401K Question... - Page 6

58-4ever · 08-13-2006, 03:09 PM

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?

Moooo · 08-13-2006, 07:36 PM

Quote:

Originally Posted by luv

Hmmm...

I'll wait for an answer to that question myself, too.

I'm off to About.com to see if I can't learn more...

Moooo

**alnorth** · 08-13-2006, 07:37 PM

Quote:

Originally Posted by Moooo

Can you roll at a lower penalty rate than the 35% or whatever?

Moooo

Theres no penalty for a rollover, in fact it would be wise to do so since your choices are restricted in a 401k, and you have more freedom in an IRA.

If you decide to take some of that money yourself instead of rolling it over, your hammered with penalties and taxes.

Moooo · 08-13-2006, 07:38 PM

Quote:

Originally Posted by alnorth

Theres no penalty for a rollover, in fact it would be wise to do so since your choices are restricted in a 401k, and you have more freedom in an IRA.

If you decide to take some of that money yourself instead of rolling it over, your hammered with penalties and taxes.

It sounds like the IRA and the 401/403 (whichever you can get) are like brothers. They kinda do the same thing but come from different sources.

This is fun. Jeez I'm a nerd!

Moooo

Boltergeist · 08-13-2006, 07:39 PM

Without reading all of the posts, I'll offer some comments since this is my line of work. I'm a Compliance Officer with a broker-dealer and I deal with this every day.

First, whether in a traditional 401k or IRA...realize that you are in a long-term investment geared for retirement....ie. don't think about touching the money...or else it would be pretty useless to invest in the first place if you are just going to take out large chunks and get whacked with the penalty for early withdrawal. This is the biggest way people mis-manage their retirement money...It flat defeats the purpose....You want it to continue to grow tax-free.

Second, as was mentioned by someone else....traditional 401k= pre-tax....the brand new Roth 401k (following the Roth IRA) = after tax....the Roth 401k also has a sunset for federal tax provisions after 2010, so there is a chance that current federal tax treatment may not be renewed by congress. It's up to the consumer but advantages of the Roth is that you are taxed upfront but can withdraw your contributed money at any time..at retirement you withdraw everything tax-free provided you have been in the plan for at least 5 years and are 59 1/2. In a pre-tax plan (traditional 401k) your compounded tax money can help to significantly boost your bottom line at your retirement. That's money continuing to grow that would have otherwise gone to uncle sam early.

Plenty of companies do offer 100% match up to a specified % (4% in your case)and it is wise to take advantage. Free money for you....when/if you change jobs, you can roll over your 401k to another plan, an annuity or an IRA.

**luv** · 08-13-2006, 07:40 PM

Quote:

Originally Posted by alnorth

Theres no penalty for a rollover, in fact it would be wise to do so since your choices are restricted in a 401k, and you have more freedom in an IRA.

If you decide to take some of that money yourself instead of rolling it over, your hammered with penalties and taxes.

That's what I was thinking. You're rolling over, you're not taking it out. And then, once you get another job, you can roll that money over into that 401k plan, correct?

**luv** · 08-13-2006, 07:41 PM

Quote:

Originally Posted by Moooo

It sounds like the IRA and the 401/403 (whichever you can get) are like brothers. They kinda do the same thing but come from different sources.

This is fun. Jeez I'm a nerd!

Moooo

Kind of. 401k is tied to a company. IRA is all yours, baby.

**alnorth** · 08-13-2006, 07:49 PM

Quote:

Originally Posted by luv

That's what I was thinking. You're rolling over, you're not taking it out. And then, once you get another job, you can roll that money over into that 401k plan, correct?

Yeah, but once you get it into a IRA, I'd personally just keep it there and start contributing to the new 401k, again because the IRA gives you better choices, but if you like the new 401k, you could roll it into there if you want.

When you do a rollover, be careful. If you dont have one yet when its time to quit, set up an empty shell IRA with no money in it, then tell your 401k administrator to roll it directly to them, you do not want to see a single dime land in your pocket.

If you ask for the money thinking that youll deposit it yourself later into the IRA, youll get a nasty surprise when you find out that the 401k was required by law to withhold 20% and send it to Uncle Sam (since they dont know that your not just gonna spend it), and then you have 60 days to come up with that money out of your own pocket and put it into the IRA yourself to avoid tax and penalties, and then wait for that extra money to come back to you in a tax refund next year.

Boltergeist · 08-13-2006, 07:49 PM

Quote:

Originally Posted by luv

Kind of. 401k is tied to a company. IRA is all yours, baby.

Not necessarily. You are getting free money from a company..but you when you leave you can roll that money into an IRA or another 401k plan. The 401k is all yours too.

**luv** · 08-13-2006, 07:50 PM

Quote:

Originally Posted by Boltergeist

Not necessarily. You are getting free money from a company..but you when you leave you can roll that money into an IRA or another 401k plan. The 401k is all yours too.

My company no longer has an employer match.

Boltergeist · 08-13-2006, 08:04 PM

Quote:

Originally Posted by luv

My company no longer has an employer match.

I see. In your case the only real advantage of the 401k might be the higher contribution limits over the IRA.

chiefsplanet · 08-13-2006, 08:07 PM

Quote:

Originally Posted by 4th and Long

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.

Not quite, I normally type like that.

chiefsplanet · 08-13-2006, 08:09 PM

Quote:

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.

