401K : Take advantage of it. :::kind of a lengthy post but good.

[puregroove]

Hey everyone... I just wanted to share this with you guys. You may agree and you may not agree. You can take it for what it's worth. This is my view of it.

401K 0wnz! I think it's a great way to have your hard-earned money work for you. :::I'll go ahead and insert the good stuff here. ::: Every company is different. Where I work: I can have between 1-20% of my paycheck deducted for the 401k account. Now, my company matches 160% on the first 4% of employee contributions. Here's the math for better illustration: Say I have 4% deducted from my paycheck...for example's sake, a gross of 600.00 which is 24.00. 160% of 24.00 is 38.40. THAT'S 14.40 FREE MONEY! If you make more, obviously you can contribute more and have more matched. Now, do this for every paycheck and it starts to add up after awhile. Keep in mind I can contribute up to 20% tax free. If you contribute enough, you may qualify for a lower tax bracket...less taxes for you!

Get this: I can contribute up to 10% of my paycheck and not really even notice that it's gone because that's how much is taken out for taxes anyway! --give or take 20.00

The catch to 401k is: there are penalties for withdrawing early. Retirement is when you can actually withdraw w/o any penalty. One good thing is...you can take out loans against your 401k and actually pay yourself back. This is not recommended, however, if you're not responsible with paying debts.

As stated in the description, your company may or may not offer this as one of their benefit perks. I used to think this whole 401k deal was for old people.

No one ever told me that I could take money from the amount I earned every paycheck (the gross amount which is before taxes (pretax)) and put it in an account--having it invested in funds/stocks.

I also have an ING account which is pretty much a savings account with an interest rate of, currently, 3.75% APY (annual percentage yield). It's better than your local bank, but still not enough for me--better than nothing.

Now, I used to work for eckerd as a pharmacy technician. It was your average run-of-the-mill job. Many of you could have applied for the job and have easily gotten hired. My point is, if I had known about the 401k that was offered, part of my paycheck would have been goin' towards that instead of taxes.

I've just made my elections to have the money distributed to different funds. This is going to be good.


Like I said, if I had known about this earlier, I would have started this when I was 20. You can do the math...save, invest, make more money with your money. Be smart with your money.

Please discuss...anybody else doing this? I know some of you are. Being smart with my hard-earned money is just what I like to do. You guys know how it is.

Then, again: to have fun...you know what they say. You have to pay to play. B)

-Eddie

[Vuongy_Dong]

good write up man. I also have 401k. I'm contributing 15% of my gross pay. but company only match 2% of 4%. but hey, its free money. I've started in febraury and now have a lil over 7,000. i figure $9,000 a year times 41 more years before i retire. thats $369,000 not including company share and interest. I figure i probaly have close to a million when i retire.

[civic95]

Good topic. None of us should count on social security. We'll have to be 67 (maybe older) before we can even start to draw any. Thats if it still exists. I definitely don't want to work that long. I don't even know if I'll live to be that old. I've been contributing to my 401K since I was 17. The company I'm at now only matches $.50 to the $1 up to 3%. But hey it's better than nothing. A lot of people older than me at my work are scared of 401K, because they don't know much about it. But if they would sign up they'd be getting a raise so to speak. It grows slowly in the beginning, but the longer your doing it the more you have. The more you have the faster it grows.


Another good thing to invest in is Roth IRA's. Some think it's better than 401k because your not taxed on the money you make. Where as with 401K, your taxed on growth when you withdraw it during retirement.

[puregroove]

Right on, guys.

95boostedteg, I used to think the whole investing deal was about taking money you were making after taxes and investing it until I did some further digging. Instead of letting the taxes eat it up, this is a great way to still keep the money that we work so hard for and still have the money you make after taxes.

Yeah, I've heard some good stuff about Roth IRAs. I'll need to do some more research on them--good mentioning it.

[chrisdavis]

Another good thing to invest in is Roth IRA's. Some think it's better than 401k because your not taxed on the money you make. Where as with 401K, your taxed on growth when you withdraw it during retirement.

Thats because money deposited into a Roth IRA is post tax. A traditional IRA is pre-tax and can be used for a tax break. I talked to an adviser about both and I think I may go with a traditional IRA.

I am lucky on my 401k
Company automatically deposits 3.5%
Company also matches up to 3%

Basically you put 3% they put 6.5% It's one of the few good things about them

[ironchef]

Is 401k available only to full time employees or do part time people get the opportunity?

[puregroove]

I believe it's, more than likely, a full-time benefit. However, I don't see why part-time employees wouldn't be able to start it. You'll have to check with your company's human resources dept. The other cool thing about 401k is: the money can be rolled over if you ever switch jobs. It's a separate entity aside from your employer, so you're protected in the case of the company filing bankrupt as well.

[Vuongy_Dong]

Right on, guys.

95boostedteg, I used to think the whole investing deal was about taking money you were making after taxes and investing it until I did some further digging. Instead of letting the taxes eat it up, this is a great way to still keep the money that we work so hard for and still have the money you make after taxes.

