Jrobb Posted February 3, 2007 Report Share Posted February 3, 2007 My current employer seems hell-bent on getting everyone in the company who's eligible for the program (401k) to sign up...to the point where I think the HR lady "accidentally" signed me up for it even though I declined to participate. I caught it early only deferred 100bucks so far, but it was my decision to do with my money as I see fit. I was curious what benefit employers get for having more employees in the plan and I found the following: "To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's "highly compensated" employees, based on the average deferral by the company's non-highly compensated employees. If the rank and file saves more for retirement, then the executives are allowed to save more for retirement." This seems well intentioned enough but the feeling is my company has taken it a step further to "extend to the lower paids" this plan by not so much coercing but presenting a dire need for everyone to join...the result is corporate bigwigs making over 100k annually can deffer the max amount = to the average of all contributions. (Max is like 15,500 I think). Is this the only benefit or encouragement extended to employers regarding 401k participation? that quote was taken from here off a Wikipedia can anyone shed some light on this? J Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 3, 2007 Report Share Posted February 3, 2007 I certainly understand the highly compensated - low compensated part, it is an advantage to the higher ups to have the low income employees contribute so they can come close to maxing out their contribution. I have been there and did a lot of recruiting of the low income for this reason. But lets get to the big question, does your company contribute a certain % to your account or AKA matching funds? If so, you'd be smart to contribute as much as you possibly can. Most companies match 50% of your contribution with a 3% cap. It free money so do this, BUT keep in mind there is vesting period usually in place so it is not yours unless you stay employed for several years by them. It is called incentive not to quit. Being a father and an old guy I can not emphasize enough to save in your 401(k) plan, it is the best there is if you are an employee. My kids are now thanking me for getting them to contribute 10 years ago, they both have over 100K in their plan and they are in their 30's. Quote Link to comment Share on other sites More sharing options...
Jrobb Posted February 3, 2007 Author Report Share Posted February 3, 2007 my company matches 50% of the first 6% Iput in if I enroll, but will still contribute 2% of my annual income regardless of whether I participate or not. I go back and forth whether to sign up or not, but I always end up needing the money now rather than being able to see saving it for later...one of my less redeming qualities. J Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 3, 2007 Report Share Posted February 3, 2007 my company matches 50% of the first 6% Iput in if I enroll, but will still contribute 2% of my annual income regardless of whether I participate or not. I go back and forth whether to sign up or not, but I always end up needing the money now rather than being able to see saving it for later...one of my less redeming qualities.J Guys -- it is FREE money and not taxed. It is only taxed when you take it out. Get the full company match and save more if you can. It can lower your tax rate so you pay less to Uncle Sam. Also, if you had the money in almost any stock fund in the past 5 months you'd have made an additional 27% or more. ( I know only if it does not crash, well it is not going to ) Get enrolled! Quote Link to comment Share on other sites More sharing options...
Dave Pushee Posted February 3, 2007 Report Share Posted February 3, 2007 Gotta go with C5 on this. Listen to the old farts, grasshopper. How do you think it is that we are able to retire and enjoy midweek riding? Maybe you can't afford to go all out and pump 15K a year into the 401K yet, but I'll bet you can at least put something in. Here's a strategy that might work for you. Start putting something in - even if it's only 2 percent. Then, if you get a raise sometime, increase your savings rate to start sucking up the new money before you find some other use for it. Pretty soon you'll be saving at the max rate. Also, don't forget that since the money you are putting in is tax deferred, it doesn't reduce your take home as much. For example, If you put in 6%, it would reduce the take home by less than 5 %. Quote Link to comment Share on other sites More sharing options...
mnfusion Posted February 9, 2007 Report Share Posted February 9, 2007 People...pay yourself first!!!! Contribute at least one hour of your work day to you 401k/403b. This means contributing 12% of your gross to your plan. I don't have the time to explain the miracle and benefit of compound interest, but trust me, there is no reason anyone cannot find the money to contribute to your plan. Any don't use the 'i live paycheck to paycheck' excuse. If you can afford to buy carving equipment and snowboard in general then you have the extra income to contribute. I contribute 20% of my gross to my paln. It hurt at first but now I don't even miss it and it is more fun to see my account grow than it is to get a new toy. Trust me...you can't afford not to do this. (btw...i have a modest income, less than $50,000 and year and I can afford to contribute 20%) Quote Link to comment Share on other sites More sharing options...
