401k vs. no 401k. What to do, what to do?
piecesofme
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I have really been debating recently to either cut way back, or possibly stop completely contributing to my 401 k, and use that money to buy pm's.
I am in my mid 40's, so I have a way to go to get to retirement. To me, I almost view what I am contributing as being dead money in the sense i can't access it. I firmly believe that by the time I retire, if I am so fortunate to do so at some point, SS will defintely not be around, so that makes me think I need to continue contributing to my 401k. And then factor in the possiblilty that somehow someway the company I'm with, and hope to retire from, goes under and I somehow end up being a Enron-like casulty. Not likely, but it's always in the back of my mind...it could happen. The good thing about the 401k is that my compnay matches % for % up to 15%, which is what I have been doing for sometime now. So that's almost like a guaranteed 15% on my money...that I can't access for quite some time.
If I discontinue contributing and just manage that money, and take the 401k contributions and dedicate it to buying pm's (hopefully on the dips), is that a wise decision to do at this stage of what has been one helluva 9 month run? How much is realistically left on this incredible bull run? Am I too late to the game to significantly (for me) add to the pm stash I already have?
I also want to be able to provide a level of higher education for my child too, which will be a necessity rather than a luxury in the very near future. It already is to some extent.
These are the questions that keep me up and post on a message board at 1:40 AM. Who said being a middle aged white male that is by no means "set" but is not hurting either was easy?
I am in my mid 40's, so I have a way to go to get to retirement. To me, I almost view what I am contributing as being dead money in the sense i can't access it. I firmly believe that by the time I retire, if I am so fortunate to do so at some point, SS will defintely not be around, so that makes me think I need to continue contributing to my 401k. And then factor in the possiblilty that somehow someway the company I'm with, and hope to retire from, goes under and I somehow end up being a Enron-like casulty. Not likely, but it's always in the back of my mind...it could happen. The good thing about the 401k is that my compnay matches % for % up to 15%, which is what I have been doing for sometime now. So that's almost like a guaranteed 15% on my money...that I can't access for quite some time.
If I discontinue contributing and just manage that money, and take the 401k contributions and dedicate it to buying pm's (hopefully on the dips), is that a wise decision to do at this stage of what has been one helluva 9 month run? How much is realistically left on this incredible bull run? Am I too late to the game to significantly (for me) add to the pm stash I already have?
I also want to be able to provide a level of higher education for my child too, which will be a necessity rather than a luxury in the very near future. It already is to some extent.
These are the questions that keep me up and post on a message board at 1:40 AM. Who said being a middle aged white male that is by no means "set" but is not hurting either was easy?
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Spend your time studying the best funds to invest the 401K money in, given your current status in age, family, income, etc.
Just my 2 cents.
My advice would be (and I am NOTHING REMOTELY qualified..) would be to review your 401(k) investment options closely....there might even be a fund that invests heavily in commodities/precious metals that may suit your investment goals.
The way I look at it is that no one investment idea or thought process is guaranteed to be the right one. I personally think having a significant chunk of precoius metals, owning some real estate and having a cash cushion are important. I could care less about bond mutual funds--they are not a substitute for having a real bond--the funds fluctuate with regard to value and income as opposed to the most basic premise of an actual bond (not including TIPS here)--a certain value/return--even if it sucks.
In any case, who is to say something won't pull the value of my metal out from under me--a 100% tax?? etc. Who is to say my real estate won't get destroyed either literally or figuratively? I want to hedge my bets...non-retirement accounts and retirement accounts. Stocks, real bonds, metal, real estate etc.
With such a valuable match from your company I would be all over that for my 'traditional' investing.
Just my opinion of course!
Who do you work for?
Box of 20
I think that you should kick in the max amount to get the employee match if my above statements are true. I would then continue to dollar cost average into PMs with $ available after that.
Hank.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
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I do worry that the tax rate will be much higher when I go to withdraw $ from my retirement accounts in the future. But just as the gov't could screw us on the 401k and IRA assets, they could attempt to screw us on PMs through either taxation or confiscation.
Hence, as of today, it probably makes sense to keep somewhat diversified. But keep your eye on Uncle Sam.