Yeah, I've heard some good stuff about Roth IRAs. I'll need to do some more research on them--good mentioning it.

one catch to the 401k tho. Its takes out of your gross pay tax free. but in the end, when you withdrawl, you will pay taxes. its a good thing and a bad thing. I rather let it make lots of interest during tax free deduction out of my paycheck than letting it take out of your take home pay.

[puregroove]

in the end, you'll most likely be in a lower tax bracket anyway...it's not as bad.

[Vuongy_Dong]

yea. true

[xxrealmsxx]

I max it out, after a year my company matches what I put in.

http://www.fairmark.com/rothira/rothvemp.htm

is a good read for people interested in the subject.

hope i dont get fired for posting @ work = X.

[puregroove]

^^^ good read

[Julio]

bump. great topic.

[puregroove]

Ha!...It's been awhile. Thanks, though. My 401K's still growin'.

[Julio]

Ha!...It's been awhile. Thanks, though. My 401K's still growin'.

me 3

[tony]

When it starts to build up a significant amount I look to roll it over into an IRA.. the problem with 401K's is when you begin to withdraw the earnings are taxed.. with an IRA they are not.

[Julio]

When it starts to build up a significant amount I look to roll it over into an IRA.. the problem with 401K's is when you begin to withdraw the earnings are taxed.. with an IRA they are not.

yup yup.. thats what Im planning.

[SniperJoe]

When it starts to build up a significant amount I look to roll it over into an IRA.. the problem with 401K's is when you begin to withdraw the earnings are taxed.. with an IRA they are not.

That is absolutely and completely untrue. When you pull money out of a Traditional (or Rollover IRA), you will be paying the income taxes on it. You can't get around paying the taxes.

[SniperJoe]

In regards to this thread, there are a couple issues that I want all of you to be aware of:

Age Restrictions

When you put money into a 401k, you cannot pull the money out until you are 59 and a half. Granted, you can take a LOAN against this money, but I wouldn't recommend it.

Taxes

The money that you put into a 401k is taken out on a pre-tax basis from your paycheck. This money is then put into the account to grow on a tax-deferred basis (meaning that you won't have to pay taxes on the dividends and growth until you take it out). When you pull the money out, it will be taxed at your income tax level. It is also important to note that during retirement, your tax bracket isn't always lower than it is when you are moving to the point of retirement. Most people no longer have their mortgage deduction, they no longer have kids around (and thus the deduction) and in most cases, they want to lead a similar lifestyle to what they used to, thus their tax bracket can stay the same or even INCREASE.

Maximum contributions per year
It is also important to note that you can only put a total of $4,000 in either a Roth IRA or a Traditional IRA per year.

Balance between something like a Roth and a 401k/Traditional IRA

The important thing to note is that a Roth IRA is absolutely superior to a Traditional IRA. In the case of a Roth IRA, you put in post tax money and it grows for you with no taxes. When you pull it out, you WILL NOT pay taxes on it. In the case of a Traditional IRA / 401k, you are going to pay the income tax on all that growth. It is a simple question of whether you want to pay the tax on the money NOW, while it is small or later, when it is big. What muddies the water a bit is the match from employers. That match can offset the downside of paying a huge tax later. So, I typically recommend that people put as much into their 401k to get the maximum match and then everything after that, they should put into a tax-free savings vehicle like a Roth. But, they can only put up to $4,000 into said Roth each year, so if they want to go over that, we need to explore other vehicles.

Rollovers
The reason that most people roll their money in a 401k over to an IRA is very simple: control. When that money is in the 401k, the company is in control of it. They have posession of it and it has to be in their investment choices. Look at what happened to the people at Enron with their 401ks. The company took them all down with the ship. When you roll that money into an IRA, YOU are now in control of the money and you get to choose where it goes (among the thousands of investment choices on the market).

Whoo, that's enough for me right now. If anyone has any specific questions, let me know.

[tony]

When you pull money out before retirement age yes its taxed, but once you hit retirement age disbursements from your IRA is not taxed.. 401K's are.

correction: what you posted is right.. ROTH IRA disbursements after retirement age is not taxed.. traditional is. But I only consider with ROTH as an option, traditional is useless to me.. might as well keep putting into my 401K for that matter.

[SniperJoe]

When you pull money out before retirement age yes its taxed, but once you hit retirement age disbursements from your IRA is not taxed.. 401K's are.

Yes, they are. You roll the money from a 401k into a Rollover IRA and it behaves exactly like a 401k/Traditional IRA.

[tony]

What I'm saying is roll over my 401K to a Roth IRA, which would not be taxed on the rollover or disbursement after I reach retirement age.

[SniperJoe]

What I'm saying is roll over my 401K to a Roth IRA, which would not be taxed on the rollover or disbursement after I reach retirement age.

You can't do that. Well, you can, but you pay a HUGE tax penalty on it (I'm talking on the order of 20% of the value), which only typically makes sense if you are in the lowest tax bracket and VERY young. If you do it right before retirement, you will REALLY be hurting yourself.

[silver]

I am only putting in 2% into my 401k right now, lol.. I just started it so I wanted to lowball my percentage so I didn't go too much in over my head right at first, lol..

Oh and Joe does this ish for a living.. so his advice is wise guys