401K Question...

[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?

[alnorth]

Originally Posted by chiefsplanet

401k's through TRP are only pre-tax as are many others. I had post tax money in one on a catchup and when I changed jobs the post tax money came back to me and I was informed that only pre-tax monies could be invested.

k, then shortbuskid may have been confused, because Roth 401k's do exist, though they are so new that many employers do not yet offer them.

The point I was making is that if you contribute to a Roth 401k or Roth IRA, you pay tax now and pay nothing when you retire unless you take money out early.

[ChiefsfaninPA]

To help you better I want to explain two things off the bat. One I have a B.A. in accounting so I know a little something about this and two I do all of our retirement benefits for the State so I deal with this daily. If you are investing in a 401k it is ALWAYS pre-tax. That is how the IRS defines it in Section 401 of the tax laws. Now in the last year Congress has approved the use of a Roth 401k which works the same as the 401k EXCEPT your contributions are taxed first. That way when you do retire and make withdrawals (which on a Roth of any type, whether 401k or a regular Roth) you do not pay taxes. The only benefit to the Roth IRA or Roth 401k, besides having tax free withdrawals, you also do not have a minimum you must withdrawal yearly. A 401k has a certain amount you must take out yearly when you reach a certain age (70 1/2). Another factor is your income. To participate in the Roth 401k and Roth IRA there are income limits. Those limits have been increased but if you earn six figures, you more than likely make too much for the Roth. In a regular 401k you can contribute up to 14k a year and your employer can match up to 14k. I have never seen a 100% match but that doesn't mean it doesn't exist. So to take advantage of the free money your employer is giving you you should at least invest what they will match at the very least and never, ever, ever until you retire touch it. Now every financial situation is different and you should always consult with a pro for the best advice. Their is way too much for me to put in this post before you stop reading (if you already haven't) so PM and I would be more than glad to explain more or tell you better options.

[Moooo]

Originally Posted by alnorth

k, then shortbuskid may have been confused, because Roth 401k's do exist, though they are so new that many employers do not yet offer them.

The point I was making is that if you contribute to a Roth 401k or Roth IRA, you pay tax now and pay nothing when you retire unless you take money out early.

This sounds like a good idea... But it all will depend on the tax rates at the times of deposit and withdrawl (I don't know if that's what you call it). It would be nice cause you'd have a better idea of what you really have saved up.

I wanna know who this Roth guy is, and how he got this named after him...

Moooo

[alnorth]

ChiefsfaninPA, your post is pretty good and is 100% consistent with how I understand tax law.

To make things even more confusing, our greedy cash-starved government has passed a law which will allow anyone to do Roth conversions in 2010 (I think thats the year), regardless of income.

The only people who should be making these conversions and contributions are those who already qualify to do so, and even then a lot of those people probably shouldnt. If someone has a huge IRA worth several hundred thousand, makes over 150,000 per year, and decides to convert it to a Roth, then that person is an idiot, with a few rare obscure exceptions for estate planning strategy for heirs, and that would only apply to millionaires.

The government is counting on a few stupid people voluntarily accelerating a 35% tax hit now, and I'm sure theyll get plenty.

[chief52]

Whatever you do, at least contribute what the company will match. There are some people where I work that think 401k's are stupid so they do not take part. They are totally giving up the matching funds! Where are you going to be able to make that???

[alnorth]

Originally Posted by chief52

Whatever you do, at least contribute what the company will match. There are some people where I work that think 401k's are stupid so they do not take part. They are totally giving up the matching funds! Where are you going to be able to make that???

I guess they need that extra $100 to make the monthly payment on the new Mustang they can "afford" because the payments are only $600. (with 10% financing amortised over 72 months)

[ChiefsfaninPA]

Originally Posted by alnorth

ChiefsfaninPA, your post is pretty good and is 100% consistent with how I understand tax law.

To make things even more confusing, our greedy cash-starved government has passed a law which will allow anyone to do Roth conversions in 2010 (I think thats the year), regardless of income.

The only people who should be making these conversions and contributions are those who already qualify to do so. If someone has a huge IRA worth several hundred thousand, makes over 150,000 per year, and decides to convert it to a Roth, then that person is an idiot, with a few rare obscure exceptions for estate planning strategy for heirs, and that would only apply to millionaires.

