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9/22/2017 12:11:25 AM
Posted: 4/9/2006 3:13:48 PM EDT
[Last Edit: 4/9/2006 3:16:32 PM EDT by macros73]
Right now I'm pumping 10% of my pre-tax pay into our company's 401k plan, provided by The Hartford. My employer does not provide any matching.

My 'Personalized Rate of Return' Year to Date January 1, 2006 to March 31, 2006 is 5.42%**.

Is this a decent return for the period? Are 401k plans like this worth the time, or should I look elsewhere?
Link Posted: 4/9/2006 3:16:47 PM EDT
I think you're doing alright. But not having a company match sucks.
Link Posted: 4/9/2006 3:21:09 PM EDT
401k is a great thing to have. Your return will vary with how your money is invested, and like NH9 said it sucks that the company doesn't match anything, but I'd definately keep using it.

If you've got a long time until retirement lean a bit more to the Blue Chip stocks so you get the higher return on investment, but if you don't have long just stick stick with safer funds.
Link Posted: 4/9/2006 3:21:59 PM EDT
Excellent way to hid your money away from taxes until you retire.
Link Posted: 4/9/2006 3:55:53 PM EDT
[Last Edit: 4/9/2006 3:56:59 PM EDT by Observer]
Yeah it's worth it unless you can do something else with your money that will:
a) reduce your immediate tax burden right off the bat
b) grow completely tax-free until you retire and start withdrawing it
c) do a+b and do better than 5.42% in 3 months.

Can you personally make more than 5.42%? Almost certainly.
Can you do it with the tax advantages described above? Almost certainly not.
So without knowing any specifics you'll probably need to be making something like a 15% (or higher) annual return to get the same 'bang for the buck'.

The reason you're not getting super-high-growth funds in your 401k is probably because your company doesn't want to get yanked into court in 5/10/15 years because you chose a high risk option and lost your ass then cried to the SEC that "These were inappropriate investments for a 401k retirement plan...wah...wah...wah."

A 401k is PART of a retirement plan, it shouldn't be your ONLY retirement plan unless you like rice and beans...a lot.
Put any excess money into a Roth IRA THIS WEEK!! The deadline for 2005 contributions is coming up April 17th so you need to get busy.
Then fund your regular IRA (also the deadline for 2005 contribs is April 17th.)

I recommend Vanguard but Fidelity is also good.

You'll have access to a lot more aggressive investments through your IRA's but DON'T STOP contributing to your 401k. In 10 years you'll be amazed by how much money you've saved and how much it's grown.

I don't know what you make per year but you can contribute something like $14,000 this year to a 401k, that's a nice investment. So if you're stretching to do 10% right now just wait until you get your next raise and add the increase to your contribution.

Good luck, it's not easy but it sure beats the alternative.
Link Posted: 4/9/2006 3:57:40 PM EDT
Put more money into a ROTH IRA if you can too.
Link Posted: 4/9/2006 3:59:36 PM EDT
I did a 401k until I left the company. Probably if I was lucky made 5%.
Rolled that over into a IRA. Smartest thing I've ever done. +223% in less than 2 years.

Link Posted: 4/9/2006 4:02:03 PM EDT

Originally Posted By capnrob97:
Put more money into a ROTH IRA if you can too.



Why put it into a ROTH IRA? Yes I realize you will pay the taxes up front, but can you really tell me the taxes now are going to be less than when you retire? Can you tell me the govt won't change their minds and tax you again when you withdraw it?

IMO the ROTH IRA is a great way for the govt to get your money right off the bat.
Link Posted: 4/9/2006 4:05:35 PM EDT
If you don't get a match, max a Roth IRA, then go to the 401K. You mention a rate of return; what investment vehicles are available to you? Some companies allow a lot of latitude on where your money can go.
Link Posted: 4/9/2006 4:05:47 PM EDT
[Last Edit: 4/9/2006 4:07:43 PM EDT by dolanp]

Originally Posted By metalsaber:

Originally Posted By capnrob97:
Put more money into a ROTH IRA if you can too.



