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 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.

You can buy no load index funds with microscopic fees less than half a percent. 5 or 6 index funds to cover all major sectors and you are diversified with hundreds of stocks while paying almost no fees. If someone wants to pay a point or two for an active money manager, some of those guys are smart enough to beat those fees and the index combined.

Real estate returns do not grow to the sky, eventually the economic conditions of the country as well as supply and demand will hammer you as much as everyone else, though the capital gain exemption is nice.

Everyone has to live somewhere, but outside of personal residence, these days it is getting very hard to find real estate that will bring in enough rent to beat the returns from CD's, assuming its not just a wash or losing money. If your counting on appreciation, youll eventually get some, but how much? Nothing is guaranteed here as anyone from the coasts are now finding out. I'd prefer to be diversified into a market that has historically returned 8-10% over the long haul.

[jspchief]

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.

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.

[Moooo]

Originally Posted by alnorth

You can buy no load index funds with microscopic fees less than half a percent. 5 or 6 index funds to cover all major sectors and you are diversified with hundreds of stocks while paying almost no fees. If someone wants to pay a point or two for an active money manager, some of those guys are smart enough to beat those fees and the index combined.

Real estate returns do not grow to the sky, eventually the economic conditions of the country as well as supply and demand will hammer you as much as everyone else, though the capital gain exemption is nice.

Everyone has to live somewhere, but outside of personal residence, these days it is getting very hard to find real estate that will bring in enough rent to beat the returns from CD's, assuming its not just a wash or losing money. If your counting on appreciation, youll eventually get some, but how much? Nothing is guaranteed here as anyone from the coasts are now finding out. I'd prefer to be diversified into a market that has historically returned 8-10% over the long haul.

This is a great post. My dad is a real-estate proponent... The biggest gain to real-estate is that there's only so much of it. Plus, its tangible. I wouldn't buy real estate to never use or see. If you're gonna rent it out, use it as a vacation property, or something of the like, its really a great thing. Its a FAIRLY low risk investment that has adequate returns and the potential to be a LOT of fun.

Moooo

[luv]

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.

What I like about my 401k is that I basically just have to tell them how aggressive I want to be. I currently have 25% in a lower yield (security blanket), and I'm very aggressive with the other 75%.

[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.

[Moooo]

Originally Posted by luv

What I like about my 401k is that I basically just have to tell them how aggressive I want to be. I currently have 25% in a lower yield (security blanket), and I'm very aggressive with the other 75%.

I can see it now, aggressive luv talking to her people at work...

luv: GRRRR!!! PUT 75% IN A HIGH-YIELD!!! DAMN THE SAFETY NETS!

An aggressive luv... something like this?

Moooo

[chiefsplanet]

Originally Posted by alnorth

Umm, no. If it was, no one would ever use it.

The decision on traditional vs Roth is basically a bet on whether your tax rate will be higher or lower when you retire. If you are currently in the 25% marginal rate and retire in the 15 or lower, then the traditional IRA/401k is the smart move, and the Roth would be foolish. IF your currently in the 15 and retire into the 25 (right now thats mostly only older government or auto workers with huge pensions) then the traditional would have been a foolish choice and the Roth would be the smart move. If your tax is the same its a wash and it doesnt matter which way you go.

Now, many people look at this and think "well, OBVIOUSLY I'll retire in a higher bracket." I'm not so sure, especially when you pencil it out.

The amount of income you need to qualify for each bracket increases every year and will continue to do so. If you earn say 50,000 now and plan to earn about that much in taxable money when you retire since you have fewer expenses (kids are gone, home paid for, etc) then your overall tax bill actually decreased because less of your money is taxed with the ratcheting up of the brackets. Finally, even if your in the 25% now and 25% when you retire, the traditional may still be better since after the cutoff point between 15 and 25 increases every year for decades, there's a good chance that less of your money will be in that bracket than now. A lot of people overestimate how much money and taxes they will receive and pay when they retire.

The only way a Roth makes sense is if: 1) You pay next to nothing in taxes now, or 2) Your going to have a HUGE increase in income and/or have generous pension plans supplementing social security and savings when you retire with an income increase far and above the annual increase of the tax brackets, or 3) Youve already contributed as much pre-tax as you can under the law.