The variety of investment options in your 401k should be your determining factor. Various markets can crash a couple of times in the next 20 years. If you feel you can comfortably move the money within the 401k to protect it at all times, then keep the 401k. Washington has gone on record of "studying" retirement funds and ways to "encourage" their purchase of Treasuries. Another consideration is the loss of tax deferment on the funds you are currently contributing.
Once solution might be to split your current contribution between the 401k and PMs. Just contribute half to the 401k and buy PMs with the other half.
If your employment is secure, you might consider a loan from the 401k to purchase PMs. Just reduce your contributions to help cover the cost of monthly loan repayment. Then you can enjoy the best of both worlds.
To all holders of 401k's I offer this advice: At first opportunity, consider rolling it over to a self-managed (on-line) Roth account where your investment options are wide open and your taxes have will already been paid IN FULL. You will have a big tax bite on money rolled over, but you're gonna pay taxes on it sooner or later. If you pay sooner you only get taxed on the transfer. If you pay later (and tax rates will increase over the years) you will pay taxes on everything including the gains. You should consider splitting the rollovers over multiple years to keep your total gross income below the $250k where you will see a higher tax rate. I personally did this with Scottrade accounts and recovered my tax hit quickly by investing in silver ETFs and mining stocks. My retirement funds have tripled and everything in the account will be tax free when withdrawn begining at age 59 and one-half. Best investment move I ever made but may not work for everyone. Key to success is properly self-managing your investments.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Very true. I have heard rumblings that Uncle Sam is eyeing up 401k and IRA assets just as timrutnat describes. However, at this point, it seems to be more of a rumor than something that is bound to happen.
I do worry that the tax rate will be much higher when I go to withdraw $ from my retirement accounts in the future. But just as the gov't could screw us on the 401k and IRA assets, they could attempt to screw us on PMs through either taxation or confiscation.
Hence, as of today, it probably makes sense to keep somewhat diversified. But keep your eye on Uncle Sam. >>
It seems more likely that Unka Sugar will find a way to tap those 401k assets in a manner similar to the Roth IRA. Isn't that how Clinton supposedly balanced the budget; using windfall tax receipts from Roth conversions.
<< <i>It seems more likely that Unka Sugar will find a way to tap those 401k assets in a manner similar to the Roth IRA. Isn't that how Clinton supposedly balanced the budget; using windfall tax receipts from Roth conversions. >>
While converstion to a ROTH provides an immediate one time tax windfall to Uncle, he is screwing himself out of taxing it's future gains. For this reason I highly suspect the tax advantages of Roth IRAs and then of Roth conversions were intentionally done by wealthy lawmakers to give themselves and their "friends" a way to avoid future taxes (at a much higher rate). Any time you can pay future taxes now at today's rate, do it. A conversion to a ROTH (roll over from a regular IRA/401k to a ROTH IRA) was created to do just that. Not only do you pay taxes up front on the ROTH conversion, but you AVOID all taxes on any future gains. Trust me, they didn't do this with you and I in mind.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
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But I'd also be concerned on the options offered in the 401K. They need to be flexible enough to cover all the inflationary and deflationary things coming at us. If the plan
only offers the typical mix of pre-packaged lg/md/sm cap stock funds, bonds, and treauries/money market then that's lacking. One should have the option to be able to go out into
open market with some percentage of their overall monies. The 401K needs to have options to be able to protect you when things are going down. And next time around being
in cash, bonds or treasuries might not be the solution. My own company finally went to that idea in 2004 when the plan allowed 50% to go into any offering on the major
US exchanges. Now I was able to put 50% at work in commodity stocks (oil, gold, silver, copper, etf's, etc.) as well as short etf's, etc.
I too believe the govt will eventually tap your 401K in some way. The most likely way would be to "help" the investor ensure gains by requiring a fixed amount be kept in US
Tbonds or other govt directed choices. For starters they might require 20% of all 401K's to be in TBonds. In this way they wouldn't be stealing your 401K but merely putting you
into an inflation losing asset that benefits them...not you. They will claim it will protect you from a 2008 stock market wash out while giving you a gain above the CPI...lol.
