal matching is rare

 

[WorldofWarcraft]

Back in 2001, I knew this guy who had been putting in $300 a month for the last 15 years or so, then after the crash, he told me he was down to like $8k.

I just did the math and if he had saved up the money instead of putting it in his 401k, after 15 years, he would have at least $54k.. that's a LOT of money he had lost. After that happened, he had stopped his 401k.

 

[Omegaboy13]

Back in 2001, I knew this guy who had been putting in $300 a month for the last 15 years or so, then after the crash, he told me he was down to like $8k.

I just did the math and if he had saved up the money instead of putting it in his 401k, after 15 years, he would have at least $54k.. that's a LOT of money he had lost. After that happened, he had stopped his 401k.

Eh. It all has risk. I don't think the key here is to NOT do 401k, but to diversify.

 

[ElKarlo]

Eh. It all has risk. I don't think the key here is to NOT do 401k, but to diversify.

My portfolio didn't go down that much. Guy must have had a high risk portfolio or something dumb. And no diversification

 

[WorldofWarcraft]

If he had $54k put in, plus the company's match, I wonder if he had over 100k at the peak of his 401k.