skatha Posted February 9, 2007 Report Share Posted February 9, 2007 Contribute now, not later..... I stress again what everone else has said...oh yeah, you can opt out to "put it to the man" so he can't go to the maximum contribution rate...little consolation when you're eating catfood for dinner at age 75.... Plus "the man" has other investment strategies, of which the company 401K is just a part.... Sincerely, "The Man" Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 9, 2007 Report Share Posted February 9, 2007 Contribute now, not later.....I stress again what everone else has said...oh yeah, you can opt out to "put it to the man" so he can't go to the maximum contribution rate...little consolation when you're eating catfood for dinner at age 75.... Plus "the man" has other investment strategies, of which the company 401K is just a part.... Sincerely, "The Man" If one is not contributing to prevent the "Man" from maximizing his/her contribution, You are cutting of your nose to spite your face. Quote Link to comment Share on other sites More sharing options...
ncermak Posted February 9, 2007 Report Share Posted February 9, 2007 a brief explanation of compound interest: If Person A begins contributing at age 20, and stops at age 30 (10 years of contributions for the mathematically impaired), and Person B begins contributing at age 30, for the rest of their career, until age 65. Person B will never catch up with person A...at age 65, person A will have more money in the fund, than person B. Contribute now, contribute as much as you ccan, Don't look at the value for several years, and you will be amazed at how much you have saved. at age 35, I have well over 100K in my retirement, and I have worked some pretty low paying jobs. this is money that had it not been invested would have been pissed away on snowboards and beer... Quote Link to comment Share on other sites More sharing options...
bjvircks Posted February 9, 2007 Report Share Posted February 9, 2007 Contribute now, contribute as much as you can.... This is money that had it not been invested would have been pissed away on snowboards and beer... AMEN !!! I've got a 20 yo son in college, 16 yo daughter. I'm trying to get them to understand that THEY need to look out for THEMSELVES and their financial well being in later years. Don't fully rely on a pension under someone else's control. Don't fool yourself thinking Social Security will provide. Skatha's comment about catfood for dinner is right on target! Pay yourself first! Always! Quote Link to comment Share on other sites More sharing options...
ncermak Posted February 9, 2007 Report Share Posted February 9, 2007 bjv - an interesting considering your tagline! :lol: Quote Link to comment Share on other sites More sharing options...
bjvircks Posted February 9, 2007 Report Share Posted February 9, 2007 So, Noah... will it be Fiskies or Fancy Feast tonight? Quote Link to comment Share on other sites More sharing options...
ncermak Posted February 9, 2007 Report Share Posted February 9, 2007 neither... never... thats why I put it all away! Now I have to make other chices: Bud light or Guinness, burton or donek and cateks... Quote Link to comment Share on other sites More sharing options...
Jrobb Posted February 9, 2007 Author Report Share Posted February 9, 2007 Well, I decided for maybe the wrong reasons but made the right decision anyway to stay in the plan. I can't get back the 100 bucks already in there, and frankly I wouldn't have noticed it if I hadn't really read my pay stub. I'm currently at 2% my contribution, I think I may up it a little here and there. I'm due for raise in Mar. and possible promotion in Apr (extra 10K/year) so most will go into 401 and "housing fund " The little lady and I may purchase a house in the next year or two. Appreciate all the insight. One question, the tax rate at the time of "cashout" for lack of a better word...is that any different than the current tax rate? My current tax bracket notwithstanding. J Quote Link to comment Share on other sites More sharing options...
