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401k

Old 01-14-2010, 09:01 AM
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Don't know much about them, was reading a little bit and had a few questions.... I have an employer who will match it, can I take my 401k and not invest it and just put it into a CD with no risk?

If you invest it in stocks and bonds and stuff like that what is you average gain? I know with the economy a lot of people lost money in there 401k.. Did they just lose money they gained from the investing profit, or did they also loose money they put in? what is your average profit % return of investing it opposed to just letting it sit and playing it safe?
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Old 01-14-2010, 09:16 AM
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Each plan differs. In general, it depends upon what your company's plan offers. Typically you will indicate what percentage of your salary you want to contribute into the plan and then you will indicate how you want it invested among the investments offered by the plan.

Your human resources department (or plan administrator) should be able to give you information describing the investments offered.

To answer what "people lost" - again it depends on the plan. I will speculate and say that the majority of people lost both the investing profit AND the money they put in.

Do not let that fact alone make you rule out participating in the plan. The fact that your employer will match your contributions (either all or to a point) makes the plan very desirable.
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Old 01-14-2010, 09:20 AM
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I don't know your age, but if you can, and your employer will participate, try to set it up as a Roth. You don't get the deduction now but it is all tax free when you take it out. Can't beat it.
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Old 01-14-2010, 09:21 AM
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I am no expert but can answer some of your questions.

You will have to invest it in one of the funds that is offered by whoever is managing the 401k account, you can split it up into multiple funds. There will be different places or funds to invest with varying degree of risk/return. The amount of risk you want to take depends on different factors/goals such as your age, how long before retirement. The rep from the 401k should be able to explain it and advise you.

Your return is directly related to risk (higher risk, higher return)

YES! YOU CAN LOSE THE MONEY YOU PUT IN!

401k with an employer match is a great deal, jump on it and put in as much as you comfortably can. It is taxed deferred, comes off your gross income, you pay tax on it when you start to draw on it.

I'm sure there will be some much more savvy guys who will jump in with more advice.
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Old 01-14-2010, 09:27 AM
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Originally Posted by Jdizzle View Post
Don't know much about them, was reading a little bit and had a few questions.... I have an employer who will match it, can I take my 401k and not invest it and just put it into a CD with no risk?

If you invest it in stocks and bonds and stuff like that what is you average gain? I know with the economy a lot of people lost money in there 401k.. Did they just lose money they gained from the investing profit, or did they also loose money they put in? what is your average profit % return of investing it opposed to just letting it sit and playing it safe?
With a 401(k) plan, you will typically have about 15+ choices to allocate your investment. Many plans also offer a fixed account, which would have a minimal, risk free return. Also, since your company provides a match, you should consider contributing an amount equal to that with the maximum company match.

It is difficult to say what the return should be, but over the long term, I would expect a long term return of 6-9% depending on how you have your money allocated. This is not a prediction, but an industry accepted "hypotetical assumption". Only you can manage your own expectations.

Since it sounds like you have little experience with investing, I first want to give you a lot of credit for realizing that this may be important to your financial future and trying to get more information. Being in the "business", I can not give you investment advice because I don't know your objectives, risk tolerance, etc. However, for the few 401(k) plans I've worked on, I offered to meet with any participants individually to guide them through the process. Depending on the size of the comapny, I would either check with Human Resources or your boss to see who is managing the investments in the plan and ask to meet with him/her. Hopefully, they will "earn their commission" and take the time to help you.

Good luck.
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Old 01-14-2010, 09:31 AM
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I've heard some people say they have switched from a 401 or 3 type plan to a Roth because they fear that the marginal taxes will be higher than they are now when it's time to use the money so they choose to pay the taxes now. Am I missing something? I'm certainly not planning on being in the same tax bracket I'm in now when I retire so I may, in fact, be able to pay little or no tax on this money. I'll take my tax break today. A bird in the hand is worth two in the bush.
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Old 01-14-2010, 09:37 AM
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First, do it! Especially if your employer matches. Unless it'll sink you, put the max in they'll match - you're throwing money away if you don't. Most plans allow you to adjust the % here or there if it gets to be too much for you.

Second, you have to educate yourself on all the various plan offerings then decide how much risk is right for you, your age, your temperament, etc. There are some real good risk calculators on the net - do a search -if you have a good plan administrator (like Vanguard ) they should provide all the tools and literature you need.

Another, easier, option is to go with a Target-type fund where based on your projected retirement age, the fund diversifies among stocks, bonds, money, etc for you. Hopefully your company offers at least a few Target fund options.
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Old 01-14-2010, 09:43 AM
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Originally Posted by camnbo View Post
I've heard some people say they have switched from a 401 or 3 type plan to a Roth because they fear that the marginal taxes will be higher than they are now when it's time to use the money so they choose to pay the taxes now. Am I missing something? I'm certainly not planning on being in the same tax bracket I'm in now when I retire so I may, in fact, be able to pay little or no tax on this money. I'll take my tax break today. A bird in the hand is worth two in the bush.
The best advice I can give here is that everyone's situation is different. If you are in a low marginal tax bracked currently, then it may make sense to consider a Roth option. However, if you are in a high tax bracket, the deduction may be important to you currently. Since none of us have a crystal ball, it is impossible to predict the future of tax rates. However, with the financial mess the government is in and the fact that, believe it or not, we are in a relatively "low" tax environment compared to years past, it may be reasonable to assume that we may see higher tax brackets in the future.

