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401k

Old 03-31-07, 08:59 PM
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401k

Just started a full-time job recently after graduating this December. I am able to enroll in my 401k starting May 1 and was hoping fellow Otters can give me some idea of what to look for or what to avoid!

Thanks
Old 03-31-07, 09:08 PM
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If your company matches funds, put in at least as much to get the match... otherwise look at the prospectuses for the different funds they offer, don't put all your money into one fund or company stock. Add money, forget about it and let it grow... don't borrow against it unless it makes real financial sense.
Old 03-31-07, 09:11 PM
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I used to do the payroll and was the 401k adminstrator at my old job. This is just food for thought, as I never enrolled it in myself (I prefer less risk and my boss didn't contribute. I use CDs mostly. I know the rate is not as great as the 401k can be when things are going well, but I'm very conservative. I like to know my money is safe and I can get to it.)

Here's my food for thought...

- Of about 14 employees who enrolled in the program, more than half ended up withdrawing their money early and were penalized for it.

- When the company was sold to another company, the 401k was tied up and the new company would not allow anyone to touch their money unless they were terminated. The money was untouchable for over two years (when I left the company they were still not allowing anyone to touch it).

- I heard a lot complaints since everyone lost money in the 4 years the plan was going (Again, the boss didn't match or contribute any).

- The taxes you pay on your gross wages are taxed after your deduction.

- The are different categories of risk you can choose from.

Last edited by Lee Harvey Oswald; 03-31-07 at 09:14 PM.
Old 03-31-07, 09:14 PM
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FYI, if it makes much difference, the place I work is a Fortune 500 company that doesn't seem to be going anywhere soon. And they match 100% of contributions up to 3% and 50% for the next 2%.
Old 03-31-07, 09:33 PM
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Put in as much as you can without hurting your lifestyle. My last job, my employer matched up to 3%. My current employer is a cheap ass and doesn't match at all. I put in 10% of my salary at my last job and am planning to put in either 12 or 13% of my salary into my new one once I am eligible. I'd advise looking at the long term performance of the mutual funds your plan offers. You are in this for the long haul and shouldn't worry about yearly fluctuations in the market. The average growth of the market will easily out pace bonds and CD's at a bank and the money you put into your 401k is pre tax, so you lower your taxable income and pay less in taxes off your wages. It's really a no brainer in my opinion. Put in as much as you can (at least whatever the employer matches) and look at the best long term performers in your fund options. They usually say you should invert your age and that is the % you should be in stocks. So if you're 25, you should be 75% in stocks for your portfolio. Personally, I'm about 90% in stocks, but I don't plan to retire for another 35-40 years, so if I take a big loss this year, who cares since I've got 35 years to make a better profit. As you get closer to retirement, you start moving your portfolio into safer investments like bonds. If you're young, you can be riskier.
Old 03-31-07, 09:39 PM
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Originally Posted by arsmith7
FYI, if it makes much difference, the place I work is a Fortune 500 company that doesn't seem to be going anywhere soon. And they match 100% of contributions up to 3% and 50% for the next 2%.
Then contribute 5% and suck up all that free money. If you don't know squat, put your contributions in a target retirement fund.
Old 03-31-07, 09:46 PM
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The sooner you start, the more you'll have. Look up "compounding interest."

And from what I understand, the further away you are from retirement, or the younger you are, the more aggressive your investment profile should be. It's riskier, but over the long run, you stand to make the most that way. And that's what this is - long term, not short term investing.

My 401K is through Fidelity, and they have funds that select an investment mix based on the year you would retire. The further out it is, the more aggressive it is.

Since graduating college, I've been at four different employers, and only recently really started thinking about my 401k. Wish I'd done it sooner. Word of advice to the 20-somethings - don't overlook it.
Old 03-31-07, 09:48 PM
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Put as much as you possibly can starting immediately. Even if you can't put in the limit (close to $1000 a month) try and get as close as possible to it.
Old 03-31-07, 10:24 PM
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Definitely put in at least enough to get the company match. That is like free money. Do more, if you can.
Old 03-31-07, 10:25 PM
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Never take a loan against it. Ever.
Old 03-31-07, 10:30 PM
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I put in 5 and my company matches 4. So assuming my investment does not loose value its an 80% return. I agree with VinVega put as much as you can in. One of my buddies at work raises his contribution every time he gets a raise. I also agree with cdollaz don't take out a loan.
Old 03-31-07, 10:40 PM
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Originally Posted by cdollaz
Never take a loan against it. Ever.
Unless you are in the hospital ready to die, but the money will pay for your treatment.
Old 03-31-07, 11:33 PM
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Do at least enough to get the company match, then go and max out your roth IRA. If you have money left over, go back and increase 401k contributions.

If you don't know anything about what funds to pick, invest in an index fund or one of the funds with a goal retirement year.
Old 04-01-07, 07:14 AM
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Originally Posted by asabase
Do at least enough to get the company match, then go and max out your roth IRA. If you have money left over, go back and increase 401k contributions.
That would be the approach I would take. Alternatively you could do enough to get the match, then max out the ROTH and anything left over use to open a brokerage account w/ someone to directly invest in mutual funds/stocks. You won't get the tax benefit of the 401k or ROTH but the money will be easily accessible if you need it.

If you don't know anything about what funds to pick, invest in an index fund or one of the funds with a goal retirement year.
Also remember you usually don't have to put all the money into a single fund. So you can split it up so it's something like 30% stock/index funds, 40% "growth" funds, 30% international funds (I think that's the mix I'm currently using).
Old 04-01-07, 08:12 AM
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Is the main benefit to a Roth that I can withdraw a certain amount, if necessary, and not incur any penalties? If not, what are the reasons for maxing out the Roth instead of my 401k?

