401K Question...

[Halfcan]

Originally Posted by jspchief

That's ridiculous. You must be in the worst 401k program in the universe if you're paying so many fees that the match is negated. 100% match of 5% is a lot of free money before the money even gets put to work through investments.

401ks are great investments for the average Joe. For starters, your contribution gets taken before you ever see the check, eliminating the discipline hurdle that most people can't get over. Second, most are run through comapnies that are experts at picking funds, eliminating the stock market ignorance that the average person faces.

As for real estate, sure it's a great investment if you have a pile of cash sitting around. But taking $50 per week from your paycheck is going to take a hella long time to get enough to invest in real estate. Time that your money could have spent earning more.

Telling a young person that doesn't even understand a 401k to invest in real estate instead might be the worst advice ever given on this website.

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.

[chief52]

Originally Posted by Halfcan

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.

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.

[alnorth]

Originally Posted by Halfcan

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.

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.

[chief52]

Originally Posted by alnorth

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.

[chief52]

[QUOTE=Halfcan]Personally I think 401 k's are a terrible investment, the match will be eaten up in fees you will be charged every single year. Save your money and invest it yourself.

QUOTE]

Who told you that fees will eat up your investment? You were totally given bad information. They are all different. Mine costs me less very, very, little and that is only by my choice.

You are telling someone something that is absolutely not true.

[Shaid]

Originally Posted by Halfcan

Personally I think 401 k's are a terrible investment, the match will be eaten up in fees you will be charged every single year. Save your money and invest it yourself.

Real Estate is the best investment over time-hands down-if you are looking for property-pm me.

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.

[Logical]

Originally Posted by 58-4ever

my employer offers matching funds up to 5 percent of my total income. Should I have them do this with pre-tax money or post-tax money?

As long as you plan to not use it until you retire then definitely pre tax money.

[DRU]

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?

[ChiefsfaninPA]

Originally Posted by DRU

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.

[DRU]

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.

[ChiefsfaninPA]

Originally Posted by DRU

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.

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".

[runnercyclist]

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

[MahiMike]

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...

[MTG#10]

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.

[MahiMike]

Originally Posted by MTG#10

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.

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