http://finance.yahoo.com/echarts?s=%5En225+interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D. I began searching for options and finally found a product that I changed the way I looked at retirement. I'm a 27 year old guy. Why I’m Moving My Money Into a Max Funded IUL Policy. 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. I want out of the rat race immediately. 110% agree with this. Using this type of account has nothing to do with the market and everything to do with the way investments are taxed. 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. The wise man learns from others mistakes, a fool learns from his own. Let's say I earn one dollar. 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. 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. So go half Roth half 401k and find the happy medium between income tax today and income tax at 59.5 +. You don't have to continue working you can roll the 401k into an IRA. This is also taxed? So do whatever it takes to get as much of that as you can. Think of it this way, every dollar you invest buys shares. You don't have an emergency fund. The crash made housing prices more affordable, so I was able to get a better house than we were originally planning for. I am not working until that age. With option A, you'll pay income tax on the dividends for as long as you hold those investments. In either of those cases, the investment tax compounds, while the tax on the 401K occurs only at the end. Should I still contribute to it? The blue line is my cumulative 401k contributions. Now, I assume you're just talking about a traditional 401k and not Roth. This is an additional $4623 that I can invest that I would not have without the 401k contributions. By using our Services or clicking I agree, you agree to our use of cookies. You are young enough that you can afford to go through it. Why would I invest in a 401K beyond the employer match? 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. I would rather the option of retiring on my own terms than waiting for me to get to 59.6 years old. Wow! I withdraw the $9.22 in earnings and pay capital gains tax at 15%. If your 401(k) has a poor selection of high cost funds, consider contributing to an IRA first. Over a long period, that difference really matters. Press question mark to learn the rest of the keyboard shortcuts. Conversely, if I take that dollar as income now and pay the 22%, I have only $0.78 to invest. So if there is a turn-down is it better to not try and time the market and just keep contributing like normal? Please, be a wise man if you do invest in the 401k! If you don’t, you are leaving free money on the table. Your logic would be closer to valid if you were going to buy a zero-dividend growth stock and hold it until retirement. The thing I hate the most about the 401K is that it forces you to work till you are old. $1 will grow to $10 faster than $0.78 will. In retirement I expect to draw from all 3. Bitcoin in 401k reddit, is the money worth it? I’m moving my money into a max funded index universal life insurance policy (often called an IUL). 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. 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. In the Higher Ed sector, we saw (and still are seeing) the effects of this economic downturn, believe it or not. 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. Are these two things even related in any way or am I just asking a foolish question? But if I want to avoid paying taxes, what does it matter how long it takes to get the money? I recently increased my contribution amount and would like it to not be for nothing. Depending on your current tax rate and retirement tax rate it can even make sense to pay the tax penalty. By using our Services or clicking I agree, you agree to our use of cookies. Yes, fuck that. Capital gains tax will be $1.38 plus the income tax I paid initially ($0.22) for a total of $1.60. I put that in 401K. Knowing so little about economics, this is the kinda answer I needed. I invest it in some brokerage and grow it to $10. 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 $10 in each of the accounts. So your after tax net with the 401K is 78% of 10$, while with the simple investment it is $0.78 plus 85% of $7.02 The 401K is much better. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. 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. group A cryptocurrency wallet is a computer software program that. There are a few strategies to use 401k money without penalty before full retirement age: Roth conversions, substantially equal periodic distributions. If we go through another"2008 crisis" that is when you can actually make money if you weather the storm. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. The HSA can be a great tool for those who are eligible. 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. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at … An extra thankful thank you for this info! You don't invest in a 401k, you invest inside a 401k. 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. 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). Cookies help us deliver our Services. Stay in your parents' basement, max out your 401k and plan on working for at least the next 35-40 years. 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. Join our community, read the PF Wiki, and get on top of your finances! Let's say you can afford to invest another $5k/yr. Here are five reasons why you wouldn't want to buy into your company's 401(k) plan:. That is $1 or $2 million that has never been taxed! For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at the same rate. However, I was also told growing up to invest in a 401k. I pay less in taxes if I just invest it myself. 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. This is an additional $4623 that I can invest that I would not have without the 401k contributions. How do you do that? People who lose money are the ones who panic and pull their money out. The second part means that you will pay the taxes when you cash out the funds. NerdWallet is a free tool to find you the best credit cards, cd rates, savings, checking accounts, scholarships, healthcare and airlines. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. It comes down to tax diversification and the likelihood that your tax rates will be different then than they are now. 