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Additionally if the OPs employment situation changes, he will be obligated to pay off the loan in full or class it as a withdrawl which will be subject to taxes, plus the penalty.
Additionally brokerages charge fees often substantially more than any 401K administrative fees. The advice of our financial advisor at work is to max out, to the federal limit, the contribution you can make to your 401K (reduces your taxable income) THEN consider after tax options Roth 401K or possibly brokerage accounts.
certainly one approach, but i'm surprised that your f.a. would provide this advice. only because most f.a.'s i've spoken to believe you should contribute to 401k up to company match amount, then contribute to an IRA (still get the benefits of pre-tax contributions, unless over the income limit) to get the benefit of having any investment choice as an option. also, you don't have to max our pre-tax account before considering a ROTH. in fact, much thought today (Captain might like this one) is that it's better to pay taxes NOW because surely, our taxes will be higher later.
my personal view is...a good mix of pre-tax and post-tax for retirement investments to hedge bets either way.
The whole argument of going with an IRA, as opposed to maxing out a 401k, because of more investment choices is curious to me. My 401ks offer a LOT of choices -- almost too many. As many, in fact, as my IRA.
With IRA money, you have the freedom to go to a brokerage firm to buy stocks, to an insurance company to buy annuities, to banks to buy CDs, and a pick from just about ALL of the mutual funds available and so on.
401ks are limited by what your employer has chosen. Some are great; some not so great.
The whole argument of going with an IRA, as opposed to maxing out a 401k, because of more investment choices is curious to me. My 401ks offer a LOT of choices -- almost too many. As many, in fact, as my IRA.
there is no way you have access to nearly as many choices in as in an IRA. your 401k offers you fund options. maybe it offers you 50. maybe 100. but i doubt it offers more than that (if it does, then your 401k manager sucks, because he's making it overly complicated, and you're probably paying higher fees than you should).
an IRA is in a brokerage account and can be invested in ANYTHING. want to buy walmart stock? you can. want to buy a bond fund? you can. there's literally thousands and thousands more options in an IRA.
now...your 401k may have all the options you need/want. that's fine.
but, IRAs have far more choice and offer far more individual control...if you want it. these are just simple facts.
i'm sure there could be a 401k out there that offers way more options than i've ever seen. maybe that's yours. but it still doesn't come close to an IRAs options.
With IRA money, you have the freedom to go to a brokerage firm to buy stocks, to an insurance company to buy annuities, to banks to buy CDs, and a pick from just about ALL of the mutual funds available and so on.
401ks are limited by what your employer has chosen. Some are great; some not so great.
only good thing about a 401k vs ira is you can hit the 401k money at 55 if your retire early with no penalty and you get better shielding from creditors... i do find the amount i put in my 401k being so much larger allowed me to save up a nice chunk over the years. most folks including myself wouldnt save anywhere near the max amount if left to our own devices of saving on our own.
the forced savings is worth an extra nod to the 401k along with with the greater amount i can tax defer until our pay checks stop and we are in a lower bracket; and yes i do believe there is no way i will be in a higher tax bracket when 2 pay checks stop and we move to a low income tax state.
the expenses are a fraction of a percent higher on the same fidelity funds in my 401k vs the same funds outside the 401k so i dont consider that a factor.
a recent study by fidelity investments has shown that those over the age of 55 and contributing the max to their 401k saw the average 401k account jump from 96k in 2000 to over 215k today. 2/3 of that amount was contributions by the employer and the employee. 1/3 was gains.
do you really think left to save that much on their own they would have socked away that much without it coming directly out of their check? nooooooo way! im pretty good with saving but i have my doubts if even i would have put away on my own that much every year unless it came out of my check first.
Last edited by mathjak107; 04-08-2011 at 02:47 AM..
only good thing about a 401k vs ira is you can hit the 401k money at 55 if your retire early with no penalty and you get better shielding from creditors... i do find the amount i put in my 401k being so much larger allowed me to save up a nice chunk over the years. most folks including myself wouldnt save anywhere near the max amount if left to our own devices of saving on our own.
the forced savings is worth an extra nod to the 401k along with with the greater amount i can tax defer until our pay checks stop and we are in a lower bracket; and yes i do believe there is no way i will be in a higher tax bracket when 2 pay checks stop and we move to a low income tax state.
the expenses are a fraction of a percent higher on the same fidelity funds in my 401k vs the same funds outside the 401k so i dont consider that a factor.
a recent study by fidelity investments has shown that those over the age of 55 and contributing the max to their 401k saw the average 401k account jump from 96k in 2000 to over 215k today. 2/3 of that amount was contributions by the employer and the employee. 1/3 was gains.
do you really think left to save that much on their own they would have socked away that much without it coming directly out of their check? nooooooo way! im pretty good with saving but i have my doubts if even i would have put away on my own that much every year unless it came out of my check first.
Actually, you can tap into your IRA prior to age 59 1/2 without penalty - Rule 72t. Sort of restrictive but yet available.
only good thing about a 401k vs ira is you can hit the 401k money at 55 if your retire early with no penalty and you get better shielding from creditors... i do find the amount i put in my 401k being so much larger allowed me to save up a nice chunk over the years. most folks including myself wouldnt save anywhere near the max amount if left to our own devices of saving on our own.
the forced savings is worth an extra nod to the 401k along with with the greater amount i can tax defer until our pay checks stop and we are in a lower bracket; and yes i do believe there is no way i will be in a higher tax bracket when 2 pay checks stop and we move to a low income tax state.
the expenses are a fraction of a percent higher on the same fidelity funds in my 401k vs the same funds outside the 401k so i dont consider that a factor.
a recent study by fidelity investments has shown that those over the age of 55 and contributing the max to their 401k saw the average 401k account jump from 96k in 2000 to over 215k today. 2/3 of that amount was contributions by the employer and the employee. 1/3 was gains.
do you really think left to save that much on their own they would have socked away that much without it coming directly out of their check? nooooooo way! im pretty good with saving but i have my doubts if even i would have put away on my own that much every year unless it came out of my check first.
i mostly agree...but it doesn't sound like you're accounting for the fact that nearly all tax brackets will likely be higher taxes in the future. you're closer to retirement than I am...30 years from now, i dunno....we're going to have to start paying off this gov't debt at some point.
but i agree about 401k being forced savings. most people won't do it left on their own.
I say it all the time , im not convinced middle americas income taxes will be touched for decades. With 80 million retiring baby boomers i cant imagine any political group telling them they are raising income taxes.
In fact at the 3% a year that income taxes have been falling for decades pretty soon 25% will be 100k .
I do see payroll taxes , sales taxes ,real estate taxes and anything else that they can tax rising big time.
But non the less it cant hurt to do a roth in the mix covering tat base too
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