Only you will know what is best for you to do. There really isn't a right or wrong decision as to pre tax vs after tax. In my opinion, the most important thing is to save as much and as early as possible.
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Old 01-14-2010, 10:11 AM
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Thanks for you input guys btw I am 23. I think the max but law you can put in is 16K tax free is that my employer an be total? or just my end?

Can I not invest it an just put it into a CD? Because I have no wife/kids and I am pretty good with money and don't feel like waiting till I am 65 to get my money or around what ever age it is, I also plan of retire earlier than that(cross my fingers) and am overweight smoker I will prob die by the time I am 68!!
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Old 01-14-2010, 10:25 AM
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"Early" retirement or not, you still have many, many years of saving for it. Your profile points you towards fairly high-risk investments, you have a lot of time and few obligations.

Last edited by kone; 01-14-2010 at 10:26 AM. Reason: grammar
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Old 01-14-2010, 10:54 AM
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The 401K contribution limits for 2010 are $16,500 for employees. Employer contributions are limited to 6% of the employee's pre-tax compensation under the 401k rules.


For example, if you earned $100,000, you could contribute a maximum of $16,500 in 2010 before taxes and your employer could contribute up to another $6,000 for a total of $22,500 going into your 401K account. Those are the 401K limits for people under 50.
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Old 01-14-2010, 10:57 AM
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How does a 100% return on your money sound? That's what you're getting if your employer matches dollar for dollar. Of course, that's a one time return, not year after year. But it does give you a huge boost on your retirement savings. Your actual investment return will depend, like others have said, on your choices of investment.
I've got two words for you - compound interest. You're starting young, time is on your side. Get going. Compounded returns can have a startling affect on your account. As a way of illustrating the power of compounding lets say you start with a penny in your account and your account doubles every day, how much do you think you'd have in thirty days? Try it and see.

Your employers matching funds will help you tremendously due to compounding.

There are numerous avenues of information on the web about investing. Go to reputable sites to get educated. Also books from the library. Don't believe everything you read or see, there are as many charlatans out there as good people. You'll have to weed through them.
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Old 01-14-2010, 11:00 AM
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401k with an employer match is a great deal, jump on it and put in as much as you comfortably can. It is taxed deferred, comes off your gross income, you pay tax on it when you start to draw on it.

Do it if you can, ask your HR department what you can invest in, ask for performance records of the different funds.

You can lose the money so be careful.
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Old 01-14-2010, 11:15 AM
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Here's a very good starter questionaire (Vanguard Group) that will tell you a lot about your risk tolerance. It's noncommital, give it a try...

https://personal.vanguard.com/us/Fun...us/funds/tools
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Old 01-14-2010, 12:50 PM
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I was reading your employer will match up to 5% of your salary or what ever %. I make double my base salary in over time....will the match the 5% of my income or base salary??
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Old 01-14-2010, 12:54 PM
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Originally Posted by Jdizzle View Post
I was reading your employer will match up to 5% of your salary or what ever %. I make double my base salary in over time....will the match the 5% of my income or base salary??
5% is pretty good deal. Usually just base - check your plan rules.
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Old 01-14-2010, 04:25 PM
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It's going to take a lot of years of compounding to make back not only the money I've lost in the last two years, but also the accompanying compounding of those contributions.
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Old 01-14-2010, 06:36 PM
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Originally Posted by Jdizzle View Post
Thanks for you input guys btw I am 23. I think the max but law you can put in is 16K tax free is that my employer an be total? or just my end?

Can I not invest it an just put it into a CD? Because I have no wife/kids and I am pretty good with money and don't feel like waiting till I am 65 to get my money or around what ever age it is, I also plan of retire earlier than that(cross my fingers) and am overweight smoker I will prob die by the time I am 68!!
A few misconceptions. First, the 401K is pre-tax money. That means that if you decide to invest $100 a month, that $100 is invested before any taxes are removed. That is a good deal. Second, once in the 401K, you cannot take it out until you are at least 59-1/2. There are some hardship rules where you can take it and may be some loan provisions although I wouldn't do that. To clarify, you could take it out but would pay penalties.

Because the money is already pre-tax, you couldn't use a Roth because a Roth is after-tax money. If you are pretty good with your money, you shouldn't really need this money. It is retirement money and shouldn't be viewed any other way.

I think currently the max is $16K, may be $16.5K. Your 23, you really can't afford to take a fixed investment at this point. If you are really risk averse, then choose or have your advisor choose a convervative group of funds. There is no "average" return. It depends on the funds, the market, the fund manager, etc etc.

Absolutely put in at least the percent your employer will match. If you really want a CD, not sure why with the ultra low rates, then use your after-tax income and put some in a CD.
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Old 01-15-2010, 04:49 AM
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@23 I would put in as much as you can afford.....watch your investments close..our plan offers many options and my online account will allow me to move it where I see fit...I was lucky and moved my investments and contributions back before the crash to a fixed return fund, the return was low but the loss was "0". Now its back in an aggressive fund and moving very well....you have to stay on top of whats going on and monitor you're funds at least weekly.
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Old 01-15-2010, 04:51 AM
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if you take the current money from your 401 and put into a cd you will be taxed on it and a 10% fed.penalty
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