Kaida Posted February 9, 2007 Report Share Posted February 9, 2007 When you pull from your 401k when you retire, it will count as taxable income. If you aren't working, your taxable income will only come from your retirement investments which should put you in a lower tax bracket. Also, some retirement investments such as Roth IRA, has you put after-tax dollars into the plan, and isn't taxed (including any earnings) when you withdraw from it. Quote Link to comment Share on other sites More sharing options...
bjvircks Posted February 9, 2007 Report Share Posted February 9, 2007 your tax rate when you draw on these funds will depend on the tax laws in place at that time and how much taxable income received for various sources at that time. It may be hard to 'crystal ball' what your future tax burden will be. my best advice is to find ways to move as much as possible into tax free situation like ROTH. save early, save often. edit... I just re-read some of the opening posts... sounds like 1) the 2% company contribution may be for a "defined contribution pension" 2) the 50% company match on your 1st 6% personal participation is traditional 401k practice. can you say "FREE MONEY" DO NOT leave this 50% match on the table... put in your 6% RIGHT NOW and KEEP DOING IT FOREVER. Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 9, 2007 Report Share Posted February 9, 2007 .Appreciate all the insight. One question, the tax rate at the time of "cashout" for lack of a better word...is that any different than the current tax rate? My current tax bracket notwithstanding. J One way to look at your tax rate when you retire and use your 401(k) or other tax deferred savings/retirement plans, These plans are now seen as your employer - and you are the employee where you determind your annual salary, based on that income you will pay the going rate just like you are employed. On top of that is any additional income like Soc Sec and Dividends, part time work, what have you you will also pay income tax. So remember - your 401(k) is your employer when you retire, treat him right! Roth plans are great too - if you qualify. Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 10, 2007 Report Share Posted February 10, 2007 . I can't get back the 100 bucks already in there, and frankly J If you don't know ---your $$$ you put in 401k are always yours...unlike some of the scams of past. You can take it out several ways. If you changes jobs which is the most common reason you can transfer it to your new plan @ your new job if you want - be sure you have them make the transfer check out to your new institution not just you. Otherwise you will have terrible penalties. Second common reason to take out your $$$ is to help buy your home or a hardship occurs. That is to say it is treated like a loan - no penalty for this withdraw but you will need to pay it back. Just think you are your own banker loaning yourself money and paying it back. One reason the 401k type plans are also good is the maintenance fees are usually paid for by your company not YOU. This amount is generally around 1%, this is another good reason to save in a company 401k plan. When you save in the various IRAs the maintenance fee is paid for by you. Hope this helps and when you are 40 yr old and have money saved you can thank Bomberonline. Quote Link to comment Share on other sites More sharing options...
Maciek Posted February 14, 2007 Report Share Posted February 14, 2007 Guys -- it is FREE money and not taxed. It is only taxed when you take it out. Get the full company match and save more if you can. It can lower your tax rate so you pay less to Uncle Sam. Also, if you had the money in almost any stock fund in the past 5 months you'd have made an additional 27% or more. ( I know only if it does not crash, well it is not going to ) Get enrolled! It lowers your tax temporiarily. Then you have to pay when you get that money, but one can retire (spread of taxes in time). It will not lower tax significantly if one makes a lot of money (there is cap on how much can be saved and it ain't high). 401K is also dependent on market. Honestly i have better options to invest even paying tax. I was lucky to make probably 100k (actual market value and it will never lower) in half this time by doing investments I do. I bet the richest know the answer what is the best investment... so I try to follow their path even with those pennies that I earn ;) Quote Link to comment Share on other sites More sharing options...