Why put it into a ROTH IRA? Yes I realize you will pay the taxes up front, but can you really tell me the taxes now are going to be less than when you retire? Can you tell me the govt won't change their minds and tax you again when you withdraw it?

IMO the ROTH IRA is a great way for the govt to get your money right off the bat.



Yes in all likelihood taxes will be higher when you retire. It's not something they'll change their minds on either. They can take guns, they can take freedoms, but if they start taking Roth IRAs, the revolution will begin.

Seriously though if you do not have matching in your 401(k) pretty much every projection puts the Roth ahead of the game. With a 401(k) not only do you probably have to face higher taxes but you essentially end up paying tax on the earnings because you are taxed on the nest egg end withdrawals and not the initial contributions. Also, if you ever end up making good money you will be ineligible for a Roth IRA and there's no way to start one. 401(k) you can do whenever as long as your company offers it.
Link Posted: 4/9/2006 4:08:06 PM EDT

Originally Posted By dolanp:

Originally Posted By metalsaber:

Originally Posted By capnrob97:
Put more money into a ROTH IRA if you can too.



Why put it into a ROTH IRA? Yes I realize you will pay the taxes up front, but can you really tell me the taxes now are going to be less than when you retire? Can you tell me the govt won't change their minds and tax you again when you withdraw it?

IMO the ROTH IRA is a great way for the govt to get your money right off the bat.



Yes in all likelihood taxes will be higher when you retire. It's not something they'll change their minds on either. They can take guns, they can take freedoms, but if they start taking Roth IRAs, the revolution will begin.

Seriously though if you do not have matching in your 401(k) pretty much every projection puts the Roth ahead of the game. With a 401(k) not only do you probably have to face higher taxes but you essentially end up paying tax on the earnings because you are taxed on the nest egg end withdrawals and not the initial contributions. Also, if you ever end up making good money you will be ineligible for a Roth IRA and there's no way to start one. 401(k) you can do whenever as long as your company offers it.



Wha he said...
Link Posted: 4/9/2006 4:09:56 PM EDT
Yes they are worth it and they are an increasingly critical portion of your retirement savings. Traditionally, people relied on:

1) company pension
2) Social Security
3) IRA
4) 401k

As 1) and 2) are fast drying up, 3) and 4) become ever more critical. You should be maxing out your contribution to your IRA and 401k every year that you can, generally in the following order:

1) Contribute to get the maximum company match in the 401k
2) Contribute to the maximum annual limit for your IRA
3) Contribute to the maximum annual limit for your 401k

With you, since you have company match at all, I would suggest funding the IRA first, since, everything else being equal, you have more control over your IRA investments than your 401k investments. If you have more money after that, contribute to your 401k. Ideally, of course, you should max out both.
Link Posted: 4/9/2006 4:11:31 PM EDT
My employer matches 100 percent up to 5% of my salary

so I have a total of 10% of my income going in.
Link Posted: 4/9/2006 4:14:46 PM EDT
macros, yes, your 5.42% year to date is great. You're on target for a 20%+ year.
As for the 10% to an employer non-match, max out the $4000 IRA contribution first, then put the remainder into the 401K. You'll have a lot more options in an IRA. NOT A BANK/CREDIT UNION CD IRA THOUGH! CD IRA's are crap. CD's are crap. always.

Take a look at a Japanese etf (exchange traded fund) for your IRA contribution at present. Japan is starting to emerge again, actually they have had a good year.
Link Posted: 4/9/2006 4:16:56 PM EDT
My company matches the first 1% fully, and the next 5% (up to 6% total) at .25 cents to the dollar.

But you have to be there 3 years and I haven't been yet, so I get no match.

They also have something where, if they beat last years earnings by so much, they will give the 401k more money. But I really dont understand how that works yet.

