File APIs for Java Developers
Manipulate DOC, XLS, PPT, PDF and many others from your application.
http://aspose.com/file-tools
The moose likes Meaningless Drivel and the fly likes 401k Big Moose Saloon
  Search | Java FAQ | Recent Topics | Flagged Topics | Hot Topics | Zero Replies
Register / Login
JavaRanch » Java Forums » Other » Meaningless Drivel
Bookmark "401k" Watch "401k" New topic
Author

401k

paul wheaton
Trailboss

Joined: Dec 14, 1998
Posts: 20582
    ∞

I recently started a new job and have the option of signing up for their 401k. Apaprently I have just a few days to decide, or else I have to wait several months or a year to get in.

They don't match any funds.

Their health insurance premiums are about double what I could get them for from ehealthinsurance.com. So it makes me skeptical of their 401k plan.

Is 401k something I can set up on my own if I want? Or do I need an employer to do it?


permaculture Wood Burning Stoves 2.0 - 4-DVD set
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11313
    
  16

i thought the point of a 401k was that it took pre-tax dollars from your paycheck to put into a retirement fund. I'm not aware of anyway for you to do that without your employer's cooperation. the advantage is that while you have to pay taxes when you take it out, usually it's later in life, when your income is less, so you pay a lower tax rate.

the not matching doesn't sound good, however.

you can put (it used to be) $2k a year into a Roth IRA. since money is put in post-tax, it grows tax free.

Another option is to invest in an index fund. they're usually safe (long term - 10+ years or more), relativly low fees, and easy. My wife and i use Sharebuilder.com to automagically invest some cash every month into a S&P index fund, for i think $4 a transaction.

although you should probably get advice from someone better qualified than me.


There are only two hard things in computer science: cache invalidation, naming things, and off-by-one errors
marc weber
Sheriff

Joined: Aug 31, 2004
Posts: 11343

Originally posted by Paul Wheaton:
... Is 401k something I can set up on my own if I want? Or do I need an employer to do it?

You're asking me?

As defined by the IRS, a 401(k) is employer sponsored, but you can set up your own IRA.


"We're kind of on the level of crossword puzzle writers... And no one ever goes to them and gives them an award." ~Joe Strummer
sscce.org
Ulf Dittmer
Marshal

Joined: Mar 22, 2005
Posts: 41839
    
  63
Fred's right, you can set up an a Roth IRA (but not a traditional IRA) in addition to any 401(k) you may have. Any bank will be happy to sell you theirs I think the limit has been raised to something like $5000/year now.

If you're sceptical about the 401(k), have a look at what funds it includes, and whether they were any good during good times and during bad times. The not-matching is pretty common in the IT industry these days; at least that's my perception. I wouldn't be sceptical about it because the health insurance is crap - it's probably cheaper for the company to choose one that provides fewer benefits. But that's not the case with a 401(k), in which the company has no financial stake. Just make sure you're not inadvertently agreeing to invest the money in company stock...


Ping & DNS - my free Android networking tools app
Ernest Friedman-Hill
author and iconoclast
Marshal

Joined: Jul 08, 2003
Posts: 24184
    
  34

Originally posted by Ulf Dittmer:
Just make sure you're not inadvertently agreeing to invest the money in company stock...


That's one of the two major concerns, and it's a biggie. All of the "Ahh, my evil company folded, and I lost everything!!" scandals of the last few years were because the companies had 401k plans that invested heavily in their own stock.

The other concern, just as for any mutual fund, is the load. Find out what the management fees are. Tax-free growth isn't worth much if broker's fees are eating up all the profits.


[Jess in Action][AskingGoodQuestions]
Henry Wong
author
Sheriff

Joined: Sep 28, 2004
Posts: 18836
    
  40

It has been awhile since I looked into this, but doesn't a 401k have maximums much higher that you can do on your own? Meaning you can put upward to a percentage of your salary, instead of just $2000?

Henry


Books: Java Threads, 3rd Edition, Jini in a Nutshell, and Java Gems (contributor)
Kishore Dandu
Ranch Hand

Joined: Jul 10, 2001
Posts: 1934
I think for the current year 401k max is 15000 per head. If you want to save some tax dollars and fall into a lower tax category, it is a great way to do it.

Most of the employers let u change your contribution percentage. If there is a only 3-4 times a year limit, that is pitiful.

You also need to look into different funds available for your 401k money investment. If the performaces look not so great, you can always start with a defensive investment strategy.


