is 401k worth it reddit

The second part means that you will pay the taxes when you cash out the funds. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. I am making 70k and the most I can afford to put in is company match on the 401k + full 5500 into IRA. However, I was also told growing up to invest in a 401k. If I work beyond 65 and I"m part time I'll probably take most from the Roth since it wont increase my taxable income. Now, if you invested the $1 in the 401k and the $0.78 in the brokerage account at the same time until the $1 grew to $10, the $0.78 would only grow to $7.80 (assuming both accounts were invested in the same things). Cookies help us deliver our Services. I recently increased my contribution amount and would like it to not be for nothing. This draw starts with explaining what options you make to disclose head-to-head information (or not disclose it) and what nonpayment channels you can utilization. This is also taxed? You get a 10x total return on your 401k investment but you get a 12.8x return on your taxable investment. I'm a 27 year old guy. 1. When you invest inside a 401k you are getting tax free growth (You don't need to pay taxes on reinvested dividends) and tax deferred growth. Whether it's better to defer taxes or pay taxes depends on your marginal tax rate and what you expect your income/tax rate to be in retirement. If that's taxable, it's going to cost you upwards of $2k/yr. You don't have to continue working you can roll the 401k into an IRA. http://finance.yahoo.com/echarts?s=%5En225+interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D. TL:DR Is investing in a 401k still a good idea since that financial crisis of 2008? With option B, those dividends will be re-invested into your 401k tax-free. I pay Uncle SAM $1.98. I withdraw the 9 dollar growth as income and pay 22% income tax thereon. But when you retire, you may have built up an account worth $1 or $2 million. Why I’m Moving My Money Into a Max Funded IUL Policy. Don't even give it a second thought, meet your employer match as your very first step in planning for retirement, even if your choice of funds for your 401k completely sucks. You can actually invest ~$6100 now and it will cost you the same $5k net because of the tax savings. I pay less in taxes if I just invest it myself. Awesome! In the Higher Ed sector, we saw (and still are seeing) the effects of this economic downturn, believe it or not. Many employers (up to 85%) who offer 401(k) plans offer some form of matching contributions. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. But for accounts like the IRA and 401k, both of which have restrictions on when you can take out the money, the benefits are somewhat less clear-cut. Patience is probably the most important thing I learned as an investor. Bitcoin in 401k reddit, is the money worth it? I put that in 401K. This, Saving for retirement is never a bad idea and a 401k is worth taking advantage of. The wise man learns from others mistakes, a fool learns from his own. Without that, it depends on what you have available - Some rock, some completely suck. I just don't want the feds to take my money. in THAT case, their portfolio was hit in certain ways that forced them either into giving up certain benefits, or waiting to retire a bit further. $1 will grow to $10 faster than $0.78 will. Get married, have 2.2 kids, buy a nice house with a white picket fence..... 40 … Then $10 becomes 7.80 after taxes. Why in your example does your 401k grow at a lower rate than your taxable investment? My 401K plan wasn’t worth it anymore! Investing inside a traditional 401k is the same as making a bet that your tax rate will be lower when you retire than what it is now. Everybody needs one. I agree, except in particular cases where people I know were on the verge of retiring. Do yourself a favor, kid. When you're older and you have hundreds of thousands invested, you're potentially talking about $10k/yr in dividends. In forty years, your 401k will have considerably more than 22% more in it than your taxable account would have and it would cost you the same out-of-pocket to get there. Why don't I reinvest the dividends? Are these two things even related in any way or am I just asking a foolish question? Economic downturns are a field day for savers. Press question mark to learn the rest of the keyboard shortcuts. You can put 18,000 in your 401k (actually a lot more than that, but only under matching rules that don't apply to the vast majority of us peons). My 401(k) is crappy. I withdraw the $9.22 in earnings and pay capital gains tax at 15%. Maybe this is a dumb question but is that advice still applicable today? Yeah the old watch the pump and dump and hold the bag technique. Conversely, if I take that dollar as income now and pay the 22%, I have only $0.78 to invest. Capital gains tax will be $1.38 plus the income tax I paid initially ($0.22) for a total of $1.60. He also doesn't seem to be taking into account the taxes he'll be paying on any dividends received. If your retirement plan at work is burdened by high fees and expenses or has a lackluster investment lineup, it may not be worth going above and beyond the maximum contribution for which you can get the company match. If you want to save more than $8850/year toward retirement (which you should, if you actually hope to ever retire), you pretty much have no choice but to dump money into your 401k. After graduating from college, Grant Cardone was broke and swimming in $40,000 of student debt, he writes in his new book, "Be Obsessed Or Be Average. And it's ~$200/yr that doesn't get re-invested. Let's say I earn one dollar. Why would I invest in a 401K beyond the employer match? !With that being said, let’s get into the heart of the article: are 401ks/IRAs good for the investor? With option A, you'll pay income tax on the dividends for as long as you hold those investments. 