I had someone look at my 401k plan I get here at work and the report back is that I'd be better off getting out of it and fully funding my own Roth IRA with my own after-tax dollars.
Why?
Because none of the crappy funds we have to choose from are decent according to Morningstar (a rater of mutual funds).
Because the funds are all "loaded". Somebody is sitting back and making money off our plan, perhaps one of the principals' friends?
Because the company's lousy up-to-3% contribution doesn't even pay for the loads.
Because I will be penalized for taking out the 401k money if I ever needed to, a Roth you don't (or maybe not as much, I forget).
I will be taxed on the money as I withdraw it from the 401k, not so with a Roth, the Roth grows tax free.
I encourage you to look over your own retirement plan and consider your age and your retirement goals. I am getting out of mine ASAP. I always knew Roths were a good deal, at least for young people and I already have one, but I had been maxxing out my 401k contributions too thinking it was also a good idea. But I am throwing my money away.
Roth IRA's can be better than a fund where you pay the tax at the end, especially for someone young like you. However, you would be insane not to take advantage of an employer match. If your employer matches what you put in, there will be NO WAY you can make that interest rate- it is 100%. And there is no way a fund, even a loaded one, is half of the money you put in as the fee. By the way, whoever sells you your Roth IRA is making a commission off of that, too. And how else are they supposed to make money? Anyway, put the money in the 401K up to the amount that your employer matches, take the employer match, then remove it if you change jobs or if the plan changes, and roll it over into a Roth IRA. You can always do more in a Roth IRA too. That way you get the match now, but can still take advantage of the no-tax on the long term gains.
I was about to bail from ours and my office dropped it before I could tell them to drop me. They're going to a simple IRA at some point but haven't started it yet. If you're not getting any matching contributions it's not worth it. Even 3% isn't worth it.
I also decided that I didn't want to wait until retirement to get my money out. God forbid, if something should happen to me when I'm 50. Let's say I'm told I only have 5 years left to live and I still can't withdraw funds without stiff penalties. What about medical expenses or other things I might need?
I went to the company that managed our 401K, met with an advisor and put everything I have into a moderately aggressive mutual funds plan. It's always liquid and I contribute more every month than I did to the 401K because I know I can always access the funds. There are small fees, but they move the money around for me and give advice. The guy I met with said they're advising more people now to stay away from 401K's just because you have to wait so long. You're going to pay taxes on it now or later. You might as well pay taxes now, and have access to it when you need it.
From The Motley Fool
By Robert Brokamp (TMF Bro)
April 16, 2003
If you're confused about which type of retirement account to choose, here's the quick and easy (and probably smartest) strategy: Put your money in a Roth IRA. Compared to a employer-sponsored retirement account -- such as a 401(k) or 403(b) -- or a traditional IRA, the Roth is by far more flexible and likely will lead to more money in retirement.
The only exception: If your employer matches contributions to your work-sponsored plan, then it's probably best to take advantage of that free money. But contribute only up to the point that contributions are matched; after that, send your retirement money to a Roth.
Strawbeary - You hit the nail on the head with the fallacy of 401k plans. They only offer a limited "family" of funds. I have a pseudo 401k/profit sharing plan that is limited to a very scant amount of Fidelity funds. My returns on there have been horrible. My Roth plans have averaged me anywhere from 8% to 15% over the past year.
That said, if the employer matches anything you should take advantage of that "free money." Only contribute up to the level that will be matched though. After that your much better off investing on your own.
Right now the Roth IRA is the best retirement investment out there. Thanks in large part to Bush's tax cuts. Currently we have probably the lowest tax rates that we'll ever see in our lives. The beauty of the Roth is that age 59.5 you can extract all those assets TAX FREE. So, 20, 30, 40 years from now when tax rates are again high you are taking out money that was taxed at low 2005 rates.
On a Roth you can buy literally anything the market offers. Any fund, any stock, and ETF's, etc. You can also extract the origianal principle with little penalty. Any growth or income the Roth had earned must stay in the market until 59.5 but if you put in your $4k contribution for 2005 and want to buy a house in 2006, you can get your $4k back (assuming the value is still $4k or above). The benefits are endless.