They could also decide to start taxing whatever you pull out after age 59-1/2. Since you received the company match free and clear, why not tax that 50% of your 401K? It's free money. They could even start taxing the annual paper gains in your accounts even if it stays untouched. The retirement funds are the biggest source of money
out there for a govt in desperate need of money. They will no doubt change the rules and find a way to get a foothold deeper into these accounts. It will still be "your," account, just
like the gold in Fort Knox still belongs to J6P.
There are numerous personal and preference factors needed to make an informed decision. The current commodities bull run has to at least 2014-2016 before it ends. Some say
it could go on years beyond that. There's a good chance for a major pullback this summer, especially in metals. Keep a watchful eye and rebalance as necessary.
roadrunner
<< <i>I understand all the concerns about taxes, but let's get back to the OP's question. With a 15% match, he would be crazy not to invest 15%. If he decided to switch to silver instead, silver would have to climb to $82 per ounce just to break even. 15% is the best match I have ever heard. You automatically double your money. You can't beat that. In fact, if the OP is not contributing 15%, I would encourage him to sell some PM's just to be able to get to fully max out his companies contributions. >>
OP is caged in a 401k for the next 20 years that could easily lose much of his investment (and his matching funds) if equity markets take a beating. Look at the losses to 401k's in the 2008 crash. Key to his decision is investment options within the 401k to protect himself in changing markets. If the options are not there then a 20 more year run with the 401k can be quite risky given the econonmic outlook of the American economy and equity markets. 15 X 0 = 0
<< <i>I think the tin hats need to come out if you really believe the .gov is going to try to nationalize 401K's. Yes, they (banksters and politicians) are all a bunch of crooks and would lie, cheat and steal from their own mother, but they aren't looking to start another revolution. If they did that it would ruin the best gig any of them could ever get. >>
PM me for a discount on your tin hat, sounds like you don't have one yet:
Retirement Accounts and Treasury Bonds - America's Unprecedented Money and Power Grab
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
the TBonds they create. The smoke screen will be that it is for our own protection so widows and widowers don't get hammered again like they did in 2008. Who better to invest
for the people than the govt with all their MBA's and PhD's?
The bankers and politicians already had the best gig imagineable with otc derivatives and infinite leveraged credit/debt. And the people let them leverage the GDP of the world by about 15-1. But that horse is running out of steam. It's time to start looking elsewhere for another cash-cow. Retirement accounts are a worthy place to begin. The govt took the people's gold in 1933 without a whimper. Directing sheeple's 401Ks should be like taking candy from a baby.
My company's 401K was only a 5% match so it made my decision to stop contributing far easier. But for years I put in the min. 5%. And unfortunately I did go through an Enron type event where the company declared bankruptcy and my company shares went to $0.00.
roadrunner
New collectors, please educate yourself before spending money on coins; there are people who believe that using numismatic knowledge to rip the naïve is what this hobby is all about.
<< <i>It's time to start looking elsewhere for another cash-cow. Retirement accounts are a worthy place to begin. >>
I just hope they start with public pension retirement funds.
<< <i>If I could get a 100% match on 401k contributions, I would be maxing it out every year. It doesn't make sense to pass up that deal. >>
Starting at age 50, federal employees are allowed to contribute annually up to $20k (tax deferred) into their 401k (Thrift Savings Plan). The extra allowance is called "catch up contributions." Since the TSP was created by the government for government employees, you can be assured it is one of the best 401ks out there. The TSP currently has an approx. $250 BILLION balance from 4.3 million participants. I look for the Washington Treasury Bond "Sales Department" to eye this retirement fund first. The TSP is a private pension fund for public sector employees in addition to their taxpayer supported public employee retirement fund (civil service retirement).
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Diversification is the best route for anyone saving for a retirement that is decades out. Putting it all into metals might only be close to okay if a person already has way more than enough money and doesn't need to work any more. It is a fools game to think that a person can get out at the top. Virtually no one gets out at the top--that's how markets work. The top is defined by a relative maximum number of buyers, relative minimum number of sellers. Predicting tops is a low percentage game. Lots of folks try, almost all fail. There are ten or more calls of "top" for every actual top.
