401k advice

[(former)FormerSanDiegan]

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000. At this point in my career there was no employer match, so it was all my own money. The company I worked at switched 401k providers to another provider that did NOT offer the same funds. Net result was that they have to SELL my old funds and purchase equivalent funds with the new provider. I had to incur a realized loss of five thousand dollars. Where is the tax advantage there?

Where is the tax disadvantage ?

Most funds have stock index funds. If you use the approach that a large chunk of your investments are in index funds, it does not matter much which company provides the 401K. It seems that your problem was an investment selection problem not a tax advantage problem.

I actually like the 401k. After 12 years it has allowed us to virtually painlessly amass about 500K for retirement. Beats relying on a single employer pension that could disappear when I’m 55.

[(former)FormerSanDiegan]

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000. At this point in my career there was no employer match, so it was all my own money. The company I worked at switched 401k providers to another provider that did NOT offer the same funds. Net result was that they have to SELL my old funds and purchase equivalent funds with the new provider. I had to incur a realized loss of five thousand dollars. Where is the tax advantage there?

Where is the tax disadvantage ?

Most funds have stock index funds. If you use the approach that a large chunk of your investments are in index funds, it does not matter much which company provides the 401K. It seems that your problem was an investment selection problem not a tax advantage problem.

I actually like the 401k. After 12 years it has allowed us to virtually painlessly amass about 500K for retirement. Beats relying on a single employer pension that could disappear when I’m 55.

[CardiffBaseball]

For whatever reason I am a bit late to 401K party. Years of military, then combined with too much job-hopping. One thing I am not clear on is vesting. I am close to three years with one company, and initially invested, but stopped it to pay some bills. In assessing my income, it would see to me I should at least put in enough to get the matching because the tax savings, and the amount they kick in is still better than paying some interest on a credit card or student loan. I get 50% on the first 6, and we have a host of Vanguard funds and some other funds to choose from. I’d say even just 3% right now is probably a net win vs. paying debt.

When you are said to be 100% vested, is that for the life of each subsequent investment (meaning the employer match). That is let’s say I am fully vested after year 4, does that mean each matching dollar from there on is fully vested, or does each dollar invested have to wait it’s own 4 years to vest. I am assuming it’s the former.

[CardiffBaseball]

For whatever reason I am a bit late to 401K party. Years of military, then combined with too much job-hopping. One thing I am not clear on is vesting. I am close to three years with one company, and initially invested, but stopped it to pay some bills. In assessing my income, it would see to me I should at least put in enough to get the matching because the tax savings, and the amount they kick in is still better than paying some interest on a credit card or student loan. I get 50% on the first 6, and we have a host of Vanguard funds and some other funds to choose from. I’d say even just 3% right now is probably a net win vs. paying debt.

When you are said to be 100% vested, is that for the life of each subsequent investment (meaning the employer match). That is let’s say I am fully vested after year 4, does that mean each matching dollar from there on is fully vested, or does each dollar invested have to wait it’s own 4 years to vest. I am assuming it’s the former.

[CardiffBaseball]

For whatever reason I am a bit late to 401K party. Years of military, then combined with too much job-hopping. One thing I am not clear on is vesting. I am close to three years with one company, and initially invested, but stopped it to pay some bills. In assessing my income, it would see to me I should at least put in enough to get the matching because the tax savings, and the amount they kick in is still better than paying some interest on a credit card or student loan. I get 50% on the first 6, and we have a host of Vanguard funds and some other funds to choose from. I’d say even just 3% right now is probably a net win vs. paying debt.

When you are said to be 100% vested, is that for the life of each subsequent investment (meaning the employer match). That is let’s say I am fully vested after year 4, does that mean each matching dollar from there on is fully vested, or does each dollar invested have to wait it’s own 4 years to vest. I am assuming it’s the former.

[CardiffBaseball]

For whatever reason I am a bit late to 401K party. Years of military, then combined with too much job-hopping. One thing I am not clear on is vesting. I am close to three years with one company, and initially invested, but stopped it to pay some bills. In assessing my income, it would see to me I should at least put in enough to get the matching because the tax savings, and the amount they kick in is still better than paying some interest on a credit card or student loan. I get 50% on the first 6, and we have a host of Vanguard funds and some other funds to choose from. I’d say even just 3% right now is probably a net win vs. paying debt.

