401(k) help?

[Sean of the Thread]

My first 90 days (part time 29 hours) at HSN I'm eligible for the following in regards to the title but wouldn't mind some certain posters advice.

Automatically enrolled in the plan at 3%
Tax deferred retirement savings plan (duh)
May contribute up to 16% of pre-tax salary
Company match of $.10 on the dollar for the first 6%
100% vested after 2 years.

Oh and stock purchase at market value with no broker fees through payroll deduction.


Any advice on what to do from the starting gates would be appreciated.

[Neo]

Based on the matching and the flow of the market in the last year, you may be better just doing your own person savings plan, until you hit the 2 year mark when they will up the contributions.

Savings Bonds can yield you a 100% ROI in small amounts... 50$ into 100$ after 7 years... Cant go wrong there.

Unless you are looking at the long haul, then just go 401k and ride it out. 2% to 6% now, and then max it when they will match up to 100%... Starting off so low, go with the highest risks for the biggest gains.

Then again there is always the horse track or lottery, I get more pleasure watching my money disappear there, then in my 401k statements every few months.

Neo

[Jorddyn]

Based on the matching and the flow of the market in the last year, you may be better just doing your own person savings plan, until you hit the 2 year mark when they will up the contributions.

They don't up contributions, the contributions vest - which means they're his even if he leaves the company. Until that point, they return to the company if he leaves.


Savings Bonds can yield you a 100% ROI in small amounts... 50$ into 100$ after 7 years... Cant go wrong there.

Except that I don't know of any savings bond that pays 10%+ interest, which you'd have to get to turn $50 into $100. If this was truly the interest it was paying, everyone from Joe Schmo to Warren Buffet would have their money in savings bonds.


Unless you are looking at the long haul, then just go 401k and ride it out. 2% to 6% now, and then max it when they will match up to 100%... Starting off so low, go with the highest risks for the biggest gains.

Again, you're misunderstanding vesting.

Sean - look at it this way. You have an instant, guaranteed 10% gain on anything you contribute up to 6% of your salary. There's no reason not to do it. Unless your 401(k) is ridiculous, they'll offer a variety of investment opportunities. If you're not overly market savvy, pick either an index fund or a target date fund, depending on your risk tolerance. If you have no risk tolerance, there should be a money market option, which won't earn you much interest but is relatively safe.

6% is a good starting point for a retirement fund. After 5 years or so, you'll really see your balance start to grow. It's tough to not be disappointed to look and see $2k after a year (or however much 6% of your salary is), but you have to start somewhere or you'll be working until you're 80.



Then again there is always the horse track or lottery, I get more pleasure watching my money disappear there, then in my 401k statements every few months.


Yea, feel free to ignore his advice.

[Neo]

Yea, feel free to ignore his advice.


Oh come on now!

The track is fun!!!!

[Daniel]

Based on the matching and the flow of the market in the last year, you may be better just doing your own person savings plan, until you hit the 2 year mark when they will up the contributions.

Savings Bonds can yield you a 100% ROI in small amounts... 50$ into 100$ after 7 years... Cant go wrong there.

Unless you are looking at the long haul, then just go 401k and ride it out. 2% to 6% now, and then max it when they will match up to 100%... Starting off so low, go with the highest risks for the biggest gains.

Then again there is always the horse track or lottery, I get more pleasure watching my money disappear there, then in my 401k statements every few months.

Neo


Uhhh.... First thing is to absolutely ignore everything he just said.

As Jordyyn said, it's silly not to invest up to the matching @ least. I'll also add that you get an additional return on the back end from the tax deducation.

For instance, if your tax rate is 35% and you put in 10 grand. That money is not taxed, saving you $3500 in taxes, plus the match, plus whatever return you get. Now, you do have to pay taxes when you take it out but that's 35 years from now for you. You'll gain a butt load of appreciation in that time and you can stretch it out for however long you think your liver can hold out.