A steep correction can happen at any time. A bear market is out there somewhere and many will be trapped and surprised by it. The bear may come this year, or next year, or it might be another ten years out. However, those with 100% of their money or close to that, in metals will be a sorry group when it comes. It would be the same for anyone with 100% in any asset class, when the bear visits them. Bear markets happen in all asset classes. The fundamentals, the news background for that asset class will seem to point to much higher prices at the top, so most folks would do well to dial way back on their reading, their news consumption. For average folks, trading or investing based on news tends to reduce investment returns, not enhance them.
After the top occurs and the bear comes, the many story tellers will put on their hindsight glasses, especially on the Internet, and will tell their fish stories about how they got out at the top. Especially on the Internet, most of it is selective memory, or flat out lies, not what the average person, average trader, or average speculator experiences when the bear tears through the place. Yes, a very few exceptional people will profit on both sides, bull and bear, but those are folks than can dance in between raindrops and never get wet, not an average person, certainly not a person asking for advice.
20 more years on a 401k without good investment options offers no liquidity when needed.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>If I could get a 100% match on 401k contributions, I would be maxing it out every year. It doesn't make sense to pass up that deal. >>
Yup. That's a no brainer.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
Yes, and No. Alot depends on inflation and the reality that he can't touch the money for 2 decades. A 10% inflation rate can eat into that lump of change quite significantly over 10 years, even if the matching amount is 100% of his contribution. You have to consider inflation - you just do. And what makes you think that silver won't get to $82? It might crash to $8.00 and it might end up going well beyond $100. We are truly in uncharted territory as far as the national debt load and unfunded entitlement liabilities are concerned.
A big part of the equation is his age. At mid-40s, he should have some good earning years ahead, but it's also very important to note that a good job is probably the biggest variable in the whole equation. The continued income is key to building a financially-independent future, in my opinion.
The fact that he gets matching contributions of 15% (Wow!) is pretty cool, but my question would also be: will that employer and those retirement funds even be around in 20 years? Is the company's retirement plan "fully funded" right now? I lost over 5 years of vested retirement contributions when a company that I worked for in the '80s went belly-up. My fiancee' worked for a highly-regarded clinic for over 10 years, and every year they now send her a statement acknowledging that their retirement pool is under-funded but with continued promises that they are "good" for the amount she is due. YOU NEVER TRULY KNOW.
She and I both cashed out of our retirement accounts in 2008 and bought Gold Buffs, Burnished AGEs, Plats, and regular ordinary bullion of all sorts. We both bit the bullet in penalties and taxes. **Our net worth is more than triple** what it was in 2003 or so. Nevertheless, the profits are ILLUSORY (and unrealized) at this moment. We have avoided the crashes in the stock market, but the main culprit for our "success" has been the dollar collapsing. I expect the trend to continue, because they sure aren't into solving the problems up there in Washington DC. There is no reason to think that this is going to stop any time soon.
Again, it's never been quite so clear to me that nothing in this world is guaranteed. You just have to use your brains and take your best shot. You can always be wrong.
Lastly, and this is kinda important - always try to see the reality of it. NEVER engage in wishful thinking as far as investments are concerned. ALWAYS question what you read and hear. ALWAYS.
I knew it would happen.
plan on working for at least 20-25 more years....living for at least 40-50 more years...having much higher medical expenses as you get older.....
Have multiple sources of income as you get older that do not require you to do physical work to produce the income.
I have a tendency to be too concentrated in collectible physical assets and I made a concerted effort to diversify out of some of them in the late 90's to PM's. Now I am diversifying my PM's into income producing crop land. 5-6% ROI in midwest land or 8+ % ROI on western US crop lands. If food prices increase, so does my net yield. Do I think food prices are headed up? Is the Pope Catholic?
The nice thing about crop land is that I do not have to check the daily chart on what AG is doing. All I have to think about is whether people need to eat to live. Doesn't require much thinking on my part which suits me fine.