Kishore
SCJP, blog
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11313
    
  16

i should have mentioned... i like the motley fool website, and got most of my knowledge from them... www.fool.com

they give pretty good advice, and it's easy to understand most of it. They have an article on 401k for beginners here:

clicky

there's lots of stuff there to read on all kinds of financial stuff. I'm sure there are other web sites, but i like the Fool's style as much as the content.
[ January 06, 2006: Message edited by: fred rosenberger ]
Roger Johnson
Ranch Hand

Joined: Feb 24, 2004
Posts: 311
i just left my last employer, where i had a 401k account. i talked to an account before. here is my understanding:


401k,, IRA,, Roth IRA
employer ,,yes ,,no ,, no
tax ,,pre ,,pre ,, post
limit ,,~15k ,,~3k ,, ~3k

compared to 401k, ira is prefered. when you change job from one employer to another, you should eventually move all 401k to ira, since there much more options in an ira.

the only advantage of 401k is higher limit and mathcing, but here matching does not exist.
[ January 06, 2006: Message edited by: Roger Johnson ]
Mark Spritzler
ranger
Sheriff

Joined: Feb 05, 2001
Posts: 17250
    
    6

Yes, about that leaving companies, you can take your 401K money at that company and roll it into a Rollover IRA. I have one at TD Waterhouse, and now have the ability to buy anything that you can get on the martket. Stocks, ETFs, Mutual Funds, etc.

401K, have a limited number of mutual funds to get into. But I try to max out my 401Ks first.

Mark


Perfect World Programming, LLC - Two Laptop Bag - Tube Organizer
How to Ask Questions the Smart Way FAQ
Vladan Radovanovic
Ranch Hand

Joined: Mar 20, 2000
Posts: 216
I really see no point of having 401k if they are not going to match certain percentage. The goal of having 401k is not just investing for your retirement but getting some extra $$$ from your company when they match.

If you are looking to invest for your retirement, you are much better of with IRA then. You'll have a much wider choice of investment vehicles than going with 401k. We have 401k through fidelity and there is only about 15 funds available. Horrible. If it wasn't for the company's match, I'd be long gone.
Kishore Dandu
Ranch Hand

Joined: Jul 10, 2001
Posts: 1934
Originally posted by Vladan Radovanovic:
I really see no point of having 401k if they are not going to match certain percentage. The goal of having 401k is not just investing for your retirement but getting some extra $$$ from your company when they match.

If you are looking to invest for your retirement, you are much better of with IRA then. You'll have a much wider choice of investment vehicles than going with 401k. We have 401k through fidelity and there is only about 15 funds available. Horrible. If it wasn't for the company's match, I'd be long gone.


401k has higher contribution limit compared to IRA. There is definite advantage there.

If some one is making lots of money, 401k contribution is suggested even if there is no match from the employer. this is simply because you are effectively changing your income bracket, that goes a long way for many high caliber earners.
Vladan Radovanovic
Ranch Hand

Joined: Mar 20, 2000
Posts: 216
Kishore, to each his own.

If some one is making lots of money, 401k contribution is suggested...


It is suggested because there is an assumption that the contributor is not capable of investing on his own. If there is no match by your employer and if you preffer to invest on your own, IRA will give you much larger number of investment vehicles that you can play. Anybody with decent investing/trading knowledge wants complete control over his/her money and 401k can not give you such.

Sorry to be drifting away from the original question. Just tried to help.
Marc Peabody
pie sneak
Sheriff

Joined: Feb 05, 2003
Posts: 4727

If they don't match at all, you're better off maxing off your Roth IRA before putting anything in the 401k.

The maximum for Roths in 2005, 2006, and 2007 is $4000 per year (the maxes are slightly higher for those 50 and older). In 2008 it will raise to $5000. You are allowed to contribute money through the subsequent tax end date. So until April 15th, you can still contribute to the 2005 year.

The other crap about 401ks is that if you aren't around enough years to let it build, you'll be forced to roll it out (most companies force this when your balance is under 5 grand when you leave) and that's a real pain - and you take a penalty if you don't roll it into a valid account within two months.


A good workman is known by his tools.
Mark Spritzler
ranger
Sheriff

Joined: Feb 05, 2001
Posts: 17250
    
    6

What Kishore was pointing out is that in a 401K you can put in up to $15K as opposed to only about 4-5K in an IRA. Yes the choices in an IRA are better. But I also look at it this way. Satying at one company for a long period of time is over, in IT we change jobs at least every 5 years. So while for 5 years, you will be limited in choices, but when you leave you roll it over to a Rollover IRA, and presto full control and options.

Mark
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11313
    
  16

in IT we change jobs at least every 5 years.

Damn!!! i'm 2 years overdue!!!
Steve Fahlbusch
Bartender

Joined: Sep 18, 2000
Posts: 562
    
    7

And now for something new - a Roth 401K.

contributed money is AFTER tax, but all monies pulled out (and you don't have
to wait for 59 1/2) is TAX FREE - that's right no tax and earlier payouts!!!
[ January 09, 2006: Message edited by: Steve Fahlbusch ]
Steve Fahlbusch
Bartender

Joined: Sep 18, 2000
Posts: 562
    
    7

any why in the world is this meaningless drivel - in today's world we really need to increase the education / participation of individuals into retirement plans!

