Kind of. 401k is tied to a company. IRA is all yours, baby.

Yeah, but once you get it into a IRA, I'd personally just keep it there and start contributing to the new 401k, again because the IRA gives you better choices, but if you like the new 401k, you could roll it into there if you want.

When you do a rollover, be careful. If you dont have one yet when its time to quit, set up an empty shell IRA with no money in it, then tell your 401k administrator to roll it directly to them, you do not want to see a single dime land in your pocket.

If you ask for the money thinking that youll deposit it yourself later into the IRA, youll get a nasty surprise when you find out that the 401k was required by law to withhold 20% and send it to Uncle Sam (since they dont know that your not just gonna spend it), and then you have 60 days to come up with that money out of your own pocket and put it into the IRA yourself to avoid tax and penalties, and then wait for that extra money to come back to you in a tax refund next year.

Not necessarily. You are getting free money from a company..but you when you leave you can roll that money into an IRA or another 401k plan. The 401k is all yours too.

My company no longer has an employer match.

I see. In your case the only real advantage of the 401k might be the higher contribution limits over the IRA.

Not quite, I normally type like that.

That's still incorrect. You have to pay income tax on the interest earned just like you do on a CD or a normal savings account if you have much of a gain.

There are a few things to clear up.
1. There is no income limit for the Roth 401k. This is not like the roth Ira where there is a maximum income limit.
2. In 2010 a conversion is available to everyone. Currently you can only convert if you meet certain income limitations. However, the conversion amount is still taxable at your income tax rate. You can spread this out over 2 years though if I'm not mistaken.
3. Real estate; although a good investment does not have anywhere close to the long term performance of the stock market. Over the last 30 years Real-estate has returned a little less than 5% a year compared to almost 13% for the S%P. Real estate is a very trendy investment right now; much like technology was 6-7 years ago. Watch out.
4. Roth IRA's 401k's are great investments. I have to disagree with you on this one al. Especially if you are young. A 30 year old will double his contributions likely at least 4 times before they retire. Would you rather pay taxes on $100 now or $1600 later. Even though many of us will be making less money when we are retired, we don't know what the tax brackets of the future will be. Also as al mentioned the IRS doesn't force minimum distributions on the Roth. They are also great for passing on money to heirs. If you were to pass away with a large traditional IRA, your heirs are forced to maintain distributions on that money. Thus uncle sam becomes a partner on their inheritance. The roth passes tax-free.

401k's are great investments, if you believe otherwise it is simply because you are uneducated of the great benefits.

Be safe; and don't put all your eggs in one basket.

Nope you're incorrect. The money is 100% tax-free. Principal and interest. This is why the roth is sooooooo attractive.

The thing you might be thinking about is the neat little withdrawal provisions for Roths. Unlike traditionals, you can withdraw your contribution (not earnings) penalty-free, with a few restrictions that I forget. (Needs to be in there for X years, or something)

Needs to be in for 5 years. Can only withdraw principal like Al said. still no taxes though, because this is after tax money.

I admit that the decision to contribute to Roth vs traditional is less cut-and-dried and I should call it my opinion rather than a widely-agreed fact. I can easily think of situations that could theoretically happen in this country over the next few years that would make my recommendation a horrible choice.

I'm using the assumption that even if the left takes over, they will continue to allow brackets to ratchet up every year and will not substantially increase taxes, nor will the GOP be allowed to go wild with tax decreases. If any of that happens, all bets are off and anyone's guess is as good as mine. I could see someone hedging their bets half and half if they are in an iffy situation.

OK, all that aside lets pretend nothing changes, then if your income tax bracket (and how deep you are into your current tax bracket) doesnt change, then its a wash.

Assumptions: earn 7%/year compounded annually, contribute $10,000 per year once per year starting in one year, retire in 30 years, and lets say that every dime of that money is in the 15% bracket. (or 25%, or any bracket, as long as it doesnt change) Lets say the raises you get keep up perfectly with inflation and the increase in tax brackets, so to make the math easy we'll freeze it here.