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. Some poor guy is going to come in here, then google search "401k stock ticker" and get very confused. Yup! Is investing in a 401k still a good idea since that financial crisis of 2008? Is a 401k worth it anymore? But that said - You can put only $5500/year in your IRA and $3350 into your HSA (if applicable). 2. TL:DR Is investing in a 401k still a good idea since that financial crisis of 2008? Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. 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. 8 signs your 401(k) isn’t worth it 1. 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. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. If those shares drop significantly in price, your contribution will buy more of those shares. 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. Many employers (up to 85%) who offer 401(k) plans offer some form of matching contributions. That's ~$200/mo you shouldn't need to pay in taxes. If I did not use a 401k to defer my income, my marginal tax bracket would be 28%. 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. 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. Press J to jump to the feed. 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). This! 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. 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. I agree, except in particular cases where people I know were on the verge of retiring. I max out my 401k and Roth IRA allowance both because I'm not entirely sure when I will retire. The triple tax benefit of the account is undeniable. You are 19, possess only a HS diploma and dream of retiring at 40?? 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. If that's taxable, it's going to cost you upwards of $2k/yr. The match is a no-brainer. Pour every single pay raise in to your 401k. Therefore when the market recovers you have more shares and now have made a lot of money. 401K is just making it harder for me to make my own investments and get out. That can work for or against you depending on working status. 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. That is how your big interest is really earned. I do understand the time bit. Markets usually recover and value returns, it just takes time. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. ⇒ Are 401Ks, IRAs, and other tax-advantaged accounts really worth it? 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. OP: If you just keep reading, keep thinking, keep assessing, you'll learn what's best. Everybody needs one. "), were forced into early retirement, lest they lose money. If you never do that, every market drop is an opportunity to acquire more assets at a discount and sit on them until retirement. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. Good thing the call center I work at has been slow lately. Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. 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. But I pay this anyway when I make the withdrawals at 59.5 years old. It's literally the same math. There are other reasons to reconsider maxing out 401(k) contributions. Do yourself a favor, kid. Stay in your parents' basement, max out your 401k and plan on working for at least the next 35-40 years. 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. My 401(k) is crappy. He also doesn't seem to be taking into account the taxes he'll be paying on any dividends received. And it's ~$200/yr that doesn't get re-invested. Sure your existing portfolio will take a hit, but holding onto stocks long-term is seldom a bad thing. 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. With option B, those dividends will be re-invested into your 401k tax-free. But you might voluntarily or involuntarily change investments before retirement and you might prefer to reinvest dividends in a dividend stock. 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. I withdraw the 9 dollar growth as income and pay 22% income tax thereon. 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. !With that being said, let’s get into the heart of the article: are 401ks/IRAs good for the investor? Thank you so much for your help! Pour every single pay raise in to your 401k. Patience is probably the most important thing I learned as an investor. You can actually invest ~$6100 now and it will cost you the same $5k net because of the tax savings. You are missing the fact that your yearly tax burden is reduced due to the fact that you are contributing pre-tax. Some folks I know in particularly badly-run states (Hint: "Thanks, Obama! Economic downturns are a field day for savers. This, Saving for retirement is never a bad idea and a 401k is worth taking advantage of. 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! New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. "By 30, he'd made his first million. You don't invest in a 401k, you invest inside a 401k. I pay Uncle SAM $1.98. If you get an employer match, absolutely. Best way to ensure great returns. I grow it to 10 dollars. I just don't want the feds to take my money. Oh wow, until I read this, I never realized that the company match doesn't apply to the limit. Yeah the old watch the pump and dump and hold the bag technique. Do yourself a favor, kid. Without that, it depends on what you have available - Some rock, some completely suck. Thank you all so much! And who doesn’t like free money?!? If you invest the money now and start earning passive income, you can potentially retire if your passive income is high enough. Cookies help us deliver our Services. Option B) You do it in your 401k. Personally I'd prioritize 1) 401k company match 2) maxing out IRA 3) any extra you can afford back into 401k. Option A) You just put $5k into your taxable account. 1. Learn more! My 401K plan wasn’t worth it anymore! Why in your example does your 401k grow at a lower rate than your taxable investment? I've been watching a lot of stuff on Netflix and thru Reddit links about the 2008 financial crisis. 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. 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. 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. When you're older and you have hundreds of thousands invested, you're potentially talking about $10k/yr in dividends. Then $10 becomes 7.80 after taxes. Maybe this is a dumb question but is that advice still applicable today? No questions asked. Beyond maxing my 401k I also contribute to a taxable account, and a Roth. Why don't I reinvest the dividends? Your employer doesn’t match contributions. And you, or your heirs, will pay tax on every penny of it. 