You know, maybe a new business model - for volunteer organizations / open source projects / software testing (and the like) no earnings, but equivalent monies into retirement plans (say a 1604K) {since max allowed of 401 is 25%). For volunteer orgs - we get the partrons (the ones with the money but who don't what to get their hands dirty) to pay at least minimum wage to a retire plan for all volunteers. (help make the world better, we'll help make your future better).
[ January 09, 2006: Message edited by: Steve Fahlbusch ]
Kishore Dandu
Ranch Hand

Joined: Jul 10, 2001
Posts: 1934
Originally posted by Vladan Radovanovic:
Kishore, to each his own.

Anybody with decent investing/trading knowledge wants complete control over his/her money and 401k can not give you such.


Full control!!!
Tell this to friends of mine who lost tons of money in 2000-2001 because they got full control & thought(they still think) they are geniuses. They probably lost about 70% of market value in 1 year.
Roger Johnson
Ranch Hand

Joined: Feb 24, 2004
Posts: 311
i have made 5% increase since the beginning of the year.
Angela Poynton
Ranch Hand

Joined: Mar 02, 2000
Posts: 3143
At the risk of sounded stupid ... this Brit doesn't actually know what a 401k is ... is it effectively what we would call a Pension plan?


Pounding at a thick stone wall won't move it, sometimes, you need to step back to see the way around.
Mark Spritzler
ranger
Sheriff

Joined: Feb 05, 2001
Posts: 17250
    
    6

Originally posted by Kishore Dandu:


Full control!!!
Tell this to friends of mine who lost tons of money in 2000-2001 because they got full control & thought(they still think) they are geniuses. They probably lost about 70% of market value in 1 year.


Well, I am on your side about putting money in your 401K. But in that time period, I'd say that actually the mutual funds performed worse. Many people lost more than that. Some Mutual Funds really underperformed. Those people would have still lost a lot of money, and some of those people might have been smarter and lost less money.

Mark
Vladan Radovanovic
Ranch Hand

Joined: Mar 20, 2000
Posts: 216
Originally posted by Kishore Dandu:


Full control!!!
Tell this to friends of mine who lost tons of money in 2000-2001 because they got full control & thought(they still think) they are geniuses. They probably lost about 70% of market value in 1 year.


But how much did they make before they lost those 70%? And if they were not able to recognize bubble signs, maybe they deserved to lose?

There is no free lunch out there.
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11313
    
  16

Angela, here's my (limited) understanding of a 401k...

Basically, your company will withold money from your paycheck PRE-TAX. this effectivily lowers your take home pay. the money is usually invested in various mutual funds. "The Plan" will give employees their choice of anywhere between 5 and 30+ funds - growth, international, bonds... whatever.

the money is invested until you retire. a lot of the time, a company will match your investment - either wholly or partially. my company does something like matching half of what i put in, up to 4% (if i put in 8%, they will match half of that).

The money (with a few exceptions) cannot be taken out of the plan until you retire (if you quit/leave your job, the money must be 'rolled over' into some other kind of plan).

Why would one do this? well, if hte company matches, it's free money. Enrolling in the plan effectively lowers your gross income, so you pay less taxes.

the invested money (theoretically) grows in value. When you retire (or at something like age 65) you start taking the money out. you pay taxes on what is taken out, but theoretically you have a lower income, so you pay less taxes on it.

it can be a good way to save for retirement, and helps encourage poeple to do so.
Vladan Radovanovic
Ranch Hand

Joined: Mar 20, 2000
Posts: 216
Originally posted by Mark Spritzler:


Well, I am on your side about putting money in your 401K. But in that time period, I'd say that actually the mutual funds performed worse. Many people lost more than that. Some Mutual Funds really underperformed. Those people would have still lost a lot of money, and some of those people might have been smarter and lost less money.

Mark


Don't get me wrong guys. 401k is way to go for the majority of the people out there. Investing is lot of hard work. But if you are willing to do it, it can be quite rewarding.
Kishore Dandu
Ranch Hand

Joined: Jul 10, 2001
Posts: 1934
To all you smart 6 figure making geeks, here is my final investing advise:
"Investor Business Daily" and their rating of stocks.. It is the sure way to go to make money.
Ken Januski
Ranch Hand

Joined: Aug 08, 2002
Posts: 130
If you do decide to buy mutual funds, esp.for a 401k, then make sure you DIVERSIFY! That's the best way to make sure that even if part of the market goes down you're most likely making money in another part of the market.