Right now I'm putting 5% in I think, but I put more than that into my Roth IRA.
Link Posted: 4/9/2006 4:24:02 PM EDT
Roth IRA's are great because once the $$$ is in, you NEVER pay taxes on any of the earnings. So your earnings accumulate tax free, forever.

Link Posted: 4/9/2006 4:28:40 PM EDT

Originally Posted By argoyle:
Roth IRA's are great because once the $$$ is in, you NEVER pay taxes on any of the earnings. So your earnings accumulate tax free, forever.




Well, until Congress changes the rules down the road, but saving for retirement is good, buying cheese-ball spinning hub-caps and living in an apartment with shi%^y credit and driving a Mercedes is bad. It really is not too hard to figure out, just avoid the peer pressure to 'fit-in'.
Link Posted: 4/9/2006 4:31:08 PM EDT
[Last Edit: 4/9/2006 4:31:37 PM EDT by macros73]
My earnings are currently just under 50k/yearly. It's late this year for me to pump into a Roth or traditional IRA, but you make great points. I will make plans now so that I can do so next year.

Not sure how I could put money into an IRA/Roth first, then fund the 401k? It's a weekly deduction. Should I set the weekly to something tiny until I've put the max I can into the IRA and Roth, then bump up the weekly?

I'm 32, so I have a bit of time to go, God willing.
Link Posted: 4/9/2006 4:38:12 PM EDT

Originally Posted By macros73:
My earnings are currently just under 50k/yearly. It's late this year for me to pump into a Roth or traditional IRA, but you make great points. I will make plans now so that I can do so next year.

Not sure how I could put money into an IRA/Roth first, then fund the 401k? It's a weekly deduction. Should I set the weekly to something tiny until I've put the max I can into the IRA and Roth, then bump up the weekly?

I'm 32, so I have a bit of time to go, God willing.



Sounds like you need to sit down with a Financial Planner. You need to determine what amount of money you can retire on. What debts you currently have or will have by then. They should be able to give you a good figure of what you need to start saving.

I just started a new job, and won't be eligible to enroll in their 401k plan until July. I'm 26 and make 55k. I'm going to be looking at buying a house here shortly. So I need to see what I will be able to afford when I make that decision. At least you are interested in saving money for retirement. I'm glad I started early.
Link Posted: 4/9/2006 4:49:23 PM EDT
How do I start an Roth IRA? Where can I research the benefits of a Roth IRA? I'm really not a fan of paying for financial advise...THX
Link Posted: 4/9/2006 4:51:55 PM EDT
[Last Edit: 4/9/2006 4:52:44 PM EDT by capnrob97]

Originally Posted By mleaky:
How do I start an Roth IRA? Where can I research the benefits of a Roth IRA? I'm really not a fan of paying for financial advise...THX



Go to www.vanguard.com, www.fidelity.com, www.troweprice.com... Any one of these companies are a good place to open one up at.
Link Posted: 4/9/2006 5:06:33 PM EDT

Originally Posted By capnrob97:

Originally Posted By argoyle:
Roth IRA's are great because once the $$$ is in, you NEVER pay taxes on any of the earnings. So your earnings accumulate tax free, forever.




Well, until Congress changes the rules down the road, but saving for retirement is good, buying cheese-ball spinning hub-caps and living in an apartment with shi%^y credit and driving a Mercedes is bad. It really is not too hard to figure out, just avoid the peer pressure to 'fit-in'.



Money that is locked in a ROTH IRA will not get taxed again. Not without a fight bigger than they would get if they completly banned all guns, there have to be way more people in the ROTH plan than there are gun owners in the USA, and way more that will refuse to get screwed. The rules are not going to be changed under your feet, it would have to be the biggest political suicide attempt to do so. If the company doesn't match, a ROTH IRA is the preferred choice to contribute to if you qualify.
Link Posted: 4/10/2006 7:16:54 PM EDT
They are especially a good deal if you are getting a company match. That's effectively up to one hundred percent interest before the investment returns come in, if they do a full match at your contribution rate. Drops depending on how much you contribute and if they match less than 100%.
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