<< <i>I still argue that investment options are the key to the decision. Does no good to have 15% matching funds for the next 10 years only to see them evaporate, along with your own personal investment, because they are locked into investments that take a beating. If the fund does not provide you with the investment options you need in changing markets then you are out on a limb and someone else is holding the saw. And, in 20 years you will see a lot of changes in markets. 15 x 0 = 0. 20 more years on a 401k without good investment options offers no liquidity when needed. >>
Agree 100%. Selected options are the key. And those are worked out by the company's financial planners who invariably will follow the cookie-cutter approach if left to there own designs. If there is no access to commodities, ETF's, individual NYSE/AMEX stocks and possibly even short funds, I have a problem with it. My company's 401K in 2000-2001 had this exact same problem. Bull stock funds, bonds, and treasuries were my only options. I thought they all stunk. Therefore I had a large % in the company's own stock which was doing very well counter to the main markets. The stock did extremely well in 2001. Unfortunately, there were some skeletons buried in the closet such that when 9-11 hit, the stock took a massive hit. Had there been other 401K options like commodities, PM's, etc. I probably would have started looking into those at the time. Would have been the perfect time to get into miners, etc. C'est la vie.
roadrunner
<< <i>Lastly, and this is kinda important - always try to see the reality of it. NEVER engage in wishful thinking as far as investments are concerned. ALWAYS question what you read and hear. ALWAYS. >>
+1
Rich, let us hear what you decide to do after DYODD.
I wont say that I am more confused now than I was at the time of the 1st post, but my eyes have defintely been opened more to all the risks/rewards that could potentially happen in the next 20 or so years of my carrer after reading all of your comments.
I work for a Global company (please repsect my decision to not say who) that will most likely, and I mean 99.99%, not go under in the next 25 years. If I keep my nose clean, I should not have to worry about that realistically, but I do think about it. I'm at a point where promotions are possible. Anyway, I'm getting off track.
The negs about my 401k:
- It does not offer any exposure to any pm's and not even any commodities in fact. I does have the indirect option of being in Oil though.
- The Company is constantly growing, but I can't take for granted that they will continue to offer such a generous match as they currently do.
- I cannot borrow against it for "any" reason. Basically something bad has to happen to be able to get at it, and then it is a 4% interest payback. I don't want to let a situation happen that I have control of just to be able to get to it if that makes sense. Of course, there is always the potential of out of my control matters to happen.
- The 15% match is nice, but it doesnot guarantee a 15% return. Sure neither do pm's and in fact probably wont at this point, but with such a run and key factors not really changing, who's to say it wont run another 100% from here?
- I can only make 2 moves in it a month. I'm not a day trader, but there sure are times that I'd like to move it more than just the allowed 2x.
- Possible Govt. intervention as some have suggested here.
- And I guess the most important one, to me anyway, I would rather take full control of my future with funds I earn now than with the higher chance of lesser Govt. intervention playing pm's, or whatever it may be I want to do with my $...NOW. And it appears the only way to do that under current regulations is to stop contributing to it.
The pros about my 401k:
- Yeah, a current match of up to 15% is great. But I still have to manage the $ correctly with the limited (in my eyes) options and ability to make changes it offers.
- I have a pension plan with the Company too, but again, that's nothing I can get to. It's actually more of a guarantee, God willing I stay employed with them, but a promise for the long distant future right now.
- I am blessed to have such problems when some others worry about putting gas in the car just to get to work.
I'm glad that you realize how great you have it. A pension and a 401k that matches 15%. Just for clarity, your 401k matches dollar for dollar the first 15% that you deposit, correct? In these times, just to have a secure full-time job, along with all of the benefits that you have is quite a blessing. Please continue to remember that. Trying to figure out what to do with all the extra money you receive (pension and 401lk matches) is icing on the cake. Those of us who have kept our jobs through these difficult times need to remember how blessed we are.
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Imagine the above gains in a ROTH that make them completely tax free when withdrawn! When AGQ takes a temporary breather it will be time for VXX and possibly TBT to start a similar upward trend. That is the beauty of investment options...many products to choose from.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
value all the time. And as already mentioned, those pension plans can be gone in a heartbeat with a takeover, rearragement, bankruptcy, fraud, etc. One major
global shock to any company could potentially take them out. What if that pension plan is being funded by derivatives?