As I read about architects having to work well past their 60's and going bankrupt in retirement it motivates me even more to save those few extra bucks each month. Every architect/intern should have a Roth or traditional IRA. We cannot afford to depend on the firms that employ us today to provide for us in retirement.
What about those of us who are socialists? I'm not going to put a penny into the stock market when I don't even believe it should exist in the first place. Guess I'll just have to hope that I can rely on social security.
bryan4arch - are you crazy? you are going to be working till you die. I suggest you get a book on finance and learn what "compounding interest" is.
The important thing I want to stress is it is not worth it to contribute even to get what my employer will match because it will not even cover the load on the funds! (This is from the person who evaluated my plan for me). The advisor also informed me that none of the funds available were growth funds geared towards younger people, they were all geared towards those later up in the years.
My understanding of no load and loaded funds are that all funds have an expense, just that loaded funds have loads on top of those expenses. I have always been advised to steer clear of loaded funds no question about it, and realized that all of the funds I have to choose from are loaded. I would be better off putting the money into a lower interest money market account than the company's 401k.
Always the conspiracy theorist I am, do/can principal architects have different company retirement plans than their employees?
Most of the companies on the stock market profit from war and violence, oppress minorities and the poor, rape our planet, exploit our children, "engineer" our food, and control what we watch, read, and listen to (among other atrocities). I don’t believe in any of these things, so why would I want to give them my paycheck to hold onto? In the end my wallet may end up empty, but my soul will feel full.
I almost respect your position bryan4arch, except for the fact that you said "Most of the companies," and they way I figure it, anyone with enough convictions to lead a life that doesn't promote those things you listed probably has enough sense about themselves (and the desire) to seek out funds and investments that fit the mold that will make your soul feel full.
bryan, utmost respect, but do you live your whole life like this? what else does it effect? do you drive a car? do you live in a house? own a tv? you see where i'm going.
bryan, you do work in the field of architecture, do you not? What do you think buildings are made from? Materials that are made by those companies listed on stock markets. Those same companies that pollute, oppress, and all the rest. I don't want to call you a hypocrit, but if you hate those companies it's much more difficult to avoid them by just not investing in them.
As for funds. No-load funds are typically the best bet. Look for ones with an expense ratio of less than 1% if you wish. Simple searches of different funds on the Internet will tell you the expense ratios. Be aware though that some funds that show those great 1 year, 3 year, etc. returns aren't always the ones with the lowest expense ratios. The market is a gamble but huge returns can offset higher expense ratios.
here's a thought ... speak with your firm - tell them you're really appreciative of the 401(k) plan they offer (especially if they do a corporate match on top of your own deferrals) but that you're a little confused about how best to invest your funds.
ask if they have an investment advisor helping them manage the 401(k) -- firms usually do -- then, if they do, ask how you might gain access to that advisor for some personalized advice. you might have to pay a modest fee for personal investment advice. but, at least the advisor will be familiar with the funds being offered in your 401(k) and can help you tailor an investment approach that is well suited to your personal situation and your station in life.
firms generally are motivated to help individuals within the firm take a greater interest in the 401(k) ... work with your employer to see what they can offer in the way of support and advice.
i thought this thread looked familiar! but that was a long time ago. to update, i fund my 401k only enough to get the company match, and invest in a Roth on my own.
here's your sign, look at the funds on Morningstar (google it, i'm lazy) - they rate funds according to return, expense, etc. A four or five star fund is good.