The other reason to put money in a 401k is that often it's the equivalent of forced savings. If it's taken out at work you sort of forget that you're even getting it. You learn to live on what is not taken out and in the meantime you're saving money and probably seeing profits. As someone else said the theory is that once you retire you'll have a lower income and thus you'll pay a lower tax rate on what you take out than if you got it in your paycheck when you earned it.

Finally I think that the person who said investing individually is great if you're willing to work at it is probably right. I'm not one of those people but I know a number of them. They love investing for themselves, doing the research, reaping the rewards, etc. Of course any profits are still taxed at a higher rate than they most likely would be if you put the money in a 401k.
Ken Januski
Ranch Hand

Joined: Aug 08, 2002
Posts: 130
P.S. I've never seen any financial advisor say to take a Roth IRA, normal IRA, or anything else before a 401k, whether or not the funds are matched. The theory, as I said above, is that it will continue to grow and you won't be taxed on any of it until you take it out at retirement. At that point many people will be taxed at a lower rate.

I've seen some pretty bad advice given here. This is important so take a look at any number of financial sites, quicken, motley fool, vanguard, and see what they say about 401ks. My advice is to take it. But the best advice is to go find some good advice and choose for yourself. I can say that I've always learned to live on what I get out of my paycheck after money is siphoned off to a 401k. My point is that you probably can afford to put some money in a 401k and you probably won't notice that you don't have it in your wallet.
Marc Peabody
pie sneak
Sheriff

Joined: Feb 05, 2003
Posts: 4727

Originally posted by Ken Januski:
P.S. I've never seen any financial advisor say to take a Roth IRA, normal IRA, or anything else before a 401k, whether or not the funds are matched.


A quick Google search gave me:
bargaining.com article Conventional wisdom, for young employees, is to contribute the minimum to earn the company match into your 401(k), then contribute up to the maximum of your Roth IRA, and then push the remainder of your retirement savings into the 401(k).


Which is also Suze Orman's philosophy on the subject.

The advice assumes you are in a lower tax bracket now than when you retire, which is often more likely for younger workers. Suze Orman, however, argues that it applies to nearly everyone because tax brackets are at historic lows.
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Every US citizen needs to contribute to an IRA or 401k unless they have less than 10 years to retirement. With less than 10 years, the tax free compounding of earnings is not that significant compared with the loss of flexibility (excludng the Roth).

Here's a sweet trick around the IRA (either Roth or normal)contribution limits for those who change jobs often : put the max (15,000) in your 401k, then whenever you leave your current employer you have the option to roll all that 401k money, no matter if its 50,000, into a IRA, avoiding the usual 4,000 IRA limit.

I don't have employer matching for the 401k, still the 401k makes sense for me since the money grows untaxed and I'm frugal enough to still contribute towards an IRA as well.
Angela Poynton
Ranch Hand

Joined: Mar 02, 2000
Posts: 3143
Originally posted by fred rosenberger:
Angela, here's my (limited) understanding of a 401k...



Thanks Fred, as I suspected it sounds pretty much like Company Pension schemes over here.
John Smith
Ranch Hand

Joined: Oct 08, 2001
Posts: 2937
Originally posted by Angela Poynton:


Thanks Fred, as I suspected it sounds pretty much like Company Pension schemes over here.


In the US, if you work for a decent company, you would normally have two retirement plans. One is the 401K discussed here. The other one is the company retirement plan, commonly known as the pension plan. It's typically an account where you don't contribute at all, but the company itself funds it, somewhere around 5% of your annual compensation. When you leave the company, you can get those funds in cash or roll them over to another pension plan. In addition, every US citizen is entitled to the Social Security, which is essentially the government managed pension plan, and the contributions are deducted by payroll.

So, in effect, you would typically have three retirement plans when it's time to prepare for the journey to heaven.
Roger Johnson
Ranch Hand

Joined: Feb 24, 2004
Posts: 311
my current company has 401k and retirement plan. however, when it comes to money, i doubt anything that is decent will be enough

XXX SAVINGS & INVESTMENT PLAN (401k): You will be able to participate as a member of the Plan on xxx 1, 2006. You may contribute up to 50% of your compensation on a before-tax basis. xxx will match 33 1/3% of your contribution up to a maximum of 6% of compensation, capped at $1,200 per year. You will be fully vested in the Company´┐Żs matching portion and in your own contributions upon the date of your first contribution.


Retirement Feature the savings Plan also provides a retirement feature. You will be a participant in this feature on xxx 1, 2006. This is a defined contribution plan, which provides a Company contribution based on your age and years of service. You are fully vested in the Retirement Feature after five (5) years of service. You do not have to participate in the regular 401k program to participate in the feature and you will not be required to make any contributions.

The Company, however, reserves the right to modify, eliminate, or discontinue any of all of the benefits described herein.


[ January 18, 2006: Message edited by: Roger Johnson ]
 
permaculture playing cards
 
subject: 401k