At least your 401K plan offers oil. A good place to be until early summer. Then re-enter after the next smack down.
Even the 2 trades per month is not a killer. That's close enough to enter a market fairly close to a bottom and leave at the top. Not every market is peaking in
any one month. I would at least bring it up to your company's financial planner and ask why they don't offer at least the option to diversify a % of one's 401K into
other alternatives. It is about risk and making money so the planners want to be as simple as they can. But they are still basically betting the farm on growth
stocks which is always risky imo. The fact that they are contributing a whopping 15% to the fund might be why they are ultra-conservative in their approach. After
all they are paying for about 50% of your retirement plan. Most other plans offer only a 2-5% match and let the employee go the other 5-15% on their own. Hence
they should have a bigger say in what fund options are available. But it can't hurt to ask why they won't allow commodity ETF's, etc when that appears to be the
current 10-20 yr trend. Broadly diversified precious metal funds like TGLDX, USERX and USAGX have been around for a long time with good results. When a very
conservative company like USAA offers a PM fund, there has to be a sound reason.
I think gold and silver have only scratched the surface of where they are headed...same for oil and foods. But there will be large pull backs at times over the
next few yrs. I would expect gold and silver to end up at least 2X to 3X higher than what they are currently at. Their price is only limited by the stupidity of our elected and
unelected officials....which right now looks unlimited. You were quite adamant that silver was all done at $30 a few months back. Well now it's at $40 and not yet looking
anywhere near done. This is probably only the 2nd leg up, which will end in the $45-$75 silver range. Then a long pullback before the final 3rd leg assault to some number
most of us can't yet fathom ($125-$300+). Remember, you can't put a price on elected stupidity. And when was the last time the world's monetary system was in danger
of falling apart? Using comparisons from our experiences of the 1980's and 1990's will lead one to the wrong conclusions. Those were the years of abberation, not the norm.
roadrunner
Box of 20
<< <i>One may not be able to contribute the full 15% of annual income into the 401k (to get the full 15% matching funds) because of IRS contribution limits. The lower the annual salary the closer one can get to the 15%. You would have to have a fairly low salary to be able to contribute 15%. Another thing not mentioned in the thread (I think) is the advantage of not having to pay taxes THIS YEAR on the 401k contributions. But keep in mind taxes will be paid on the money at a later date when it is withdrawn. If you think a 20% tax rate is high in 2011, there is a very, very good chance Uncle will increase percentages drastically over the next 20 years? Aside from the matching funds, I'd rather put the contributions into a ROTH and go ahead and pay taxes on them now (at a lower rate) with all of my future gains being tax free. My point is that the 15% matching funds may come at a price that makes it a NO DEAL. The ROTH, with an on-line self managed account, is wide open to investment options including PMs. Here's an example of a silver money maker I've been playing for the last year, with ROTHs:
Imagine the above gains in a ROTH that make them completely tax free when withdrawn! When AGQ takes a temporary breather it will be time for VXX and possibly TBT to start a similar upward trend. That is the beauty of investment options...many products to choose from. >>
Derry, do you see the ROTH as "ironclad"? I mean, the current deal of no tax liability on future withdrawls is nifty, but isnt even that subject to change under dire times? The one thing we can all be certain of is that under financial duress, this nation has proven time and time again (1933, Bretton-Woods, 1971) that the U.S. government is apt to change the rules of the original game when they feel its needed.
especially when it comes down to expecting the people to do their share to shoulder the burden of the financial mess we're in. Not doing so would be unpatriotic. It will come down to
not doing what's fair or what is right, but doing what has to be done to continue on as a nation. J6P will always take the fall. I could see the Roth deal being removed down the road
and being taxable. Everything else gets taxed 2 or 3 times, so why not Roth's or 401K's? A lot of "unbreakable" promises are going to be broken over the next decade. I don't see why
anything can be considered "unbreakable" today.
roadrunner
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
One may not be able to contribute the full 15% of annual income into the 401k (to get the full 15% matching funds) because of IRS contribution limits. The lower the annual salary the closer one can get to the 15%. You would have to have a fairly low salary to be able to contribute 15%
When I was younger making far less than i am now, i was in no way able to contribute anywhere near 15%. Now that i am making what I feel is a pretty decent wage, I can do 15% and even a little more if I really wanted to. The logic of making less and be able to contribute more to a 401k is backwards, at least it is in my singular case. Maybe I'm misunderstanding what was said?