Roth: 1,500 goes to the govt, you put in 8,500 per year. After 30 years, you have $802,916.68

Traditional: All 10,000 goes into the IRA, after 30 years you have $944,607.86. Assuming every penny gets taxed at 15% in retirement, you send $141,691.18 to uncle sam, and you have $802,916.68

(Obviously you wouldnt pay the tax all at once, but rather gradually over time, but mathematically its still a wash under those assumptions)

Nothing changes, you have the same amount of money either way <b>if your tax liability also does not change</b>.

This is purely a tax decision, if youll retire at a lower income tax bracket which a LOT more people will than think they will due to increasing tax brackets every year, then go traditional. If youll retire in a higher tax bracket, go Roth. You can also throw politics if you want. If you think our tax policy will become worse for you because of the politicians in power and all else is equal, pay the tax now. If you think youll have more breaks or a lower rate later pay it later.

For me, I'm in a rather high bracket and think the tax laws arent going to change much since they still need to get re-elected every year, so I'm going traditional until maxed out, then Roth, but other people's situation could be different.

If I thought it was truely a tie (my tax liability wont change now to retirement), I'd probably emphasise Roth due to the neat little perks they have. I dont plan on leaving anything to anyone, if I have a huge retirement account when I retire, its time to spend that money down before I croak ;) If someone wants to leave an inheritance, then a Roth is better to inherit.

It sounds like a 50/50 choice. I could be wrong but it seems the main factor is the taxation at time of deposit and withdrawl. It really doesn't have to do with numbers as much as percentages...

Moooo

Bingo; like I said earlier that's why I split it up half and half. Most plans that have a roth option now allow you to do that.

I thought there was a limit to how much a company could match? I seem to recall it being around 16K has that changed?

Hmm... dont know if there is a limit, but I wouldnt be surprised.

If not, youd be unofficially capped on that match anyway. A really generous match would match up to 6% of salary. If 6% is 16k, your salary would be almost $270,000. Most senior managers and executives making that kind of money routinely get love letters from the IRS saying that they are classified as a "Highly Compensated Employee", and thus are only allowed to contribute a smaller amount well under the federal limits, so their match also goes down.

So if you make a lot you aren't AS eligible as if you were making a lower income... interesting...

I'm still trying to learn the differences between the IRA and 401k after the employer stops matching or if they don't (as in luv's case).

Moooo

One difference would be that my contributions are deducted from my paycheck before taxes are taken out. I think I would have to put money into an IRA myself. I'm probably wrong on that. I'm not sure. I'm limited on what I can do with my 401k based upon option that my employer chooses. Like, right now, I can no longer borrow against my 401k.

Yeah, with an IRA you may have to settle with getting a big refund check in April, unless your employer is cool enough to let you reduce your withholding if you anticipate an IRA deduction.

The biggest difference which causes many people to settle with a 401k even though the options are more limited, is your allowed to contribute a LOT more money into the 401k (assuming your not a highly compensated employee). I think you can only put 4 or 5 thousand into an IRA every year, while you can put in 15,000 into a 401k, or 20,000 over age 50.

You can not put money into a 401k and an IRA in the same year. (rollovers dont count, you can have both if you quit, roll the old 401k into an IRA, get another job, and start funding the new 401k. The IRA is still sitting there earning money with what you put or rolled into it).

However, to make it more confusing, if you dont earn a ton of money, most people can put money into a Roth IRA and a traditional 401k at the same time. So sometimes if your in a really high income tax bracket you may max out the 401k first, and then your shut off from pre-tax vehicles, all you got left is maybe a Roth IRA. Well its better than investing it personally in your own private account with no favorable tax treatment, so at that point you might as well fund the Roth IRA too.