You also need diversity, you can find model portfolios to mock (or your 401k plan probably has some in the booklet to check out). If you REALLY don't want to think about it, see if there are funds with specific retirement years in mind. A 2040 fund for example, changes allocations over time to be less risky nearer retirement.
in a previous life i was a financial advisor. this was many years ago so i wouldn't dare offer any specific advice (so many of the laws & details of the specifics have changed since I dealt with this stuff on a daily basis) but the short story is to "get invested, diversify & stay invested"
...and "diversity" doesn't just mean having a variety of funds and/or stocks, but also a variety of strategies. in other words, think of doing the 401k with up-to-the-employer-match (as described above) as one strategy. a roth can be another strategy. and although i know that some people might crucify me for saying this, but the right life insurance policy can also be a very savvy strategy (especially if you are still young & healthy) for preparing for your financial independence.
as i alluded to earlier, it can be difficult to keep on top of all of the financial info available today, so unless you have a very strong personal interest in this stuff then i suggest hiring a financial advisor. look for someone who can deal with your finances holistically (i.e., they can offer mutual funds, stocks, insurance, etc) and whom you also feel a good personal rapport with. if its works well then this is probably someone who you'll likely be dealing with regarding your personal financial matters until one of you dies.
aside from the "finance for dummies" books available, i'd also recommend picking up a copy of "the millionaire next door.". i don't recall the names of the authors, but this book was a very respectable survey of wealth in america and included lots of good advice for achieving financial independence within the context of the modern american life. and although its not my intention to divulge all of the lessons of that particular book here, i feel that one of its best insights is that people who have lots of money typically are ver willing to pay for high quality financial advice (although they tend to be cheap regarding most other expenditures)...so don't feel bad about paying for a financial advisor. in the long run it is probably a good idea and, given my personal experiences in that profession, i'd probably be more concerned if my financial advisor offered to work for a fee that didn't give me sticker shock or (even worse) for free.
and just to reiterate...get invested, diversify & stay invested
Thanks for the info everyone. I'm going to do the 401k, like StrawB, up to the match. Not yet enough for a Roth but is definitely on the to do list. Right now I'm just using a high yield savings account.
May 16, 07 10:50 am ·
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401k blues
I had someone look at my 401k plan I get here at work and the report back is that I'd be better off getting out of it and fully funding my own Roth IRA with my own after-tax dollars.
Why?
Because none of the crappy funds we have to choose from are decent according to Morningstar (a rater of mutual funds).
Because the funds are all "loaded". Somebody is sitting back and making money off our plan, perhaps one of the principals' friends?
Because the company's lousy up-to-3% contribution doesn't even pay for the loads.
Because I will be penalized for taking out the 401k money if I ever needed to, a Roth you don't (or maybe not as much, I forget).
I will be taxed on the money as I withdraw it from the 401k, not so with a Roth, the Roth grows tax free.
I encourage you to look over your own retirement plan and consider your age and your retirement goals. I am getting out of mine ASAP. I always knew Roths were a good deal, at least for young people and I already have one, but I had been maxxing out my 401k contributions too thinking it was also a good idea. But I am throwing my money away.
Roth IRA's can be better than a fund where you pay the tax at the end, especially for someone young like you. However, you would be insane not to take advantage of an employer match. If your employer matches what you put in, there will be NO WAY you can make that interest rate- it is 100%. And there is no way a fund, even a loaded one, is half of the money you put in as the fee. By the way, whoever sells you your Roth IRA is making a commission off of that, too. And how else are they supposed to make money? Anyway, put the money in the 401K up to the amount that your employer matches, take the employer match, then remove it if you change jobs or if the plan changes, and roll it over into a Roth IRA. You can always do more in a Roth IRA too. That way you get the match now, but can still take advantage of the no-tax on the long term gains.
I totally agree!
I was about to bail from ours and my office dropped it before I could tell them to drop me. They're going to a simple IRA at some point but haven't started it yet. If you're not getting any matching contributions it's not worth it. Even 3% isn't worth it.
I also decided that I didn't want to wait until retirement to get my money out. God forbid, if something should happen to me when I'm 50. Let's say I'm told I only have 5 years left to live and I still can't withdraw funds without stiff penalties. What about medical expenses or other things I might need?