Edited to say that one must be making some pretty damn big $ to not be able to fit under the allowed contribution limits and I would imagine that if making that kind of $, these 401k questions taked about on this thread wouldnt be an issue. All jmho.
<< <i>After going thru this thread some more, I only disagree with this one statement:
One may not be able to contribute the full 15% of annual income into the 401k (to get the full 15% matching funds) because of IRS contribution limits. The lower the annual salary the closer one can get to the 15%. You would have to have a fairly low salary to be able to contribute 15% >>
Statement was made based on IRA contribution limits which are lower than 401k contributions. Here are the correct 401k limits:
"The 401k maximum contribution is $16,500 for the 2010 and 2011 tax years, however, including catch up contributions, the amount is $22,000. If employers also contribute to the plan, the maximum personal contribution may not exceed $49,000 for the 2010 and 2011 tax years. For SIMPLE 401k plans, the employee contribution maximum is $11,500 with a catch up of $2,500 for a total of $14,000 for those 50 and over."
Looks like the OP's 15% ($16.5k limit) is reached with a $110K annual salary. For those that make more than $110k, the lower the annual salary the closer one can get to 15% of matching funds. In other words if the OP makes more than $110k he will not be able to take full advantage of the matching 15%. The more he makes over $110k the lower the matching percentage can be.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I think the tin hats need to come out if you really believe the .gov is going to try to nationalize 401K's. Yes, they (banksters and politicians) are all a bunch of crooks and would lie, cheat and steal from their own mother, but they aren't looking to start another revolution. If they did that it would ruin the best gig any of them could ever get. >>
Dems Target Private Retirement Accounts
<< <i>gotcha derryb...i think i understand it better now. thanks for the follow up. >>
Your employer will only match what you put in. If your salary limits you to only 12% because of the IRS's dollar limit, then your employer will only match the 12% and only if the combined contribution does not exceed the combined limit of $49K. If it does, the employer's percentage would be lowered until it did not exceed the combined contribution limit.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Linkage (Bloomberg)
Linkage 2 (WSJ) (I love the last line: "just another step in Argentina's 100-year 'road to underdevelopment.")
Linkage 3
Oh, and did someone say Thrift Savings Plan? Funny, I can't seem to google the original news, it's all buried under other key words...
This gets the point across..., um yes, use the TSP G fund (government securities) as a source of funds and 'promise' to pay it all back...
Linkage 2
Most links currently are to less mainstream blog/sources, but the government can (and has done) cracked open the TSP (you know, my version of the 401(k)) to use as 'needed'. I can tell you I have ZERO in the G fund as so far that is all that has been touched. The G fund is also the default setting for contributions until a member elects which investment options desired (a large cap, and international fund, a small cap, government securities, plus some target dates plus I think I'm forgetting one).
It does make you say hmm...but I still contribute to the TSP, do an IRA (non-deductible is all I can do, though I can convert to a Roth now), save $$ outside retirement accounts in various investment styles, working on the real estate and have a little au/ag (collectibles I tell ya mr. government dude) as I have no idea which one(s) will be around later, if any. I do have a military pension to look forward to in a few years...assuming that doesn't get jacked, and of course there is social security (sorry, had to say it). Out of all that, hopefully the risk has been spread as I'm sure none of it will look the same in 10-20 years. I just don't know how it will look. My other best resource is to keep myself with useful skills...
edited to add: can't forget my currency wager--I had to put a 500,000 yen security deposit on the house I'm living in, when the rate was 92 yen to the dollar. Now at 82 my security deposit is looking like an investment...heck it might even pay for where my kids scratched up the wall! Of course by the time I move and get my deposit back the yen might be anywhere!