I am almost maxed out at the 15% for my 401k, but if the money could be put into a better retirement plan, I would rather go with that. Investing is something I will get into after I buy my house in a few months.
Old 04-01-07, 08:59 AM
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A Roth IRA is a bit better than a 401k early on because all the gains are tax-free. The money you put in is taxed though. So while you won't save any on taxes up-front, you'll save a ton when you retire since all the gains grew tax-free.

A 401k is tax-free up-front but the withdrawls are taxed. Bacwards of how a Roth works.

You can pull out contributions to your Roth, but there are a few restrictions that I don't know off the top of my head. Something like having to wait at least 5 years, has to be for a medical expense or a house, etc.
Old 04-01-07, 09:16 AM
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wife and i both max ours out since the difference in paycheck is like $100
Old 04-01-07, 09:17 AM
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Originally Posted by The Bus
Put as much as you possibly can starting immediately. Even if you can't put in the limit (close to $1000 a month) try and get as close as possible to it.
This is overly simplistic. If you have extra funds, I recommend that you use it in the following way:

1) Pay off any outstanding credit card debt
2) Put 5% of your paycheck into a high interest savings account for emergency use
3) Contribute to your 401k up to the max matching level
4) If you are eligible, contribute to a ROTH IRA up to the max
5) THEN as much as you can to the rest of the 401k

Excuse me Bus if I am putting words in your mouth, but I think that the gist of your comment is that, with the beauty of compounding interest, the more you contribute when you are younger, the exponentially more money you will have when you reach retirement age. But you should also bear in mind the continuing responsibilities of adulthood as well (such as 1 and 2 above)
Old 04-01-07, 09:19 AM
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Originally Posted by asabase
A Roth IRA is a bit better than a 401k early on because all the gains are tax-free.
Not necessarily. If your marginal tax rate is the same now as it will be when you retire, there is absolutely no difference between a Roth and 401(k), assuming the same return and initial investments. If your marginal tax rate is going to be higher when you retire, a Roth is better. If it is going to be less, a 401(k) is.

You can pull out contributions to your Roth, but there are a few restrictions that I don't know off the top of my head. Something like having to wait at least 5 years, has to be for a medical expense or a house, etc.
You can pull your contributions out of a Roth any time you please with no penalty. You can only pull your gains out with no penalty after 5 years and for specific reasons (such as first-time homebuyer).
Old 04-01-07, 09:40 AM
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For the 2007 tax year:
Roth has a limit of 4K under age 50 (5K over age 50)
401K has 15,500K under 50 (20,500 over 50)

Make sure you don't over contribute in a given tax year!
With a Roth you have to consider your AGI.

Info on Roth Distributions
Old 04-01-07, 10:42 AM
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Originally Posted by DVD Josh
This is overly simplistic. If you have extra funds, I recommend that you use it in the following way:

1) Pay off any outstanding credit card debt
2) Put 5% of your paycheck into a high interest savings account for emergency use
3) Contribute to your 401k up to the max matching level
4) If you are eligible, contribute to a ROTH IRA up to the max
5) THEN as much as you can to the rest of the 401k

Excuse me Bus if I am putting words in your mouth, but I think that the gist of your comment is that, with the beauty of compounding interest, the more you contribute when you are younger, the exponentially more money you will have when you reach retirement age. But you should also bear in mind the continuing responsibilities of adulthood as well (such as 1 and 2 above)

Your advice is correct.
Old 04-01-07, 11:13 AM
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Originally Posted by Lee Harvey Oswald
I used to do the payroll and was the 401k adminstrator at my old job. This is just food for thought, as I never enrolled it in myself (I prefer less risk and my boss didn't contribute. I use CDs mostly. I know the rate is not as great as the 401k can be when things are going well, but I'm very conservative. I like to know my money is safe and I can get to it.)

Here's my food for thought...

- Of about 14 employees who enrolled in the program, more than half ended up withdrawing their money early and were penalized for it.

- When the company was sold to another company, the 401k was tied up and the new company would not allow anyone to touch their money unless they were terminated. The money was untouchable for over two years (when I left the company they were still not allowing anyone to touch it).

- I heard a lot complaints since everyone lost money in the 4 years the plan was going (Again, the boss didn't match or contribute any).

- The taxes you pay on your gross wages are taxed after your deduction.

- The are different categories of risk you can choose from.
Is this an April Fools Day joke a day too early??
Old 04-01-07, 12:02 PM
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Originally Posted by ChiTownAbs, Inc
Is this an April Fools Day joke a day too early??
Holy cow. And this guy was the 401(k) administrator.

LHO, are you still in telecom or did you switch out of the industry after leaving Worldcom?
Old 04-01-07, 02:15 PM
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Originally Posted by arsmith7
FYI, if it makes much difference, the place I work is a Fortune 500 company that doesn't seem to be going anywhere soon. And they match 100% of contributions up to 3% and 50% for the next 2%.
That doesn't mean absolute security. I work for a Fortune 500 company. They just sold our division to someone else.
Old 04-01-07, 02:51 PM
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Originally Posted by al_bundy
wife and i both max ours out since the difference in paycheck is like $100


Max contribution $15,500
Assume if it went to your paycheck it would be $10,000 a year post tax
So you guys both get 100 paychecks a year?

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