When you are said to be 100% vested, is that for the life of each subsequent investment (meaning the employer match). That is let’s say I am fully vested after year 4, does that mean each matching dollar from there on is fully vested, or does each dollar invested have to wait it’s own 4 years to vest. I am assuming it’s the former.

[CardiffBaseball]

For whatever reason I am a bit late to 401K party. Years of military, then combined with too much job-hopping. One thing I am not clear on is vesting. I am close to three years with one company, and initially invested, but stopped it to pay some bills. In assessing my income, it would see to me I should at least put in enough to get the matching because the tax savings, and the amount they kick in is still better than paying some interest on a credit card or student loan. I get 50% on the first 6, and we have a host of Vanguard funds and some other funds to choose from. I’d say even just 3% right now is probably a net win vs. paying debt.

When you are said to be 100% vested, is that for the life of each subsequent investment (meaning the employer match). That is let’s say I am fully vested after year 4, does that mean each matching dollar from there on is fully vested, or does each dollar invested have to wait it’s own 4 years to vest. I am assuming it’s the former.

[an]

Plus you can exacerbate the situation if you are one of those people that actually day trades within your 401k.

Why would you ever want to day trade a mutual fund?

401(k) is the 2nd best option out there after Roth IRA. That’s why the most common advice is contribute in 401k to max out the match amount, then contribute the rest in roth IRA. Once you max that out, then you max out your 401k.

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000…

How’s this any different than investing in the market through any other account type? If you buy back to a similar fund, you still be in a very similar boat compare to if you didn’t have to sell. The tax advantage is you get to invest with the $ that you would have to pay to the government. Lets take your example and compare that to a regular brokerage account?

$10k in 401k, tank 50% and now you need to take it out for retirement. You have $5000, tax free. If you put it in a brokerage account instead, depend on your tax bracket, the $ you have left is anywhere between $10k and a little over $5k. Put that in a fund which also drop 50% and then you have to sell it to use for retirement. You’ll have anywhere between $2500-$5000. So, worse case scenario, 401k = to brokerage account. Best case scenario, you’ll have almost 100% more $.

[an]

Plus you can exacerbate the situation if you are one of those people that actually day trades within your 401k.

Why would you ever want to day trade a mutual fund?

401(k) is the 2nd best option out there after Roth IRA. That’s why the most common advice is contribute in 401k to max out the match amount, then contribute the rest in roth IRA. Once you max that out, then you max out your 401k.

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000…

How’s this any different than investing in the market through any other account type? If you buy back to a similar fund, you still be in a very similar boat compare to if you didn’t have to sell. The tax advantage is you get to invest with the $ that you would have to pay to the government. Lets take your example and compare that to a regular brokerage account?

$10k in 401k, tank 50% and now you need to take it out for retirement. You have $5000, tax free. If you put it in a brokerage account instead, depend on your tax bracket, the $ you have left is anywhere between $10k and a little over $5k. Put that in a fund which also drop 50% and then you have to sell it to use for retirement. You’ll have anywhere between $2500-$5000. So, worse case scenario, 401k = to brokerage account. Best case scenario, you’ll have almost 100% more $.

[an]

Plus you can exacerbate the situation if you are one of those people that actually day trades within your 401k.

Why would you ever want to day trade a mutual fund?

401(k) is the 2nd best option out there after Roth IRA. That’s why the most common advice is contribute in 401k to max out the match amount, then contribute the rest in roth IRA. Once you max that out, then you max out your 401k.

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000…

How’s this any different than investing in the market through any other account type? If you buy back to a similar fund, you still be in a very similar boat compare to if you didn’t have to sell. The tax advantage is you get to invest with the $ that you would have to pay to the government. Lets take your example and compare that to a regular brokerage account?

