401k
 

I've been doing some thinking about this lately and wanted to get honest answers. How many of you contribute the maximum to your company's 401K plan? I believe the max for 2006 is $15,000?

As much as I think I can without shorting myself on having money for bills and stuff. Any savings in this day and age is a good thing. The rates of returns on certain funds are pretty good as well.

I contribute $4200 a year. My employer only matches $900 a year. My employer also offers a very generous pension (it is very rare to see anyone stay past 55 around here), so the 401k is really just additional retirement savings. That said, I've made a killing in my 401k in the last few years. Common knowledge around my workplace is that it is best to save for retirement in this order: get vested in the pension, put $900 a year into your 401k, Max out a Roth IRA, Max out a traditional IRA, then Max out your 401k.

General rule of thumb is to max out your 401k if your employer matches at all. If your employer does not match (like the US Gubmint), then you can look at a Roth IRA as an alternative, the numbers come out a little in favor of the Roth vs a 401k with no match. With the match the 401k wins hands down since you get an automatic "return" on your dollars from the match.

Max out those retirement plans early!!! Lord knows Social Security won't be around when we get old...

Too bad roth isnt available for everyone. Max the 401k. Worst case you can get the money if you need it anyway.

Exactly - it's a pseudo-savings account. For certain things like home purchases, I believe you can withdraw without tax penalty too. This might end up being a good idea if the rate of return on real estate is greater than what you're getting in the 401k funds. For me right now this is not the case - the real estate market is very volitile and on the brink of collapse and a couple of my 401k funds netted over 30% return last year. Feels nice to finally be doing SOMETHING right! :D

Can you set up contributions to a IRA or Roth IRA in the same way that you have withholding contributions made to a 401k? Sorry, I'm not a finance geek (still trying to learn a lot of this stuff).

You can contribute to Roth IRA with after tax income. I can't do it through my employer plus there is an income ceiling that prevents some from benefiting in it. The 401K Roth will be introduced soon, I think. And, with that, you can contribute through your employer, if they decide to offer it.

When I was able to put money into a Roth, I would do it with my tax returns. I'd do my taxes early and deposit the returns into the Roth before April 15 of the current year and it would count as a contribution for the previous year.

Yeah, definitely max out your 401k.

"For certain things like home purchases, I believe you can withdraw without tax penalty too. "

I once worked with a guy who thought that to be true. He was PISSED!!!! when he found out how little he had after "penalties."

Perhaps things have changed since then. . .tho I doubt it.

Also, remember, the words "tax defered" means that the politicians will have a HUGE, slow-moving taxation rate target, when all the 401k's start cashing out. I can hear the futrure now, the politicians saying "look at all the money we saved you . .. all that tax deferment .... you really should be taxed at a higher rate on that money."

Also consider the general trend in taxation rate. . do you really expect that your taxation rate will be oh so much lower, 30 years from now?

Max it out. It really is shocking how much wealth you start to pile up when you contribute every other week for years. I started contibuting when I was 24 and started working at my current employer. That was 8 years ago. I wish I had been more active in watching my investment choices early on, I missed out on lots of growth. You need to treat it like any other investment and actively monitor and change your positions. I didn't start doing that until last year and man what a difference it has made. There are over 5 funds in my portfolio that are currently averaging over 30% growth for the last 5 years. That is amazing ROI.

I put in around $5K which I could afford to put away more, but the gubmit, and daughters college kind of suck up most of what is left at the end of the month after paying bills.

Ain't that the truth! Actually, I think SS will be around, but I certainly am not counting on it....

Upon reflecting upon the poll, I doubt seriously if the numbers here on Pelican reflect what happens in the general population...comments?

Serious question:

Without an employer match, isn't a 529 a better strategy than a 401k? Especially for the education stuff.

I think the majority of people I know do not max out their 401k. I don't understand their thinking at all. They make good money and could easily afford to make the 15k contribution but they don't and make the excuse that they can make more money else where. The funny thing is that none of these guys are investing that little bit of extra cash they get in their paychecks. They spend it on toys. I can't fault them to much as I have a toy habbit myself, but only after 401k and regular savings and investments. You gotta pay your future self before you can have fun.

A buddy of mine works for a consulting firm that specializes in 401(k)s and retirement plans in general. He shared some statistics with me which I cannot accurately quote, but they were SICK. Personal savings in the US for retirement is in the crapper. It was awful how unprepared many people are.

So to answer the earlier question, people who max out their 401(k) are in the very small minority.

No, but I want to make sure I have a sizable nest egg so I don't have to work when I hit 50. 401k is just one investment vehicle that will get me there.

My guess is that the individuals who frequent this board are more financially adept that the average Joe American. Look at the percentage of people that max out their 401k contributions. I bet that its actually higher than the number of people in the workforce that participate at all. What do you guys think?

I concur, but I will work (at something I enjoy), hopefully without having to consider the financial aspect of whatever I choose to do....I'd be bored to death otherwise....

The key word being "have" to work. I will probably work till I pass on, it will just be something I love to do. Money will not be the driving force like it is now.

The concept of max'ing out your 401k doesn't necessarily exist because its the best strategy for you. Sometimes it comes from upper management in top heavy companies who are trying to avoid getting a refund (and then paying the tax on the difference) on what they've put in or from having to fill out amended tax returns.

Make sure you are familiar with how 401k Non Discrimination Testing works if you are in a top heavy company where a Compensation Manager is telling you that contributing more to the plan is 'best'.