If you can afford it, it's a win\win. People who don't do it are suckers.

[Neo]

5000 on Luck Day to win!!!

[kookiegod]

Yah, absolutely, put the 16 percent in assuming you can afford it.

They are gonna match 10 cents on the dollar to 6 percent, so on 100 bucks, they gonna give you 10 bucks so you invest 110. At a modest 4 percent rate of return, thats 4.40. Next time you got 114.40. It all adds up over time.

As was said, pick an index fund or a targeted date fund, throw some foreign funds or bond funds into the mix as well, and should do ok. Things are picking up.

Dow 9,539 up 30

Another nice positive day.

~Paul

[Jorddyn]

Yah, absolutely, put the 16 percent in assuming you can afford it.


Just because I like being difficult - I'd change this advice a little bit.

1. Invest in 401(k) up to max match.
2. Build a decent emergency fund. Some people recommend 6 months salary. I say get a couple grand, then continue to add in smaller increments until you're at 3 months expenses.
3. Invest in a Roth. If you expect that you'll earn more in the future than you do now, it just makes sense. If you expect tax rates to increase by the time you retire, it just makes sense. If you're making $250k now and expect to make $20k in retirement, it doesn't make sense.
4. Use any additional capital to invest in a taxable account and max out your 401(k). It makes sense to have tax free, tax deferred, and taxable investments so you can minimize taxes for your future self.

Note that this is a long term perspective. Very few people just starting out can get past step 1 - lots of them don't even get TO step 1. Respect your future self and work as far down the list as you can.

[kookiegod]

Just because I like being difficult - I'd change this advice a little bit.

1. Invest in 401(k) up to max match.
2. Build a decent emergency fund. Some people recommend 6 months salary. I say get a couple grand, then continue to add in smaller increments until you're at 3 months expenses.
3. Invest in a Roth. If you expect that you'll earn more in the future than you do now, it just makes sense. If you expect tax rates to increase by the time you retire, it just makes sense. If you're making $250k now and expect to make $20k in retirement, it doesn't make sense.
4. Use any additional capital to invest in a taxable account and max out your 401(k). It makes sense to have tax free, tax deferred, and taxable investments so you can minimize taxes for your future self.

Note that this is a long term perspective. Very few people just starting out can get past step 1 - lots of them don't even get TO step 1. Respect your future self and work as far down the list as you can.

I don't disagree with this at all.

1) I'd put as much as I can here but...
2) This is good advice, if your don't got this, I'd do this first
3) Roth? Meh, I don't see a huge benefit to them, though I do have one
4) Yep, every year, we look to see where we can sell off some investments for tax losses to offset capital gains.

I'm about 65/35 in equities and tax free munis for the record.

~Paul

[Xaerve]

Maxing out a ROTH IRA when I was younger will be one of the smartest financial moves I've ever made. The benefit to a Roth is extreme.

Also, Jordynn's advice is spot on and what I would suggest.

[Jorddyn]

3) Roth? Meh, I don't see a huge benefit to them, though I do have one


Roths are all about tax brackets.

I'm guessing by the earlier post about the $20k+ tax refund you're getting that you are in one of the higher tax brackets. The more you earn, the higher your bracket, the less worthwhile Roths are.

When you're just starting out, making $25k/year and paying next to no taxes anyway? They're hugely effective, especially if you foresee a continuous increase in wages throughout your life, leading to a fairly well funded retirement.

[Sean of the Thread]

Thanks for the advice peoples sincerely.

Next question... If and I am in considerable debt can creditors put a pipe into it or a Roth.

Also which Roth would be ideal? I'll be back in the 35k-55k range starting over again and ideally would like to not fuck it up this time. (being sober helps)

Thanks again.

~Sean

[Tsa`ah]

No one can touch a 401k until it starts paying out. IRAs depend on the state .... and I've no idea what Florida's regulatory laws look like. One could assume that with FL being one of the most debtor friendly states (with unlimited homestead) that an IRA would also be similarly protected.