$10k in 401k, tank 50% and now you need to take it out for retirement. You have $5000, tax free. If you put it in a brokerage account instead, depend on your tax bracket, the $ you have left is anywhere between $10k and a little over $5k. Put that in a fund which also drop 50% and then you have to sell it to use for retirement. You’ll have anywhere between $2500-$5000. So, worse case scenario, 401k = to brokerage account. Best case scenario, you’ll have almost 100% more $.

[an]

Plus you can exacerbate the situation if you are one of those people that actually day trades within your 401k.

Why would you ever want to day trade a mutual fund?

401(k) is the 2nd best option out there after Roth IRA. That’s why the most common advice is contribute in 401k to max out the match amount, then contribute the rest in roth IRA. Once you max that out, then you max out your 401k.

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000…

How’s this any different than investing in the market through any other account type? If you buy back to a similar fund, you still be in a very similar boat compare to if you didn’t have to sell. The tax advantage is you get to invest with the $ that you would have to pay to the government. Lets take your example and compare that to a regular brokerage account?

$10k in 401k, tank 50% and now you need to take it out for retirement. You have $5000, tax free. If you put it in a brokerage account instead, depend on your tax bracket, the $ you have left is anywhere between $10k and a little over $5k. Put that in a fund which also drop 50% and then you have to sell it to use for retirement. You’ll have anywhere between $2500-$5000. So, worse case scenario, 401k = to brokerage account. Best case scenario, you’ll have almost 100% more $.

[an]

Plus you can exacerbate the situation if you are one of those people that actually day trades within your 401k.

Why would you ever want to day trade a mutual fund?

401(k) is the 2nd best option out there after Roth IRA. That’s why the most common advice is contribute in 401k to max out the match amount, then contribute the rest in roth IRA. Once you max that out, then you max out your 401k.

I had roughly $10,000 in my 401k. The market tanked and one of the funds toppled. The value in my 401k went to $5,000…

How’s this any different than investing in the market through any other account type? If you buy back to a similar fund, you still be in a very similar boat compare to if you didn’t have to sell. The tax advantage is you get to invest with the $ that you would have to pay to the government. Lets take your example and compare that to a regular brokerage account?

$10k in 401k, tank 50% and now you need to take it out for retirement. You have $5000, tax free. If you put it in a brokerage account instead, depend on your tax bracket, the $ you have left is anywhere between $10k and a little over $5k. Put that in a fund which also drop 50% and then you have to sell it to use for retirement. You’ll have anywhere between $2500-$5000. So, worse case scenario, 401k = to brokerage account. Best case scenario, you’ll have almost 100% more $.

[Coronita]

I'm not trying to pick an argument here, I'm but I'll admit I'm trying hard to understand how people over a long period think that 401ks are a bad idea and are so concerned about losing money in a 401k versus a self-managed account, even if they just banked on index funds/bonds/international diversified, and how they would do better if they just contributed to an after tax account that gave them

Aside from the raw performance (or lack there of ) of fund selections outside a 401k plan, how often would most people have the discipline to regularly contribute to an account? Also, even if you do select funds yourself in an after tax account that does a few percents better than your companies 401k plan, aren't you paying a pretty hefty amount in taxes from dividends/cap gains/distributions in an after tax-account?

Again, not trying to argue here. But if you are one of the people that chose to not participate in a 401k but rather invested in an after-tax account. could you post some data to allow me to see what your effective return really was over say a 10 year period?

I can post some of my own data here, as needed if someone(s) are willing to participate in this.

 

Roughly, I started working in 96, and have maxed out every year on 401k, and switched companies several times.While a few employers matched up to a small amount, most didn't match. Also, being that i switched so many times, I didn't get to keep most of the company's matching. In all cases, I still have the original 401k accounts from each employer, since above a certain amount you aren't required to rollout (at least my ex-employers). So as a reference point, I maxed out 401k contributions from 1996 to now. Using the maximum contribution tables below:

2007 15,500

2006 $15,000 
2005 $14,000 
2004 $13,000 
2003 $12,000
2002 $11,000
2001 $10,500
2000 $10,500
1999 $10,000
1998 $10,000
1997 $ 9,500
1996 $ 9,500

 

This is a total of $140.5k of contributions.The current value is $240k, including $20k that I'm taking out related to employer match. Ok, so I know the returns aren't that great over 11 years, but this includes the period of dot.bomb bust and the market corrections that are going on right now. And the only thing I did was to divide my contributions into the standard large cap/mid cap/small cap/bond and fixed income/international (index when possible), staying away from specialty funds like "tech funds", "gold/silver"(grrrr). (I did do some of these specialities in non-401k accounts, but I'm not counting them here). Oh, and occasionally rebalancing among the mixes (like right now, I'm slightly more heavy on the international than domestic).