The government is counting on a few stupid people voluntarily accelerating a 35% tax hit now, and I'm sure theyll get plenty.

In 2010 there are going to be a lot of smart rich people making this conversion on untaxed money (old 401ks, 403b, 457b and traditional IRA's)to the Roth and NEVER EVER pay any taxes on this money. I have a traditional with some coin in them that I am going to convert myself for this reason. If people really understood money, they would be shocked at the way the tax laws and savings accounts and savings rates are set up. Like for instance most people invest in stocks or mutual funds. But the elite invest in hybrid mutual funds which almost guarantee a return on their money and government bonds at a huge discount. And it is all legal and written in the tax law.

[Moooo]

Originally Posted by alnorth

I guess they need that extra $100 to make the monthly payment on the new Mustang they can "afford" because the payments are only $600. (with 10% financing amortised over 72 months)

Those Mustangs ARE nice, though...

Moooo

[Moooo]

Originally Posted by ChiefsfaninPA

In 2010 there are going to be a lot of smart rich people making this conversion on untaxed money (old 401ks, 403b, 457b and traditional IRA's)to the Roth and NEVER EVER pay any taxes on this money. I have a traditional with some coin in them that I am going to convert myself for this reason. If people really understood money, they would be shocked at the way the tax laws and savings accounts and savings rates are set up. Like for instance most people invest in stocks or mutual funds. But the elite invest in hybrid mutual funds which almost guarantee a return on their money and government bonds at a huge discount. And it is all legal and written in the tax law.

Are you a CPA? You said you have a degree and you seem very knowledgeable...

Do you cover this stuff in finance or accounting?

Moooo

[4th and Long]

Originally Posted by chiefsplanet

wHAT nAME wOULD yOU pREFER?
cHIEFS mINOR sATELLITE?

Chiefs Minor Satellite is already taken. It's the unfortunate product of the last person that tried to sign up as chiefsplanet. I'm hoping Bob Dole takes a peek in here. I can't wait to see what he comes up with.

PS - Your cap lock is installed backwards.

[luv]

Originally Posted by Moooo

Are you a CPA? You said you have a degree and you seem very knowledgeable...

Do you cover this stuff in finance or accounting?

Moooo

I didn't learn anything about this in accounting, but I didn't take it in college either. I know that CPA's have to be aware of the tax side of things. Otherwise, my guess would be finance.

[ChiefsfaninPA]

Originally Posted by Moooo

Are you a CPA? You said you have a degree and you seem very knowledgeable...

Do you cover this stuff in finance or accounting?

Moooo

No I am not a CPA, that shit is real boring. I work for PA's Employee Retirement Fund. I have a degree in accounting with a minor in economics, but I am currently taking classes to get my advanced degree in economics. I love the economy and money. I have been studying this stuff since I was like 12 (I am now 25). And yes, if you take a basic finance course they should cover all of these type of accounts and how they work. Also a tax class wouldn't hurt either. Taxes are not hard. Just complicated looking through all of the loopholes that you can use legally.

[Moooo]

So I'm a little confused, are companies not allowed to match on the Roth IRAs?

I say this because people are making it sound like this is the case.

Also, I don't know why you would, but in 2010, if someone was so inclined could they keep their old 401k and just start putting their new money in a new Roth 401k? I'm pretty sure you can have only one...

Boy this stuff is fun to learn about! I"m such a nerd!

Moooo

[alnorth]

Originally Posted by Moooo

I wanna know who this Roth guy is, and how he got this named after him...

Moooo

It was dreamed up by the late Senator William Roth (R-DE). I dont think he didnt call it a Roth 401k, but when it started, I guess the financial planners needed a convenient name for it to describe how it works to their clients.

[luv]

Originally Posted by ChiefsfaninPA

No I am not a CPA, that shit is real boring. I work for PA's Employee Retirement Fund. I have a degree in accounting with a minor in economics, but I am currently taking classes to get my advanced degree in economics. I love the economy and money. I have been studying this stuff since I was like 12 (I am now 25). And yes, if you take a basic finance course they should cover all of these type of accounts and how they work. Also a tax class wouldn't hurt either. Taxes are not hard. Just complicated looking through all of the loopholes that you can use legally.

And tax laws are constantly changing. Gotta be on top of your game.