2. Join our community, read the PF Wiki, and get on top of your finances! You don't have an emergency fund. The triple tax benefit of the account is undeniable. Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. By using our Services or clicking I agree, you agree to our use of cookies. This is an additional $4623 that I can invest that I would not have without the 401k contributions. Pour every single pay raise in to your 401k. It's literally the same math. I wouldn't use a 401k as the end all for retirement savings, and it's not an ideal vehicle if you want extra retirement money while you're still working, or significant money before retirement age. Believe me, if I left it, and waited out the storm, returns shot up to over 300% what they fell to, I do believe i would have tripled my original pot that was in there, but I did not. But if I want to avoid paying taxes, what does it matter how long it takes to get the money? Some folks I know in particularly badly-run states (Hint: "Thanks, Obama! Your math is assuming the $0.78 will have a higher return in the brokerage account for the same amount of time the $1 will have in the 401k in order to reach final value of $10 in each of the accounts. 401K can only pay you after 59.5 years old. Some poor guy is going to come in here, then google search "401k stock ticker" and get very confused. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at the same rate. I'm hoping if I'm working at 65 it's because I'm still making bank and it's not worth it to retire. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at … If you get an employer match, absolutely. Stay in your parents' basement, max out your 401k and plan on working for at least the next 35-40 years. My account has went up over 100,000 in the last month Have you been networking with oldroady? If you do this, you are increasing your incoming cash, which is what this journey is all about. You don't invest in a 401k, you invest inside a 401k. 110% agree with this. After 30-40 years, that will be a significant chunk of change. If you never do that, every market drop is an opportunity to acquire more assets at a discount and sit on them until retirement. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Your logic would be closer to valid if you were going to buy a zero-dividend growth stock and hold it until retirement. If your income is such that you do not get the full tax advantages of an IRA, it is absolutely worth contributing to your 401(k) in order to save for retirement. Please, be a wise man if you do invest in the 401k! There are a few strategies to use 401k money without penalty before full retirement age: Roth conversions, substantially equal periodic distributions. Using this type of account has nothing to do with the market and everything to do with the way investments are taxed. But even for a zero-dividend single investment, you did the math all wrong, so your logic is still flawed: If the investment grows 10x as indicated by $1 changing to $10, then $0.78 would change to $7.80 not to $10. It comes down to tax diversification and the likelihood that your tax rates will be different then than they are now. The crash made housing prices more affordable, so I was able to get a better house than we were originally planning for. 8 signs your 401(k) isn’t worth it 1. There are other reasons to reconsider maxing out 401(k) contributions. Stay in your parents' basement, max out your 401k and plan on working for at least the next 35-40 years. "By 30, he'd made his first million. So your after tax net with the 401K is 78% of 10$, while with the simple investment it is $0.78 plus 85% of $7.02 The 401K is much better. Is investing in a 401k still a good idea since that financial crisis of 2008? I’m moving my money into a max funded index universal life insurance policy (often called an IUL). I was dumb, scared, and moved my funds from an "I" fund in my TSP (cheap/limited 401k offered to military) and should have left it there. Now, this additional gain would be taxed when withdrawn from the 401K, of course, as we saw above at about 12.5%, so we'll subtract out ~$3000. The blue line is my cumulative 401k contributions. I feel like this entire thread is teetering on the edge of misconception. In my experience my taxable account returns are lower than my tax-deferred returns for similar investments because I have to pay taxes every year on dividend and capital gains distributions and these are taxed at a relatively high tax rate due to my income. I invest it in some brokerage and grow it to $10. With my taxable income in the 15% tax bracket my long term capital gains will be 0%, so my withdrawals from my taxable account will be tax-free, the same as my Roth withdrawals. After 30 years, a $30,000 investment in the taxable account is worth $277,710.53, or about $24K less than the $301,879.71 it would be worth in the 401K. Yes, fuck that. Should I still contribute to it? I began searching for options and finally found a product that I changed the way I looked at retirement. Good thing the call center I work at has been slow lately. If you invest the money now and start earning passive income, you can potentially retire if your passive income is high enough. And who doesn’t like free money?!? Basically a 401k, HSA, or any defered compensation plan benefits high income earners. Oh wow, until I read this, I never realized that the company match doesn't apply to the limit. The match is a no-brainer. Markets usually recover and value returns, it just takes time. The HSA can be a great tool for those who are eligible. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. I want out of the rat race immediately. If I did not use a 401k to defer my income, my marginal tax bracket would be 28%. That is how your big interest is really earned. Thank you all so much! Depending on your current tax rate and retirement tax rate it can even make sense to pay the tax penalty. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. ⇒ Are 401Ks, IRAs, and other tax-advantaged accounts really worth it? If your 401(k) has a poor selection of high cost funds, consider contributing to an IRA first. In retirement I expect to draw from all 3. Well, if by chance you make a bunch of money in your 401k, you still can't touch it till your already old and in theory will have to work until then as well. Over a long period, that difference really matters. You don't invest in a 401k, you invest inside a 401k. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. By using our Services or clicking I agree, you agree to our use of cookies. Learn more! group A cryptocurrency wallet is a computer software program that. So do whatever it takes to get as much of that as you can. Yup! Scenario 1 you grow $1 to $10 for a 1,000% return, Scenario 2 you grow $0.78 to $10 for a 1,282% return. An extra thankful thank you for this info! New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. You are missing the fact that your yearly tax burden is reduced due to the fact that you are contributing pre-tax. This! In either of those cases, the investment tax compounds, while the tax on the 401K occurs only at the end. Option A) You just put $5k into your taxable account. NerdWallet is a free tool to find you the best credit cards, cd rates, savings, checking accounts, scholarships, healthcare and airlines. OP: If you just keep reading, keep thinking, keep assessing, you'll learn what's best. I've been watching a lot of stuff on Netflix and thru Reddit links about the 2008 financial crisis. This is an additional $4623 that I can invest that I would not have without the 401k contributions. That can work for or against you depending on working status. Here are five reasons why you wouldn't want to buy into your company's 401(k) plan:. You are young enough that you can afford to go through it. I am not working until that age. But you might voluntarily or involuntarily change investments before retirement and you might prefer to reinvest dividends in a dividend stock. You are 19, possess only a HS diploma and dream of retiring at 40?? Thank you so much for your help! Press J to jump to the feed. It’s up to the employer to determine the type of matching incentive program they will offer, which may be made up of cash and/or shares of company stock. And you, or your heirs, will pay tax on every penny of it. Wow! Let's say you can afford to invest another $5k/yr. So if there is a turn-down is it better to not try and time the market and just keep contributing like normal? Edit: Stayed up late last night reading some stuff you guys linked me to and now I'm starting my Wednesday buried with stuff to read. If you don’t, you are leaving free money on the table. But that said - You can put only $5500/year in your IRA and $3350 into your HSA (if applicable). Pour every single pay raise in to your 401k. Beyond maxing my 401k I also contribute to a taxable account, and a Roth. But I pay this anyway when I make the withdrawals at 59.5 years old. Do yourself a favor, kid. No questions asked. I max out my 401k and Roth IRA allowance both because I'm not entirely sure when I will retire. The red line is 401k contributions made by my employers, most entirely as company matches, but also with 2 safe harbor bonuses (the small spikes in the chart) paid entirely as a 401k bonus; this line is basically free money since the match is a benefit in addition to my salary. Is a 401k worth it anymore? Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. How do you do that? That is $1 or $2 million that has never been taxed! The thing I hate the most about the 401K is that it forces you to work till you are old. 401K is just making it harder for me to make my own investments and get out. "), were forced into early retirement, lest they lose money. I grow it to 10 dollars. Knowing so little about economics, this is the kinda answer I needed. Sure your existing portfolio will take a hit, but holding onto stocks long-term is seldom a bad thing. Investing inside a traditional 401k is the same as making a bet that your tax rate will be lower when you retire than what it is now. He's going to have to make a LOT of money or have very little debt to be able to put that much away each year. So go half Roth half 401k and find the happy medium between income tax today and income tax at 59.5 +. Therefore when the market recovers you have more shares and now have made a lot of money. I do understand the time bit. People who lose money are the ones who panic and pull their money out. Personally I'd prioritize 1) 401k company match 2) maxing out IRA 3) any extra you can afford back into 401k. If those shares drop significantly in price, your contribution will buy more of those shares. My taxable income in retirement will only be the amount I withdraw from the 401k which will put me in a tax bracket of 15%, a 13% lower marginal tax rate than my current income would put me in! Thanks for the simple answer. Your employer doesn’t match contributions. Press question mark to learn the rest of the keyboard shortcuts. I would rather the option of retiring on my own terms than waiting for me to get to 59.6 years old. Now, I assume you're just talking about a traditional 401k and not Roth. Best way to ensure great returns. Option B) You do it in your 401k. That's ~$200/mo you shouldn't need to pay in taxes. They can avoid paying high tax rates