I went to the company that managed our 401K, met with an advisor and put everything I have into a moderately aggressive mutual funds plan. It's always liquid and I contribute more every month than I did to the 401K because I know I can always access the funds. There are small fees, but they move the money around for me and give advice. The guy I met with said they're advising more people now to stay away from 401K's just because you have to wait so long. You're going to pay taxes on it now or later. You might as well pay taxes now, and have access to it when you need it.
I was agreeing with Strawbeary - Archie got in before I did!
From The Motley Fool
By Robert Brokamp (TMF Bro)
April 16, 2003
If you're confused about which type of retirement account to choose, here's the quick and easy (and probably smartest) strategy: Put your money in a Roth IRA. Compared to a employer-sponsored retirement account -- such as a 401(k) or 403(b) -- or a traditional IRA, the Roth is by far more flexible and likely will lead to more money in retirement.
The only exception: If your employer matches contributions to your work-sponsored plan, then it's probably best to take advantage of that free money. But contribute only up to the point that contributions are matched; after that, send your retirement money to a Roth.
Just startted a Roth IRA and rolled my 401K into a Traditional Roth. I'm better off for doing so. Highly recommend it.
Strawbeary - You hit the nail on the head with the fallacy of 401k plans. They only offer a limited "family" of funds. I have a pseudo 401k/profit sharing plan that is limited to a very scant amount of Fidelity funds. My returns on there have been horrible. My Roth plans have averaged me anywhere from 8% to 15% over the past year.
That said, if the employer matches anything you should take advantage of that "free money." Only contribute up to the level that will be matched though. After that your much better off investing on your own.
Right now the Roth IRA is the best retirement investment out there. Thanks in large part to Bush's tax cuts. Currently we have probably the lowest tax rates that we'll ever see in our lives. The beauty of the Roth is that age 59.5 you can extract all those assets TAX FREE. So, 20, 30, 40 years from now when tax rates are again high you are taking out money that was taxed at low 2005 rates.
On a Roth you can buy literally anything the market offers. Any fund, any stock, and ETF's, etc. You can also extract the origianal principle with little penalty. Any growth or income the Roth had earned must stay in the market until 59.5 but if you put in your $4k contribution for 2005 and want to buy a house in 2006, you can get your $4k back (assuming the value is still $4k or above). The benefits are endless.
As I read about architects having to work well past their 60's and going bankrupt in retirement it motivates me even more to save those few extra bucks each month. Every architect/intern should have a Roth or traditional IRA. We cannot afford to depend on the firms that employ us today to provide for us in retirement.
What about those of us who are socialists? I'm not going to put a penny into the stock market when I don't even believe it should exist in the first place. Guess I'll just have to hope that I can rely on social security.
bryan4arch - are you crazy? you are going to be working till you die. I suggest you get a book on finance and learn what "compounding interest" is.
The important thing I want to stress is it is not worth it to contribute even to get what my employer will match because it will not even cover the load on the funds! (This is from the person who evaluated my plan for me). The advisor also informed me that none of the funds available were growth funds geared towards younger people, they were all geared towards those later up in the years.
My understanding of no load and loaded funds are that all funds have an expense, just that loaded funds have loads on top of those expenses. I have always been advised to steer clear of loaded funds no question about it, and realized that all of the funds I have to choose from are loaded. I would be better off putting the money into a lower interest money market account than the company's 401k.
Always the conspiracy theorist I am, do/can principal architects have different company retirement plans than their employees?
Most of the companies on the stock market profit from war and violence, oppress minorities and the poor, rape our planet, exploit our children, "engineer" our food, and control what we watch, read, and listen to (among other atrocities). I don’t believe in any of these things, so why would I want to give them my paycheck to hold onto? In the end my wallet may end up empty, but my soul will feel full.