This all assumes your an employee. If you have a successful small business with no employees, wow there are a hell of a lot of choices for you if you incorporate as an S corp. Simple IRA's, your own 401 (uni-k's), dividends taxed at capital gain rates, defined benefit pension plans, etc. If you fall in that blessed category, you need a very good CPA and maybe a tax/pension lawyer.

Telling a young person to buy their own home instead of rent is bad advice??

So he puts his $50 in a 401k great if that helps him save. But if that same person is paying $700 a month in rent-what is the point? When you figure in inflation and fees-a majority of 401 ks will not outperform RE.

There is something called leverage-you use other peoples money to secure a property, not only do you get a tax break on the interest, you benefit with appreciation. Instead of rent you are paying down a mortgage that will someday be paid off leaving an asset that will continue to increase.

As for a pile of money-hardly-there are Gov Bond programs and financing options galore-with no money down.

I'm out.

You lost me early on...

Where are you coming up with this fees crap? They are minimal...or none at all. Also, you are forgetting the company matching.

Most 401k plans have minimal if any fees...get a clue.

Why does it have to be either-or? People dont save enough even counting the mortgage, and putting all your money into a home, spending the rest is not very well diversified and could leave you short in retirement. The capital gains exemption is awesome when you sell for a gain, but what happens if your now living in the next Florida when you need to get money out of the house and your value is stagnating or decreasing? It would be nice to have a huge IRA to supplement your income.

Given that most 401k's have options with microscopic fees, the market has historically returned as well or better than real estate. *Recently* that has not been the case obviously, but the real estate market is cooling down now and will likely enter a period of slow appreciation.

Very good post. Also, the portion of your 401k that has company matching has definitely done better than the real estate market even in these times. It is hard to put up $1 and have it immediatly matched so you now have $2 anywhere else.

Is the Roth IRA the one that can be used for your kids college with no penalties? I am currently putting in 8% pre-tax with employer matching 4%, but I am thinking about putting anything over 4% into a post-tax Roth IRA. My wife stays at home, I have 2 kids, and last year I only paid $200 in federal taxes. That is not paying $200 at tax time, that is getting everything that I paid back, except for $200. I actually paid more to Kansas City than I did to federal. This year I will be able to claim an additional kid, and we moved so I will have about $15000 in interest that I can claim, so I should pay even less. I don't have a lot of cash to put away right now, but want to take advantage of my nearly tax free status right now, and get some money in a post tax program.

I have my own 401k question to add to this...haven't read through all of this so I don't know if it's come up.

My withholdings come out of my check each week. My employer, though, doesn't deposit the money into my 401k but once a month. During that time, my money (as well as everybody else who works here and is in the plan) just sits either in their interest earning bank account, or it gets invested into their own accounts and then transferred into my own. This means that during that time my employer is actually earning a return on my money.

Is this standard practice for employers?

Yes. The 457(b) plan I contribute to does the same thing. It is perfectally legal as well. It is the same as depositing money in a bank and they hold it for a day or until the next business day without crediting your account and letting it accure interest.

I just wanted to touch on this. You CAN put money into a 401k AND an IRA in the same year. Right now, you can put $15,000 into a 401k and $4000 into an IRA. You just can't deduct the money you put into an IRA from taxes IF you are enrolled in a workplace retirement plan (401k). But there are no regulations in place prohibiting you from contributing the max amounts to both.

hmm
 

The example you give here seems a little different than the scenario I'm talking about. You say that a bank can hold the money for a day or so without depositing it, so for that time you wouldn't earn any interest until the money is actually in your account. But that's it, I myself, simply don't earn interest until it's there.

In this case, though, the employer is earning an interest return on everybody else's money until they deposit it into everybody's accounts. That's like if I was the middle-man on somebody else's 401k. They give me THEIR money, which I put into my own bank account for half a month, during which time I'm making money off of THEIR money before actually depositing it into their own account.