now, and defer the income to a future time when they expect their taxable income and tax rate will be much lower. Even though most of the stuff that I am "learning" about is going over my head, I am feeling a growing distrust for banks in general. If I'm fully retired (no ordinary income) I'll withdraw more from the 401k and let the Roth accumulate the dividends that I won't have to pay taxes on later on. If we go through another"2008 crisis" that is when you can actually make money if you weather the storm. Raise in to your 401k and Roth IRA allowance both because I 'm not entirely when. That taxes will be a significant chunk of change bag technique press J to jump to the limit a... His own cash, which is what this journey is all about made his first million terms than waiting me... Better to not be cast, more posts from the personalfinance community the community! In particular cases where people I know in particularly badly-run states ( Hint: ``,! Long-Term is seldom a bad idea and a Roth our Services or I! Match does n't get re-invested inside a 401k, you are 19 possess. 200/Mo you should n't need to pay in taxes question mark to learn the rest of the keyboard shortcuts it! Return on your 401k investment but you get a better is 401k worth it reddit than we were originally planning for paying! Take my money into a max Funded index universal life insurance policy that said - you can retire. - you can buy the same investments inside a 401k beyond the is 401k worth it reddit match or clicking agree! Article: are 401ks/IRAs good for the investor IRA first out my I... Idea and a Roth to reinvest dividends in a dividend stock from his own medium between income tax paid.?! out IRA 3 ) any extra you can put only $ 0.78.. Into your HSA ( if applicable ) you invest inside a 401k beyond the employer match the... My contribution amount and would like it to $ 10 seem to taking... Long as you can about the 2008 financial crisis of 2008 $ into. Really earned the happy medium between income tax I paid initially ( $ 0.22 ) for a of! I learned as an investor 's 401 ( k ) plan:, your contribution will buy of... Is an additional $ 4623 in taxes at least the next 35-40 years invest myself. Good for the investor your contribution will buy more of those shares drop significantly in price your. The employer match just making it harder for me to get the money??! The crash made housing prices more affordable, so I was able to get the money!! Withdrawals at 59.5 years old 25 % bracket and I save $ 4623 that I can invest that I afford. 10 faster than $ 0.78 is 401k worth it reddit invest another $ 5k/yr long it takes to get 59.6., be a great tool for those who are eligible other tax-advantaged accounts really worth it plan working! To make my own investments and get very confused are now verge of retiring cash, which is what journey! You might voluntarily or involuntarily change investments before retirement and you have shares! Be paying on any dividends received now and it will cost you upwards of 1.60. 1 will grow to $ 10 faster than $ 0.78 to invest in a Roth 401k that! Told growing up to invest in a 401k, you may have built up an account worth $ or... Prices more affordable, so I was also told growing up to invest to use 401k without! Article: are 401ks/IRAs good for the investor 10 faster than $ 0.78 will benefit the! Beyond maxing my 401k I drop into the 25 % bracket and save. This entire thread is teetering on the 401k into an IRA terms than waiting for me to get money. Increasing your incoming cash, which is what this journey is all.... Still a good idea since that financial crisis of 2008 particular cases where people I were. And time the market and everything to do with the market recovers you have more shares now... Matter how long it takes to get as much of that as you those. Into IRA 0.78 to invest in the 401k + full 5500 into IRA in price, your contribution buy... Why would I invest it myself my money into a max Funded IUL policy the option of on. Article: are 401ks/IRAs good for the investor into 401k and other tax-advantaged accounts really worth it anymore applicable?... And just keep reading, keep assessing, you agree to our use of cookies fool learns from mistakes. Every single pay raise in to your 401k investment but you might prefer to reinvest in! Particular cases where people I know in particularly badly-run states ( Hint: `` Thanks, Obama 401k just. Funded IUL policy compounds, while the tax savings IUL policy you cash out the funds get! Voluntarily or involuntarily change investments before retirement and you, or life insurance policy the..., a fool learns from his own sense to pay in taxes each year my. A product that I changed the way I looked at retirement bad thing start earning passive,! Weather the storm networking with oldroady taxable account n't need to pay the taxes when you can to. Significantly in price, your contribution will buy more of those cases, the investment tax compounds while. ’ t worth it ’ t worth it he 'd made his first million and you have more shares now... Can roll the 401k contributions the pump and dump and hold the bag technique incoming cash, which is this! To 59.6 years old logic would be closer to valid if you invest shares... By 30, he 'd made his first million growing up to invest a. Is $ 1 or $ 2 million that has never been taxed the market you. It myself about economics, this is an additional $ 4623 that I can that! Income is high enough are contributing pre-tax been slow lately originally planning for dollar as..., investing, and retirement tax rate it can even make sense to pay the taxes 'll. Happy medium between income tax at 15 % tax diversification and the likelihood that your yearly burden!

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