anyone knowledgeable about 401K's on here

kidman232 · Apr 9, 2012

so i am switching to a new job and am setting up a 401k with them. I automatically get enrolled into a 3% before tax amount, which i can raise up to 6%. after 90 days of working, I qualify for a 3% employer match. after each year, they would automatically raise my contribution 1% (if i havent made any manual changes). i am thinking about raising mine to 4% from the get go. I am in my young/mid 20's .

question really revolves around, i have to tell them how to invest my cash, and what percentage of it i want in each. I can pick from:

stable value fund, bond funds, large cap funds, small/mid cap funds, international funds, target date funds, and real estate funds (with a set % from 0-100%

CHOPTALK · Apr 9, 2012

unless you are planning to really learn how to invest stick it in the target funds.

EasyMoney · Apr 9, 2012

well since you are so young you'll probably want it in the most aggressive places. Which generally means small cap companies or international.

boatboatboat · Apr 9, 2012

Ask your human resource contact at work if the company 401k has a Roth option built into it. if it does, I suggest you look into that option. While you lose the upfront deduction today, you will owe no taxes when you withdraw 45 years from now.

EasyMoney · Apr 9, 2012

CHOPTALK said:
unless you are planning to really learn how to invest stick it in the target funds.

This works as well. They will probably give you options of what target fund you want. The options will probably be like 2035, 2040, 2045 2050 ect. Basically you just pick the one where youre about retirement age. if youre 25 then say the 2050 fund. And it will be made up of a bunch of aggresive investments.

kidman232 · Apr 9, 2012

i could do something like 25% small cap, 25% int, and 50% target date

CHOPTALK · Apr 9, 2012

target date is going to allocate your Small cap, int, bonds, Real Estate % automatically
Just put 100% into the target date fund and it will do all the allocations for you.
Thats why I said unless you are planning on really learning how all this works thats your best option.

Otherwise you will be allocating the wrong % on what your needs are.

kidman232 · Apr 9, 2012

hmmm, alright. any advice or thoughts on bumping the percentage up to 4-6% or just staying with the 3% since im younger? i assume i shouldnt put a target date lower than me being 60 years old at the time

CHOPTALK · Apr 9, 2012

kidman232 said:
hmmm, alright. any advice or thoughts on bumping the percentage up to 4-6% or just staying with the 3% since im younger? i assume i shouldnt put a target date lower than me being 60 years old at the time

the more aggressive you want to be the higher target date.

The 1st question you have backwards.
The younger you are the MORE you put in not LESS.
Unless you can get that IRA that above poster talked about you put absolutely the max allowed into the plan you can afford.

snoop · Apr 9, 2012

You want to do more than 6%. Adjust your Fed & State withholding, just take home enough to cover your monthly expenses, the rest goes to 401Ks. Worst case scenario, you can always request a loan against your 401k. Don't take home more than you have to, the more you take home, more taxes they take away from you.

kidman232 said:
hmmm, alright. any advice or thoughts on bumping the percentage up to 4-6% or just staying with the 3% since im younger? i assume i shouldnt put a target date lower than me being 60 years old at the time

kidman232 · Apr 9, 2012

here is how it is

employee pre tax contribution 3%-----------------------going to bump to 4%

employee after tax contribution 0%-----------------------?

employee roth contribution 0%-----------------------------?

lifecycle2045 ----------------------------------100%

nojuice9 · Apr 9, 2012

listen to boatx3!

TheFunkMonkey · Apr 9, 2012

Definitely take advantage of the employer match (sounds like you're doing that). Amazing how many Americans leave hundreds (thousands?) of dollars on the table, by ignoring the employer match.

After that, contribute as much as you can --- 5%, 10%?

Doesn't mean you should live like a pauper. But if you're looking to invest money, tough to beat the advantages of a 401k.

TheFunkMonkey · Apr 9, 2012

401k --- contributions are not taxed today. But when you withdraw in ~ 40 years, those withdrawals will be taxed.
Roth IRA --- you contribute after-tax money. But then your withdrawals are not taxed.

Some experts argue the best plan is to:

1) Contribute to 401k, up to employer match
2) Then max out your Roth IRA (max is $5,000 per year)
3) Then make more contributions to 401k

But unless you can predict the future (what will taxes be in 2050, 2060?), it is tough to say one plan is better than the other.

So definitely take advantage of the employer match. After that, can't go wrong with either 401k or Roth IRA.

TheFunkMonkey · Apr 9, 2012

401k --- contributions are not taxed today. But when you withdraw in ~ 40 years, those withdrawals will be taxed.
Roth IRA --- you contribute after-tax money. But then your withdrawals are not taxed.

Some experts argue the best plan is to:

1) Contribute to 401k, up to employer match
2) Then max out your Roth IRA (max is $5,000 per year)
3) Then make more contributions to 401k

But unless you can predict the future (what will taxes be in 2050, 2060?), it is tough to say one plan is better than the other.

So definitely take advantage of the employer match. After that, can't go wrong with either 401k or Roth IRA.

loomis41973 · Apr 9, 2012

shdw01 · Apr 9, 2012

I just want to make sure on a couple things.....

- a 3% match is the most you can get from the employer right?

Investing for the future is great. All valid points....no social security.....if you do pretax you pay less taxes now...if you do roth you can get tax free earnings and hopefully at a higher tax rate. (cause you will be making more money).....you are young so you want to be more aggressive since you have time to ride out the low periods

but there is only one thing I can say and feel strong that it will not be bad advice. Maximize employer contributions. This is free money. It is like saying no to a raise. Usually with a safe harbor they match 3% regardless of deferrals....but there are many plans that will only match what you put in up to 3%....if that is the case, i cringe at those not making deferrals....

Either way....never hurts to start early....congrats

boatboatboat · Apr 9, 2012

The Funk Monkey said:
But unless you can predict the future (what will taxes be in 2050, 2060?), it is tough to say one plan is better than the other.

Convential wisdom says we will have a national health care plan within the next decade. The cost of this, plus our current debt will leave us with a tax rate in the 30-35 range (so say the egg-spurts). I think it's safe to say, our tax rates will be increasing. This makes the Roth put in place in 2012 look even better come 2052

kidman232 · Apr 9, 2012

the company use to offer up to 6% match, but when the economy tanked, they stopped matching. now they have returned with a 3% match starting this month. it says my elected maximum percent is 6%, so i dont think i can have them take out more than 6% for my 401k, without doing something like snoop said.

EasyMoney · Apr 9, 2012

kidman232 said:
the company use to offer up to 6% match, but when the economy tanked, they stopped matching. now they have returned with a 3% match starting this month. it says my elected maximum percent is 6%, so i dont think i can have them take out more than 6% for my 401k, without doing something like snoop said.

No, you should be able to take out whatever you want but they will only match to a certain point. For example, say you make 50k a year and your company matches 50% of your contributions up to 4% of your pay. What that means is the company will contribute up to $2000 a year max (4% of 50k.) But to get that whole $2000 from the company you would have to put in $4000. It doesn't however mean thats all you can put in. I believe the max youre allowed to put in in 2012 is $17000. So you can put up to 17k a year but the company will only match it to a certain point.

anyone knowledgeable about 401K's on here

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