would you fund a new 401K???

[lntrade]

I'm starting a new job and wanted feedback on whether you guys thought it'd be wise to fund a new 401K (no employer match until 12 months) or use after-tax savings for other investment vehicles?

[Jim Nickerson]

Re: would you fund a new 401K???

I'm starting a new job and wanted feedback on whether you guys thought it'd be wise to fund a new 401K (no employer match until 12 months) or use after-tax savings for other investment vehicles?

Do you have have the absolute discipline to guarantee you will save the after-tax dollars you'd get if you do not participate in the plan?


What does the plan offer regarding investment choices? If you know, you might put that up here and it would improve your question and possible answers.

I think I have noted that some employers have already nullified matching funds to 401 contributions. If an ongoing recession takes place, then perhaps the period would be greater than one year before matching contributions are available.


What is your current tax bracket, and expected tax bracket?

I think the first question I raised in the most important one.

[c1ue]

Re: would you fund a new 401K???

Actually, my advice is to first examine how flexible your 401K plan is.

If you have the ability to open a self directed stock account, then absolutely yes - doubly so if you have company match.

The worst thing about 401Ks is if you are forced into choosing between 5 crappy mutual funds or cash.

No match for 12 months isn't great, but isn't a deal breaker itself - assuming you have reasonably desire and assurance in sticking around long enough.

Secondly you should make sure that you won't be needing the money in the 401K. The worst of all situations is taking money back out; better to insure you won't need it.

Remember that - at least so far - GLD purchased in a 401K doesn't have to pay tax. That's worth something.

[Sharky]

Re: would you fund a new 401K???

I'm starting a new job and wanted feedback on whether you guys thought it'd be wise to fund a new 401K (no employer match until 12 months) or use after-tax savings for other investment vehicles?

There's too much risk and uncertainty regarding the future of pension funds in the US at the moment. It wouldn't surprise me at all if the Obama administration ended up seizing pension funds, replacing them with some sort of public program.

[lntrade]

Re: would you fund a new 401K???

Thanks for your quick and thoughtful response Jim. I'll get more detailed investment choice information when I start, for now I'm assuming its the standard choice of about 20 mutual funds with varying investment objectives. i.e. small-cap fund / low yield bond fund / mid-cap income fund...

Will be in the 25% federal tax bracket, possibly higher in the 5 - 10 year future.

[Jim Nickerson]

Re: would you fund a new 401K???

Thanks for your quick and thoughtful response Jim. I'll get more detailed investment choice information when I start, for now I'm assuming its the standard choice of about 20 mutual funds with varying investment objectives. i.e. small-cap fund / low yield bond fund / mid-cap income fund...

Will be in the 25% federal tax bracket, possibly higher in the 5 - 10 year future.

Unless choices of investments in a 401 are limited to company stock or a very narrow selection of mutual funds, I think everyone should take advantage of any scheme that allows tax deferrals despite the unknown of how future tax laws may change. If it comes to past that the company matches all or a portion of your contributions, my thinking is perhaps only fools would pass up such an opportunity. And if you have good earnings potential, still save all you can outside the 401.

[Sharky]

Re: would you fund a new 401K???

If it comes to past that the company matches all or a portion of your contributions, my thinking is perhaps only fools would pass up such an opportunity.

Good advice for the last several generations. These days, I'm not so sure any more. The company match and the tax deferrals aren't going to mean much if your 401(k) gets nationalized.

The possibility of losing 80%+ with bad investment choices also doesn't sound very appealing.

[Basil]

Re: would you fund a new 401K???

I'm starting a new job and wanted feedback on whether you guys thought it'd be wise to fund a new 401K (no employer match until 12 months) or use after-tax savings for other investment vehicles?

Does the employer match begin after you have been in the job for 12 months or after you have been contributing to the 401k for twelve months? I had the same situation two years ago. My employer would only match after I had been in the job for 12 months, but I could wait until then to contribute and they would match. For the first twelve months, I chose to put the money into a Roth IRA, as I believe that taxes will be much higher when I reach retirement age and I prefer to manage my own money.

[c1ue]

Re: would you fund a new 401K???

I agree with the tax deferral benefits of a 401K - again with the proviso that you ensure you won't need that money until you are 65. That is a long time away!

Secondly I should point out that income taxes are far more likely to rise than fall in the next decade; we're coming off multi-decade lows in the tax rate.

Even if the federal tax rates don't change (and they will), I guarantee the local/state tax rates will go up.

[Many Arrows]

Re: would you fund a new 401K???

Don't be deceived by the 401(k) plan options labeled "stable", "fixed" or "guaranteed". Most of them are anything but.

Personally, I do not want ANYONE managing my money other than the guy reflected in the mirror.

There is simply too much toxic finance out there and nearly every "money manager" must now be considered corrupt, stupid, or both.

[Jim Nickerson]

Re: would you fund a new 401K???

Don't be deceived by the 401(k) plan options labeled "stable", "fixed" or "guaranteed". Most of them are anything but.

Personally, I do not want ANYONE managing my money other than the guy reflected in the mirror.

There is simply too much toxic finance out there and nearly every "money manager" must now be considered corrupt, stupid, or both.

Does your sentiment keep you from investing in anything other that listed companies on US exchanges, that is you don't use mutual funds or closed end funds?

As far as I can perceive, one must trust some entities if one is going to invest in the markets.