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401K Yay or nay?
Old 11-28-2009, 07:33 PM   #1
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401K Yay or nay?

MY new employer has a 75% investment match up to 6% of my income. Definitely a nice perk. However, with the catch up clause I could add significantly more money to the 401K and save myself some taxes. The only problem is that the 401K administrator is Principle and the investment choices look pretty tame.

Any thoughts?
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Old 11-28-2009, 07:42 PM   #2
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Originally Posted by Wormrider View Post
MY new employer has a 75% investment match up to 6% of my income. Definitely a nice perk. However, with the catch up clause I could add significantly more money to the 401K and save myself some taxes. The only problem is that the 401K administrator is Principle and the investment choices look pretty tame.

Any thoughts?
if you are asking if you should contribute to your 401k the answer is yes, as much as possible.
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Old 11-28-2009, 07:42 PM   #3
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Look at the vesting schedule on the match. You are new and if you don't plan to stay long the match might be nothing or little.

Putting 22K a year in a 401K even with good choices means you will have to pay ordinary income tax on withdrawals. That income might make SS taxable and you face penalities if you are under 55 when you leave the employer or 59.5 if you roll to a IRA then withdraw.

If you need the tax reduction now and will be withdrawing without penalty at a lower rate the investment returns don't matter as much. You can contribute then roll into a IRA then convert to ROTH if that works out for you tax wise.
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Old 11-28-2009, 07:46 PM   #4
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Yes. The tax savings, the match and tax-deferment outweigh all but the most egregious high-fee plans. Those plans have front-end load AND a 3% expense ratio.
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Old 11-28-2009, 07:49 PM   #5
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Originally Posted by jdw_fire View Post
if you are asking if you should contribute to your 401k the answer is yes, as much as possible.
Yes, should I contribute over the 6% match limit? Since was part of a corporate buyout the money will be vested immediately. Thanks.
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Old 11-28-2009, 08:12 PM   #6
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Yes, should I contribute over the 6% match limit? Since was part of a corporate buyout the money will be vested immediately. Thanks.
i did when i was working, i contributed the maximum.
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Old 11-28-2009, 08:33 PM   #7
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Yes, should I contribute over the 6% match limit?
"it depends"--but probably not. It would be best to max out any other tax-favored investment opportunities (IRA, Roth IRA, a 529 plan if applicable in your case, HSA, etc) before putting additional money into a bunch of high-cost 401K investments. But definitely go for the full match--free money!
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Old 11-28-2009, 08:33 PM   #8
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It depends on your situation, your income level, tax bracket, expected retirement income level, possible future tax levels, etc. JMO, but if I was elegible for contributing to a Roth, I'd put the extra in that, after putting enough into the 401K to get the full match. If you make too much for the Roth, I'd still put the extra into a taxable IRA and convert it in a year or two to a Roth. I personally can't see how tax levels won't be significantly higher in the future than they are now, so even if you are in a lower bracket you might be paying higher taxes. I prefer to get the government's hand out my pocket up front.
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Old 11-28-2009, 08:40 PM   #9
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"it depends"--but probably not. It would be best to max out any other tax-favored investment opportunities (IRA, Roth IRA, a 529 plan if applicable in your case, HSA, etc) before putting additional money into a bunch of high-cost 401K investments. But definitely go for the full match--free money!
i contributed to the other available tax advantaged accounts (ira for me) too
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Old 11-29-2009, 07:25 AM   #10
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- 401(k) up to the match
- max to Roth accounts
- max to 401(k)
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Old 11-29-2009, 07:57 AM   #11
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- 401(k) up to the match
- max to Roth accounts
- max to 401(k)
After maxing the Roth, why not max a traditional IRA before returning to the 401k? You could make your own lower cost investment choices...

I can't do the Roth and the traditional does not make extraordinary sense in my case, but if I was under the limits, the above is what I'd want to do.

R
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Old 11-29-2009, 08:00 AM   #12
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If one maxes the Roth, then one cannot contribute to a traditional IRA.
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Old 11-29-2009, 08:07 AM   #13
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If one maxes the Roth, then one cannot contribute to a traditional IRA.
Thx, got it.

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Old 11-29-2009, 01:48 PM   #14
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I've had my share of shtty 401ks but there is usually some sort of S&P500 index fund with a reasonable expense ratio that you can use as part of your overall investment strategy.
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Old 11-29-2009, 03:12 PM   #15
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After maxing the Roth, why not max a traditional IRA before returning to the 401k? You could make your own lower cost investment choices...

I can't do the Roth and the traditional does not make extraordinary sense in my case, but if I was under the limits, the above is what I'd want to do.
As said, traditional IRA is not possible (tax-deductible) if you contribute max to Roth. But...

I contribute to a SEP-IRA, as I have self-employment income. There are other plans, too.
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Old 11-29-2009, 04:20 PM   #16
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I can't do the Roth and the traditional does not make extraordinary sense in my case, but if I was under the limits, the above is what I'd want to do.

R
if you contribute to the TIRA now you can convert it to a roth later and you wont have to pay taxes on the amout of the conversion on which you have already paid taxes
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Old 11-29-2009, 04:49 PM   #17
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Maybe I had better look into that a little further. Thanks for the help guys.

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