The IRA type really depends on your income. I'm assuming you probably want something with an immediate tax deduction since you're worried about creditors.

A traditional IRA allows for 2k a year and the tax deduction is based off of your adjusted gross income and whatever your 401k contributions are.

A Roth IRA doesn't offer any shelter from taxes. You're still paying the same tax .... but the accumulation (including interest) isn't taxed and won't be taxed once it reaches distribution.

[Trouble]

<hijack>
If your company didn't match your 401k at all, would you still contribute? Assuming you already had the 5k or whatever it is set aside for your yearly IRA contribution, would you still put money into your 401k or put that money in a regular account?
</hijack>

[Jorddyn]

<hijack>
If your company didn't match your 401k at all, would you still contribute? Assuming you already had the 5k or whatever it is set aside for your yearly IRA contribution, would you still put money into your 401k or put that money in a regular account?
</hijack>

I'd split my contributions between my 401k and taxable account, mostly for the flexibility it'll give me going forward. 5 years ago, it would have all gone to the 401k, as I wanted to get a solid base built up before moving on in my plan to take over the world.. er, I mean retire early.




Next question... If and I am in considerable debt can creditors put a pipe into it or a Roth.

Also which Roth would be ideal? I'll be back in the 35k-55k range starting over again and ideally would like to not fuck it up this time. (being sober helps)

Well, it depends on "considerable debt". I believe there are provisions in the bankruptcy laws that allow them to tap into recent contributions, essentially to prevent someone from dumping their remaining cash into retirement and leaving their creditors empty handed. If they're just calling and threatening every day? They shouldn't be able to tap the accounts, but they could be able to garnish your wages, effectively taking it before it even gets to the account.

If I was concerned about creditors tapping my retirement accounts, I'd contribute my 401k to the match and try like hell to get rid of my credit problems. Save up a couple grand and offer it as settlement-in-full to someone you owe twice as much to. Alternatively, pay off all the small bills so you're only left dealing with a couple large ones, or offer priority payment to whoever will work with you on interest rates. If none of this is possible, look into bankruptcy.

[kookiegod]

I'd split my contributions between my 401k and taxable account, mostly for the flexibility it'll give me going forward. 5 years ago, it would have all gone to the 401k, as I wanted to get a solid base built up before moving on in my plan to take over the world.. er, I mean retire early.

Well, it depends on "considerable debt". I believe there are provisions in the bankruptcy laws that allow them to tap into recent contributions, essentially to prevent someone from dumping their remaining cash into retirement and leaving their creditors empty handed. If they're just calling and threatening every day? They shouldn't be able to tap the accounts, but they could be able to garnish your wages, effectively taking it before it even gets to the account.

If I was concerned about creditors tapping my retirement accounts, I'd contribute my 401k to the match and try like hell to get rid of my credit problems. Save up a couple grand and offer it as settlement-in-full to someone you owe twice as much to. Alternatively, pay off all the small bills so you're only left dealing with a couple large ones, or offer priority payment to whoever will work with you on interest rates. If none of this is possible, look into bankruptcy.

I'd start offering 25 percent, then go to as high as 1/3rd.

As someone with a great deal of expertise in the credit field, the one key thing to ask for in any kind of these deals, is IN WRITING, that for whatever your paying, the debt is paid IN FULL and they will remove it from your credit files.

I did this when I cleaned up my ex-wife's credit reports, and she's got an 800+ fico now, and paid maybe 2k on 6k of debt.

If you don't get the provision that its removed, then they can update the file with a 7 (payment arrangements) and basically then its there for 7 years.

If they won't take the deal, then just let them write it off (charge off), and its still there for 7 years, but at least you kept the cash.

~Paul

[Sean of the Thread]

If they won't take the deal, then just let them write it off (charge off), and its still there for 7 years, but at least you kept the cash.