Yes, I know some of you think these returns suck, but these 401k accounts for me are suppose to be more conservative in my portfolio.

Can someone who is over average financial capability who choose not to participate in a 401k plan for the past 10-11years but instead deposited that net taxed amount each year to either an after-tax account and/or IRA provide some insight into how you did? I'm mainly interested in the people who have average financial capabilities (not someone who trades for a living). Professional traders, please excuse yourself from posting. I understand if you are a financial guru and can make a living trading why you might be inclined to "do it yourself". But I would think that most people aren't "pro" (including me), and I'm mainly looking for the average person with reasonably financial intelligence to post some numbers going the other non-401k route.

Please be honest. I'm not trying to "eball" here. i really would like to get some information about the pros and cons of 401k in real world examples. If you don't feel comfortable using absolute numbers, feel free to post percentages (provided you are honest about them). Also ,if you could, provide a rough detail of your asset distribution (type of funds-don't need to be specific).

 

Again, I'm more curious about finding the true answer than being right or wrong here. If there is sufficient data to suggest the possibility of being better off outside of a 401k, I definitely would be open to it.

 

 

[Coronita]

I'm not trying to pick an argument here, I'm but I'll admit I'm trying hard to understand how people over a long period think that 401ks are a bad idea and are so concerned about losing money in a 401k versus a self-managed account, even if they just banked on index funds/bonds/international diversified, and how they would do better if they just contributed to an after tax account that gave them

Aside from the raw performance (or lack there of ) of fund selections outside a 401k plan, how often would most people have the discipline to regularly contribute to an account? Also, even if you do select funds yourself in an after tax account that does a few percents better than your companies 401k plan, aren't you paying a pretty hefty amount in taxes from dividends/cap gains/distributions in an after tax-account?

Again, not trying to argue here. But if you are one of the people that chose to not participate in a 401k but rather invested in an after-tax account. could you post some data to allow me to see what your effective return really was over say a 10 year period?

I can post some of my own data here, as needed if someone(s) are willing to participate in this.

 

Roughly, I started working in 96, and have maxed out every year on 401k, and switched companies several times.While a few employers matched up to a small amount, most didn't match. Also, being that i switched so many times, I didn't get to keep most of the company's matching. In all cases, I still have the original 401k accounts from each employer, since above a certain amount you aren't required to rollout (at least my ex-employers). So as a reference point, I maxed out 401k contributions from 1996 to now. Using the maximum contribution tables below:

2007 15,500

2006 $15,000 
2005 $14,000 
2004 $13,000 
2003 $12,000
2002 $11,000
2001 $10,500
2000 $10,500
1999 $10,000
1998 $10,000
1997 $ 9,500
1996 $ 9,500

 

This is a total of $140.5k of contributions.The current value is $240k, including $20k that I'm taking out related to employer match. Ok, so I know the returns aren't that great over 11 years, but this includes the period of dot.bomb bust and the market corrections that are going on right now. And the only thing I did was to divide my contributions into the standard large cap/mid cap/small cap/bond and fixed income/international (index when possible), staying away from specialty funds like "tech funds", "gold/silver"(grrrr). (I did do some of these specialities in non-401k accounts, but I'm not counting them here). Oh, and occasionally rebalancing among the mixes (like right now, I'm slightly more heavy on the international than domestic).

Yes, I know some of you think these returns suck, but these 401k accounts for me are suppose to be more conservative in my portfolio.