I almost respect your position bryan4arch, except for the fact that you said "Most of the companies," and they way I figure it, anyone with enough convictions to lead a life that doesn't promote those things you listed probably has enough sense about themselves (and the desire) to seek out funds and investments that fit the mold that will make your soul feel full.
bryan, utmost respect, but do you live your whole life like this? what else does it effect? do you drive a car? do you live in a house? own a tv? you see where i'm going.
bryan, you do work in the field of architecture, do you not? What do you think buildings are made from? Materials that are made by those companies listed on stock markets. Those same companies that pollute, oppress, and all the rest. I don't want to call you a hypocrit, but if you hate those companies it's much more difficult to avoid them by just not investing in them.
As for funds. No-load funds are typically the best bet. Look for ones with an expense ratio of less than 1% if you wish. Simple searches of different funds on the Internet will tell you the expense ratios. Be aware though that some funds that show those great 1 year, 3 year, etc. returns aren't always the ones with the lowest expense ratios. The market is a gamble but huge returns can offset higher expense ratios.
Bumping this thread to ask does anyone else have advice for choosing funds to allocate my 401k to or should I find a "401k for dummies" manual?
I'm so confused.
here's a thought ... speak with your firm - tell them you're really appreciative of the 401(k) plan they offer (especially if they do a corporate match on top of your own deferrals) but that you're a little confused about how best to invest your funds.
ask if they have an investment advisor helping them manage the 401(k) -- firms usually do -- then, if they do, ask how you might gain access to that advisor for some personalized advice. you might have to pay a modest fee for personal investment advice. but, at least the advisor will be familiar with the funds being offered in your 401(k) and can help you tailor an investment approach that is well suited to your personal situation and your station in life.
firms generally are motivated to help individuals within the firm take a greater interest in the 401(k) ... work with your employer to see what they can offer in the way of support and advice.
good luck.
i thought this thread looked familiar! but that was a long time ago. to update, i fund my 401k only enough to get the company match, and invest in a Roth on my own.
here's your sign, look at the funds on Morningstar (google it, i'm lazy) - they rate funds according to return, expense, etc. A four or five star fund is good.
You also need diversity, you can find model portfolios to mock (or your 401k plan probably has some in the booklet to check out). If you REALLY don't want to think about it, see if there are funds with specific retirement years in mind. A 2040 fund for example, changes allocations over time to be less risky nearer retirement.
Pick up a personal finance book. This one is good.
in a previous life i was a financial advisor. this was many years ago so i wouldn't dare offer any specific advice (so many of the laws & details of the specifics have changed since I dealt with this stuff on a daily basis) but the short story is to "get invested, diversify & stay invested"
...and "diversity" doesn't just mean having a variety of funds and/or stocks, but also a variety of strategies. in other words, think of doing the 401k with up-to-the-employer-match (as described above) as one strategy. a roth can be another strategy. and although i know that some people might crucify me for saying this, but the right life insurance policy can also be a very savvy strategy (especially if you are still young & healthy) for preparing for your financial independence.
as i alluded to earlier, it can be difficult to keep on top of all of the financial info available today, so unless you have a very strong personal interest in this stuff then i suggest hiring a financial advisor. look for someone who can deal with your finances holistically (i.e., they can offer mutual funds, stocks, insurance, etc) and whom you also feel a good personal rapport with. if its works well then this is probably someone who you'll likely be dealing with regarding your personal financial matters until one of you dies.
aside from the "finance for dummies" books available, i'd also recommend picking up a copy of "the millionaire next door.". i don't recall the names of the authors, but this book was a very respectable survey of wealth in america and included lots of good advice for achieving financial independence within the context of the modern american life. and although its not my intention to divulge all of the lessons of that particular book here, i feel that one of its best insights is that people who have lots of money typically are ver willing to pay for high quality financial advice (although they tend to be cheap regarding most other expenditures)...so don't feel bad about paying for a financial advisor. in the long run it is probably a good idea and, given my personal experiences in that profession, i'd probably be more concerned if my financial advisor offered to work for a fee that didn't give me sticker shock or (even worse) for free.
and just to reiterate...get invested, diversify & stay invested
Thanks for the info everyone. I'm going to do the 401k, like StrawB, up to the match. Not yet enough for a Roth but is definitely on the to do list. Right now I'm just using a high yield savings account.
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