~Paul


I found out the trick around the 7 years on file shit. When they sell your debt to another collector it starts over and usually with an added percentage tacked on. I couldn't figure out why I had things on from 15+ years ago or how my defaulted student loans multiplied until looking into that.

Most of my bad credit is medical and student loans which I recently had consolidated and thus basically charged off as paid now.

[Jorddyn]

I found out the trick around the 7 years on file shit. When they sell your debt to another collector it starts over and usually with an added percentage tacked on. I couldn't figure out why I had things on from 15+ years ago or how my defaulted student loans multiplied until looking into that.



It happens, but it's not legal or right. You can file a protest and get it off your record if they can't prove the amount you incurred and when.

ETA: Student loans don't go away. Other unsecured debt does.

[Daniel]

Hey Jorddyn,

Question for you: When trying to estimate my Modified Gross income for next year what taxes\ expenditures should I use? I'm trying to figure out if I can max out my traditional IRA contribution this year.

In the past, it hasn't been an issue because I had a huge deduction for things like private school tuition, which I don't have this year.

So trying to see if I still can get my MGI down enough.

Right now I'm tracking

Mortgage Interest
401k Contributions
Student loan interest
529 contribution
HSA contribution

Is there anything else big I'm missing? Also, do taxes like FICA go into this calculation?

Thanks

[Trouble]

Question for you: When trying to estimate my Modified Gross income for next year what taxes\ expenditures should I use? I'm trying to figure out if I can max out my traditional IRA contribution this year.

Is there anything else big I'm missing? Also, do taxes like FICA go into this calculation?

To my knowledge, you can always max your traditional IRA contribution. The only effect your MAGI would have is on the deductibility of the contribution. If you were doing a Roth IRA, your MAGI would matter more.

[Daniel]

To my knowledge, you can always max your traditional IRA contribution. The only effect your MAGI would have is on the deductibility of the contribution. If you were doing a Roth IRA, your MAGI would matter more.

Yea, but I wouldn't want to put something into an accuont that I can't deduct and that I can't use before 65.

[Jorddyn]

Hey Jorddyn,

Question for you: When trying to estimate my Modified Gross income for next year what taxes\ expenditures should I use? I'm trying to figure out if I can max out my traditional IRA contribution this year.

In the past, it hasn't been an issue because I had a huge deduction for things like private school tuition, which I don't have this year.

So trying to see if I still can get my MGI down enough.

Right now I'm tracking

Mortgage Interest
401k Contributions
Student loan interest
529 contribution
HSA contribution

Is there anything else big I'm missing? Also, do taxes like FICA go into this calculation?

Thanks

Your 401k and HSA contributions reduce your gross income and therefore your Mod-AGI, and student loan interest is specifically included as a component of Mod-AGI. I do not believe that your mortgage interest or 529 contribution have any impact, even though they're part of your itemized deduction. FICA has no impact on your itemized deduction or Mod-AGI. State and real estate taxes do not impact mod-AGI, but are deductible.

Exactly what makes up modified AGI is here (http://www.irs.gov/pub/irs-pdf/p590.pdf) on page 17.

As Trouble said - if you can't deduct it, contribute anyway. Then when the law changes in 2010, roll it into a Roth.

[Daniel]

As Trouble said - if you can't deduct it, contribute anyway. Then when the law changes in 2010, roll it into a Roth.

Splain, plz.

[Jorddyn]

Read this. (http://rothiraexplained.com/traditional-to-roth-ira-conversion-loophole-in-2010.html)

Short version: When passing the tax cuts a few years ago, they created and left a huge loophole which essentially allows any one with any income level to contribute to a non-deductible IRA, then roll it into a Roth.

I know you're looking for a traditional rather than a Roth, but this is an interesting alternative if you exceed the income limits.

[Daniel]

Awesome,

Thanks.

(Ur awesome)