<< <i>After going thru this thread some more, I only disagree with this one statement:
One may not be able to contribute the full 15% of annual income into the 401k (to get the full 15% matching funds) because of IRS contribution limits. The lower the annual salary the closer one can get to the 15%. You would have to have a fairly low salary to be able to contribute 15%
When I was younger making far less than i am now, i was in no way able to contribute anywhere near 15%. Now that i am making what I feel is a pretty decent wage, I can do 15% and even a little more if I really wanted to. The logic of making less and be able to contribute more to a 401k is backwards, at least it is in my singular case. Maybe I'm misunderstanding what was said?
Edited to say that one must be making some pretty damn big $ to not be able to fit under the allowed contribution limits and I would imagine that if making that kind of $, these 401k questions taked about on this thread wouldnt be an issue. All jmho. >>
There is a max per year that you can contribute and there is also a rule [or used to be] that the top 1/3 of employees can't contribute more as a group than the bottom 2/3.
the loan would be paid back @ 8% while still contributing.
would all the taxes make it futile?
<< <i>what would the implications be if one were to borrow from their 401K and then deposit(annual $$ max) it in a ROTH ?
the loan would be paid back @ 8% while still contributing. would all the taxes make it futile? >>
Deposit to ROTH has to be a conversion (not a rollover) from existing retirement plan (unlimed amount) or a cash contribution (annual IRS limits). Doesn't matter where the cash comes from. Rollover amount is taxed at your taxable rate, counts as "income" for that year. Loan from your 401K is not taxable income (in most cases) as long as it is repaid before your retire. In 2006 I borrowed 25K from my 401 to buy four ASE monster boxes. I have since repaid the loan and retired, still have the monster boxes that are worth almost 25K each.
To answer your question, no taxes due if loan repaid before retirement. Gains earned in the ROTH would be tax free. Keep in mind you would lose any income generation from the loss of funds in the 401K but should more than make up for it with the tax free gains in the ROTH. Your repayments to the loan will reduce your paycheck unless you cut back on future 401K contributions to compensate. What will suck is if you do it and your ROTH investments lose value. Pick a ROTH that you control. I use Scottrade online stock account. Plenty of PM plays in the market.
A good plan as long as your ROTH sees gains.
Edited to change rollover to conversion in the first sentence. Sorry for initial use of incorrect word. Conversion is taxable income, may want to split it over years to keep your annual gross below the next tax bracket. You can convert to a ROTH from a 401k without having to first rollover to a regular IRA. I have done it. Also note that you can have 401ks and multiple regular and ROTH IRAs.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I was in the same boat as the OP a year or so ago with the same feelings of what I should do concerning my current 410k and future contributions to it. My company matches 4% which is average I believe. 15% is outstanding and I would venture to say is 99% better than any other plan out there for the common 401k. I would be estatic if that was my plan.
You can look at it as an automatic 100% return on your money right off the bat and would make that much more with compounding interest. Even if your plan dropped 50%, you would still be holding 100% of YOUR initial investment. Pretty dang good.
With that said, if I would have taken my meager holdings out the beginning of last year and bought physical silver and gold, I would have done well investment wise, but I still would have taken a 40% hit on what I took out (30% income tax, 10% early withdrawal penalty). If I were to do that same thing in the current market, my cash out wouldn't go nearly as far and the % increase in PM's (I think) wouldn't be nearly as much as in years past. I could be wrong.
Too many positive BST transactions with too many members to list.
<< <i>what would the implications be if one were to borrow from their 401K and then deposit(annual $$ max) it in a ROTH ?
the loan would be paid back @ 8% while still contributing.
would all the taxes make it futile? >>
Why would there be any taxes? Sounds like you just want to fund a Roth IRA early. The only taxes would be on the ordinary income that you are using to contribute to the Roth. If you wanted to take out a 401k loan to fund the Roth there should be no issue with that as long as you can afford to repay it [hopefully while still contributing to the 401k]. If you default on the loan your 401k administrator will consider the unpaid balance as a distribution and therefore subject to taxes and early withdrawal fees.