That just seems wrong to me. I'm new to it all, so that's why I'm asking, but it just seems like they're smoking us for that extra interest. We have about 350 employees here, most of which put money into this 401k. So if 300 people are putting approximately 5% of their checks into the 401k each week, and that money actually sits in the employer's bank account instead of going directly into our 401k accounts, the employer is making money off OUR money.

That's our hard earned money that we're putting aside for OUR benefit. Why should the employer be able to earn interest that we ourselves could earn if the money was in our own account the whole time?

I guess I'm kind of confusing interest baring accounts with a 401k. Seems like the employer is earning interest with our money in their bank account, but if the money was in our 401k the entire time it would benefit us, not the employer.

Let's say my 401k is invested in a stock that hits big one day. Well if some of my money is still in my employer's account instead of my own then I miss out on that extra money...even though it's mine to begin with.

Pretax and contribute just a bit more than you think you can afford.

Exactly. They don't have to deposit that money the exact day they take it out of your paycheck. They usually transfer the money twice a month to the brokerage. It is unfair but perfectly legal. All of the days that the money sits in their account you get nothing on it. The only law I am aware of is that the money has to be put there in "fair amount of time".

My advice on 401K? Max it out baby. Also, see if they offer a brokerage account where you can pick your own stocks. You don't want to get stuck with only a few options when there are 10,000 funds out there. My brokerage account made 24% last year. If I had used their stocks...Well, I don't even wanna know...

Bumping this old thread instead of making a new one.

My previous employer of the last 15 years didnt match our 401k so excuse my ignorance on this.

My new employer that Ive been with for a year and a half or so supposedly matches our 401k contribution up to 3%, so I decided to have 3% deducted from each check. Today I received my first check since enrolling and noticed my employer matched exactly half of what I had taken out (1.5%). Do I have to have 6% taken out to get the full 3% my employer is supposed to match or did I get screwed?

Asking here first because I'd rather look like a moron here than to the head of HR. :D

If you put 3% in they should also put 3% in. Some companies do this at end of fiscal year. Ask HR for clarification.

I'd be willing to bet that they match 50% of what you put in, up to 6%.
Meaning you put in 6% they put in 3%. Alot of companies do it this way.

That's kind of how I figured it works out.

Say, I put $250 from my pay to my retirement. They put in 3% from that $250. At least that's how I interpret it.

My company puts in 3%, plus another 50% of what I put in up to 6%.
So as long as I'm putting in 6% they are putting in 6%.
That is 6% of my gross pay including overtime. Alot of companies will only match base pay.

I put in what ever the max amount that the government allows for the year. This year is $18k.

Match means dollar for dollar typically, but it matters how it is set up, you're just going to have to ask your plan administrator, probably HR.

Thanks for the replies. I'll email head of HR Monday. I dont recall ever seeing that they only match 50% up to 3%, but I could have missed it.

Good lord why is shit so confusing.

It's not.

Side note; I've put ALL of my 401K towards International Equities when Trump was hired. 50% funds/50% indexs. Earning over 15%, though the funds are outpacing equities considerably right now.

http://i.imgur.com/RVOar7D.jpg

You should have a summary plan description document you likely got with your new hire documents but you should also be able to access it on your company's 401k web portal. The summary plan description will explain how the employer match works.

So essentially the same at the S&P 500 since the election.

Sounds like that's it. They put in .50 for every dollar you put in, up to 3% (or whatever predetermined %).

Sent from my SM-G920V using Tapatalk

I have a direct match up to 6% and annual fees are 0.25% in my 401k. You'd have to have a terrible match and a terrible fee for the fees to eat up the match every year. Not everyone is so lucky though.

I don't discount real estate as a good investment. I think it's probably a harder investment from a management perspective but it can also make you money now. It's something I've considered for a while but haven't had time to really dig into.

My Health Science fund is up over 22% this year alone.

Winning.

/Thanks ObamaCare!!!