That's still incorrect. You have to pay income tax on the interest earned just like you do on a CD or a normal savings account if you have much of a gain.

chubychecker · 08-13-2006, 08:10 PM

There are a few things to clear up.
1. There is no income limit for the Roth 401k. This is not like the roth Ira where there is a maximum income limit.
2. In 2010 a conversion is available to everyone. Currently you can only convert if you meet certain income limitations. However, the conversion amount is still taxable at your income tax rate. You can spread this out over 2 years though if I'm not mistaken.
3. Real estate; although a good investment does not have anywhere close to the long term performance of the stock market. Over the last 30 years Real-estate has returned a little less than 5% a year compared to almost 13% for the S%P. Real estate is a very trendy investment right now; much like technology was 6-7 years ago. Watch out.
4. Roth IRA's 401k's are great investments. I have to disagree with you on this one al. Especially if you are young. A 30 year old will double his contributions likely at least 4 times before they retire. Would you rather pay taxes on $100 now or $1600 later. Even though many of us will be making less money when we are retired, we don't know what the tax brackets of the future will be. Also as al mentioned the IRS doesn't force minimum distributions on the Roth. They are also great for passing on money to heirs. If you were to pass away with a large traditional IRA, your heirs are forced to maintain distributions on that money. Thus uncle sam becomes a partner on their inheritance. The roth passes tax-free.

401k's are great investments, if you believe otherwise it is simply because you are uneducated of the great benefits.

Be safe; and don't put all your eggs in one basket.

chubychecker · 08-13-2006, 08:12 PM

Quote:

Originally Posted by chiefsplanet

That's still incorrect. You have to pay income tax on the interest earned just like you do on a CD or a normal savings account if you have much of a gain.

Nope you're incorrect. The money is 100% tax-free. Principal and interest. This is why the roth is sooooooo attractive.

**alnorth** · 08-13-2006, 08:17 PM

Quote:

Originally Posted by chiefsplanet

That's still incorrect. You have to pay income tax on the interest earned just like you do on a CD or a normal savings account if you have much of a gain.

The thing you might be thinking about is the neat little withdrawal provisions for Roths. Unlike traditionals, you can withdraw your contribution (not earnings) penalty-free, with a few restrictions that I forget. (Needs to be in there for X years, or something)

08-13-2006, 03:09 PM
58-4ever The Collective Unconscious Join Date: Sep 2005 Location: The OP Casino cash: $9520422	401K Question... 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?
Posts: 10,425

08-13-2006, 07:39 PM	#79
Boltergeist Registered User Join Date: Aug 2003 Casino cash: $10004900	Without reading all of the posts, I'll offer some comments since this is my line of work. I'm a Compliance Officer with a broker-dealer and I deal with this every day. First, whether in a traditional 401k or IRA...realize that you are in a long-term investment geared for retirement....ie. don't think about touching the money...or else it would be pretty useless to invest in the first place if you are just going to take out large chunks and get whacked with the penalty for early withdrawal. This is the biggest way people mis-manage their retirement money...It flat defeats the purpose....You want it to continue to grow tax-free. Second, as was mentioned by someone else....traditional 401k= pre-tax....the brand new Roth 401k (following the Roth IRA) = after tax....the Roth 401k also has a sunset for federal tax provisions after 2010, so there is a chance that current federal tax treatment may not be renewed by congress. It's up to the consumer but advantages of the Roth is that you are taxed upfront but can withdraw your contributed money at any time..at retirement you withdraw everything tax-free provided you have been in the plan for at least 5 years and are 59 1/2. In a pre-tax plan (traditional 401k) your compounded tax money can help to significantly boost your bottom line at your retirement. That's money continuing to grow that would have otherwise gone to uncle sam early. Plenty of companies do offer 100% match up to a specified % (4% in your case)and it is wise to take advantage. Free money for you....when/if you change jobs, you can roll over your 401k to another plan, an annuity or an IRA.
Posts: 62

08-13-2006, 08:10 PM	#88
chubychecker Starter Join Date: Mar 2005 Location: kansas, hiawatha Casino cash: $10004900	There are a few things to clear up. 1. There is no income limit for the Roth 401k. This is not like the roth Ira where there is a maximum income limit. 2. In 2010 a conversion is available to everyone. Currently you can only convert if you meet certain income limitations. However, the conversion amount is still taxable at your income tax rate. You can spread this out over 2 years though if I'm not mistaken. 3. Real estate; although a good investment does not have anywhere close to the long term performance of the stock market. Over the last 30 years Real-estate has returned a little less than 5% a year compared to almost 13% for the S%P. Real estate is a very trendy investment right now; much like technology was 6-7 years ago. Watch out. 4. Roth IRA's 401k's are great investments. I have to disagree with you on this one al. Especially if you are young. A 30 year old will double his contributions likely at least 4 times before they retire. Would you rather pay taxes on $100 now or $1600 later. Even though many of us will be making less money when we are retired, we don't know what the tax brackets of the future will be. Also as al mentioned the IRS doesn't force minimum distributions on the Roth. They are also great for passing on money to heirs. If you were to pass away with a large traditional IRA, your heirs are forced to maintain distributions on that money. Thus uncle sam becomes a partner on their inheritance. The roth passes tax-free. 401k's are great investments, if you believe otherwise it is simply because you are uneducated of the great benefits. Be safe; and don't put all your eggs in one basket.
Posts: 398