Can someone who is over average financial capability who choose not to participate in a 401k plan for the past 10-11years but instead deposited that net taxed amount each year to either an after-tax account and/or IRA provide some insight into how you did? I'm mainly interested in the people who have average financial capabilities (not someone who trades for a living). Professional traders, please excuse yourself from posting. I understand if you are a financial guru and can make a living trading why you might be inclined to "do it yourself". But I would think that most people aren't "pro" (including me), and I'm mainly looking for the average person with reasonably financial intelligence to post some numbers going the other non-401k route.

Please be honest. I'm not trying to "eball" here. i really would like to get some information about the pros and cons of 401k in real world examples. If you don't feel comfortable using absolute numbers, feel free to post percentages (provided you are honest about them). Also ,if you could, provide a rough detail of your asset distribution (type of funds-don't need to be specific).

 

Again, I'm more curious about finding the true answer than being right or wrong here. If there is sufficient data to suggest the possibility of being better off outside of a 401k, I definitely would be open to it.

 

 

[Coronita]

I'm not trying to pick an argument here, I'm but I'll admit I'm trying hard to understand how people over a long period think that 401ks are a bad idea and are so concerned about losing money in a 401k versus a self-managed account, even if they just banked on index funds/bonds/international diversified, and how they would do better if they just contributed to an after tax account that gave them

Aside from the raw performance (or lack there of ) of fund selections outside a 401k plan, how often would most people have the discipline to regularly contribute to an account? Also, even if you do select funds yourself in an after tax account that does a few percents better than your companies 401k plan, aren't you paying a pretty hefty amount in taxes from dividends/cap gains/distributions in an after tax-account?

Again, not trying to argue here. But if you are one of the people that chose to not participate in a 401k but rather invested in an after-tax account. could you post some data to allow me to see what your effective return really was over say a 10 year period?

I can post some of my own data here, as needed if someone(s) are willing to participate in this.

 

Roughly, I started working in 96, and have maxed out every year on 401k, and switched companies several times.While a few employers matched up to a small amount, most didn't match. Also, being that i switched so many times, I didn't get to keep most of the company's matching. In all cases, I still have the original 401k accounts from each employer, since above a certain amount you aren't required to rollout (at least my ex-employers). So as a reference point, I maxed out 401k contributions from 1996 to now. Using the maximum contribution tables below:

2007 15,500

2006 $15,000 
2005 $14,000 
2004 $13,000 
2003 $12,000
2002 $11,000
2001 $10,500
2000 $10,500
1999 $10,000
1998 $10,000
1997 $ 9,500
1996 $ 9,500

 

This is a total of $140.5k of contributions.The current value is $240k, including $20k that I'm taking out related to employer match. Ok, so I know the returns aren't that great over 11 years, but this includes the period of dot.bomb bust and the market corrections that are going on right now. And the only thing I did was to divide my contributions into the standard large cap/mid cap/small cap/bond and fixed income/international (index when possible), staying away from specialty funds like "tech funds", "gold/silver"(grrrr). (I did do some of these specialities in non-401k accounts, but I'm not counting them here). Oh, and occasionally rebalancing among the mixes (like right now, I'm slightly more heavy on the international than domestic).

Yes, I know some of you think these returns suck, but these 401k accounts for me are suppose to be more conservative in my portfolio.

Can someone who is over average financial capability who choose not to participate in a 401k plan for the past 10-11years but instead deposited that net taxed amount each year to either an after-tax account and/or IRA provide some insight into how you did? I'm mainly interested in the people who have average financial capabilities (not someone who trades for a living). Professional traders, please excuse yourself from posting. I understand if you are a financial guru and can make a living trading why you might be inclined to "do it yourself". But I would think that most people aren't "pro" (including me), and I'm mainly looking for the average person with reasonably financial intelligence to post some numbers going the other non-401k route.

Please be honest. I'm not trying to "eball" here. i really would like to get some information about the pros and cons of 401k in real world examples. If you don't feel comfortable using absolute numbers, feel free to post percentages (provided you are honest about them). Also ,if you could, provide a rough detail of your asset distribution (type of funds-don't need to be specific).

 

Again, I'm more curious about finding the true answer than being right or wrong here. If there is sufficient data to suggest the possibility of being better off outside of a 401k, I definitely would be open to it.

 

 

[Author]

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