Sinecure Posted February 14, 2007 Report Share Posted February 14, 2007 Like it has been said, you are passing up free money if you don't maximize the contribution the company makes. Not sure what the max contribution is these days. I now run a small company with no 401K, but when I used to be one of those highly comp'd employees, I seem to recall somewhere in the range of $10k/yr max contribution? Not sure on that. Or maybe that's the max that Social Security takes? Now that I'm broke its all sorta moot. Put the money in. You can take it with you easily. FYI, its not too bad if they make out the check to you, rather than an institution, its just easier if you have them make it out to whoever your next employer's 401K admin is, or your own IRA administrator. If they make out the check to you (I've had this happen), you just need to file with the IRS on your next tax return that you rolled over the funds into another 401K or IRA (last time I did this, I don't think I even needed to provide proof - just certify it on my return - I could be wrong about that). I've also borrowed against it to purchase my first home. I paid it back (with interest, I think), but that was awesome. I basically paid myself the interest, instead of the bank. If you can put in 10% of your income, its a great thing. At a minimum put in the 6% that the company will match. Remember that its pre-tax money so the hit to your paycheck won't be as significant as the top-line. Oh, and if you are young, consider choosing the most aggressive, risky investment options. Quote Link to comment Share on other sites More sharing options...
pebu Posted February 14, 2007 Report Share Posted February 14, 2007 I'm 23 and living with my brother (free rent)... 15% of my 40k is going into a 401k. It's silly not to. I was thinking of upping it, but I'm tryin to raise a little money so I can buy some land and build a house hopefully in the next 2 or so years. It's amazing how fast money works for you. My suggestion is to find how much you NEED to live (don't count cigarettes or satellite tv or fancy **** like that) then give yourself a little extra to treat yourself right. Then put a crapload in a 401k and put the rest in a savings account for EMERGENCIES. You can still live comfortably, but you're setting yourself up for living well as life goes on. Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted February 14, 2007 Report Share Posted February 14, 2007 You can take it with you easily. FYI, its not too bad if they make out the check to you, rather than an institution, its just easier if you have them make it out to whoever your next employer's 401K admin is, or your own IRA administrator. If they make out the check to you (I've had this happen), you just need to file with the IRS on your next tax return that you rolled over the funds into another 401K or IRA (last time I did this, I don't think I even needed to provide proof - just certify it on my return - I could be wrong about that).. Be careful with the above advice... It may have been that way many years ago but the IRS made changes to the rules to prevent people keeping the $$ without paying taxes. Below is how the rule is stated at one of the financial institutions. 13. I still have a 401(k) account with my former employer. I would like to transfer this account into my IRA. Can this be done? If so, are there any penalties? Yes, this can be done and is referred to as a trustee to trustee transfer. You need to request the distribution forms from your former employer. Make sure you open your new IRA before the transfer so that you can provide the account information on the required forms. There are no penalties with a trustee to trustee transfer, but if you allow your former employer to send the funds directly to you and not to your new IRA, they will be required to deduct and remit 20% of the total to the IRS. Quote Link to comment Share on other sites More sharing options...
Mike T Posted February 15, 2007 Report Share Posted February 15, 2007 My employer is a smaller company that has a 401k but doesn't do matching contributions (yet). I still put in as much as I can. One additional benefit to 401k's over, say, investing the money on your own is that you can move money between investments without any tax hit whatsoever. For example if one of those oh-so-risky funds gives you cold feet, or you just like to rebalance onnce every 6 or 12 months, you can move some money into another fund without having to pay any Capital Gains tax. If you're wheeling and dealing in individual stocks or even funds in your own account you wind up paying taxes on every gain (and getting credit for your losses - which alas you wouldn't get if a 401l investment loses money). So assuming your 401k has a net positive return, you're saving money on the taxes as you rebalance. Please do keep an eye on the fees each fund on your 401k plan charges. Some employers are not so good at picking funds with low fees. If your 401k has the Vanguard S&P 500 Index fund or something similar, the fees are very low since the fund is low maintainence... buying and selling by the fund only happens when stocks rotate in and out of the index. Quote Link to comment Share on other sites More sharing options...
C5 Golfer Posted June 1, 2007 Report Share Posted June 1, 2007 Restart a good thread.. I hope some that read this thread contributed to their 401k. Since the start of the thread about 4 months ago most funds available in a 401k should be showing about a 8% increase. Toss in the 3% add the employer usually adds, That is a lot of money being made. Quote Link to comment Share on other sites More sharing options...
pebu Posted June 1, 2007 Report Share Posted June 1, 2007 And it's practically free. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.