You might want to put a link up on that. Every 401 I've been tells you up front that uncle sam is going to get the taxes when you take the money out of the account. Any interest earned is on non taxed funds therefore taxable.

[luv]

Originally Posted by Moooo

I can see it now, aggressive luv talking to her people at work...

luv: GRRRR!!! PUT 75% IN A HIGH-YIELD!!! DAMN THE SAFETY NETS!

An aggressive luv... something like this?

Moooo

Yep. That's me, alright. To a tee.

[Moooo]

Originally Posted by chiefsplanet

You might want to put a link up on that. Every 401 I've been tells you up front that uncle sam is going to get the taxes when you take the money out of the account. Any interest earned is on non taxed funds therefore taxable.

I didn't think it was taxable unless you take it out early...

But I'm really clueless and only know what my grandpa tells me about his

Moooo

[alnorth]

Now that I think about it, if you work for a very small employer with only a few employees and they put in a 401k plan, the custodian may demand that you only choose funds with higher fees, since your company isnt giving them enough money for it to be worth it otherwise.

I do know that there are a few small employers out there where the only choices the employees have all have these obscene front-end loads, in which case they are stuck with it and need to figure out if its worth it to participate beyond the match. (If not, I'd still do self-directed IRA's on your own where you do have the ability to choose good funds.)

For the vast majority of people in 401k plans, there are several choices which have reasonably low fees.

[luv]

Originally Posted by Moooo

I didn't think it was taxable unless you take it out early...

But I'm really clueless and only know what my grandpa tells me about his

Moooo

If you put it in pre-tax, then you will pay taxes on it when you take it out. Uncle Sam always gets his share. Don't think he'll overlook that. Along with taxes, you pay penalties for taking it out if you take it out early.

[alnorth]

Originally Posted by chiefsplanet

You might want to put a link up on that. Every 401 I've been tells you up front that uncle sam is going to get the taxes when you take the money out of the account. Any interest earned is on non taxed funds therefore taxable.

This is what I responded to:

Originally Posted by chiefsplanet

Any growth is taxed when you take it out.

Your other options are to invest in the market if you feel brave enough to get into that game. Some do well, others bottom out.

A 401k is a retirement account, but it is not one that will keep you from sinking if you don't know how to handle your money.

shortbuskid referred to post tax money, which means Roth IRA's or Roth 401k's. A post-tax retirement plan is tax-free when you take the money out, assuming no penalty for early withdrawal, etc

[Moooo]

Originally Posted by luv

If you put it in pre-tax, then you will pay taxes on it when you take it out. Uncle Sam always gets his share. Don't think he'll overlook that. Along with taxes, you pay penalties for taking it out if you take it out early.

Ohhhhhh! I was thinking of penalties. Cause he would always talk about how he could only get so much until he was something like 75 then he got to have it all...

Boy I'm learnng all sorts of stuff. I'm gonna have to reread all of this!

Moooo

[chiefsplanet]

Originally Posted by alnorth

This is what I responded to:



shortbuskid referred to post tax money, which means Roth IRA's or Roth 401k's. A post-tax retirement plan is tax-free when you take the money out, assuming no penalty for early withdrawal, etc

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.

[alnorth]

Originally Posted by Moooo

Ohhhhhh! I was thinking of penalties. Cause he would always talk about how he could only get so much until he was something like 75 then he got to have it all...

Boy I'm learnng all sorts of stuff. I'm gonna have to reread all of this!

Moooo

Now I'll confuse you even more. Your grandpa was talking about minimum required distributions. When your really old and crusty (somewhere in the 70's, dont remember) and you still have money, the government gets impatient and requires that you start withdrawing a minimum amount of money every year which is based on your life expectancy in an effort to spend that puppy down and give uncle sam his deferred money before you die.

If an older person with a big IRA or 401k fails to take the minimum required distribution out, there's a mega-nasty penalty that the IRS whacks them with.

Knowing us, I'm sure everyone on this board will probably be dead before they have to worry about it.