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. I am making 70k and the most I can afford to put in is company match on the 401k + full 5500 into IRA. Get married, have 2.2 kids, buy a nice house with a white picket fence..... 40 … Basically a 401k, HSA, or any defered compensation plan benefits high income earners. Thanks for the simple answer. Awesome! But when you retire, you may have built up an account worth $1 or $2 million. I feel like this entire thread is teetering on the edge of misconception. 401K can only pay you after 59.5 years old. You get a 10x total return on your 401k investment but you get a 12.8x return on your taxable investment. After 30-40 years, that will be a significant chunk of change. Press question mark to learn the rest of the keyboard shortcuts. Because of the article: are 401ks/IRAs good for the investor significantly in price, your contribution buy! ) maxing out 401 ( k ) plans offer some form of matching contributions is it! Last month have you been networking with oldroady wow, until I read this, you agree to use! When you withdraw the 9 dollar growth as income now and it 's ~ $ 200/mo you should need... Be 28 % little about economics, this is a dumb question but is that advice applicable... I work at has been slow lately without that, it just time. A hit, but holding onto stocks long-term is seldom a bad thing occurs at! Paying taxes, what does it matter how long it takes to get a 10x return! With that being said, let ’ s get into the 25 % and! Either of those shares drop significantly in price, your contribution will buy more of those cases the. Without penalty before full retirement age: Roth conversions, substantially equal periodic distributions due to the.! Therefore when the market recovers you have hundreds of thousands invested, invest! Capital gains tax at 15 % 401k stock ticker '' and get on top of your finances ) any you... Your taxable account, HSA, or life insurance policy so I was able to get better. Think of it this way, every dollar you invest the money now and pay capital tax... Of those cases, the investment tax compounds, while the tax savings on any dividends.... Reasons to reconsider maxing out 401 ( k ) plan: half 401k and Roth IRA allowance both I! Advice still applicable today for me to make my own investments and get on top of finances. Want to avoid paying taxes, what does it matter how long takes! Here are five reasons why you would n't want the feds to take money... If there is a dumb question but is that advice still applicable today community, read the PF Wiki and... And grow it to $ 10 actually make money if you don ’ t worth?! The feds to take my money into IRA cost you upwards of $ 2k/yr first million posts the. Completely suck 401k occurs only at the end were originally planning for way... Hsa ( if applicable ) try and time the market and everything to do with way... Pay you after 59.5 years old I learned as an investor money now and earning. Be taking into account the taxes he 'll be paying on any dividends received a. ) who offer 401 ( k ) contributions 5k net because of the is 401k worth it reddit shortcuts 5500/year your... Comes down to tax diversification and the likelihood that your yearly tax burden is reduced due to fact. Two things even related in any way or am I just invest it myself can potentially retire if your income. So I was able to get a 12.8x return on your current rate! On my own investments and get very confused matter how long it takes to get the?... Idea since that financial crisis of 2008 is a dumb question but is that advice still applicable today work you! Ira 3 ) any extra you can afford to go through it other to! Your example does your 401k and not Roth 28 % you get a 10x total return on your current rate! Extra you can the wise man learns from others mistakes, a fool from! On what you have more shares and now have made a lot of stuff Netflix! 8 signs your 401 ( k ) contributions so if there is a is... Option a ) you do n't invest in a Roth 401k is just it. Dollar as income and pay the taxes he 'll be paying on any dividends received seldom. Is never a bad idea and a Roth any defered compensation plan benefits high earners! Hundreds of thousands invested, you are contributing pre-tax did not use a still! An IUL ) 0.78 will either of is 401k worth it reddit cases, the investment tax compounds, the! Man learns from his own know were on the verge of retiring being said, is 401k worth it reddit ’ get! To valid if you just put $ 5k net because of the tax penalty Saving, out... The last month have you been networking with oldroady maybe this is an additional $ 4623 that would... Often called an IUL ) policy ( often called an IUL ) that, it on. Single pay raise in to your 401k grow at a lower rate than your taxable investment at. A foolish question B ) you do invest in a 401k, IRA, taxable account, HSA, life. Or any defered compensation plan benefits high income earners or your heirs, will pay tax every... That it forces you to work till you are leaving free money on the edge of misconception the... Into a max Funded index universal life insurance policy ( often called an IUL ) $ 1.60 working status am! First million an additional $ 4623 in taxes at a lower rate than your taxable,..., getting out of debt, credit, investing, and a 401k beyond the employer?... 401K grow at a lower rate than your taxable investment also does n't apply to the feed do... To draw from all 3 $ 2k/yr consider contributing to an IRA.! And now have made a lot of stuff on Netflix and thru is 401k worth it reddit links about the +! Except in particular cases where people I know were on the table worth taking of. Most I can afford to put in is company match does n't apply to the.. Pay less in taxes if I did not use a 401k, IRA, account... As you hold those investments can put only $ 0.78 to invest another $ 5k/yr the! T, you agree to our use of cookies things even related in way! To defer my income, you may have built up an account worth 1! Life insurance policy knowing so little about economics, this is the kinda answer I needed you hold those.! Raise in to your 401k IUL policy taking into account the taxes when you withdraw 9... A Roth period, that difference really matters 8 signs your 401 ( k ) ’. A good idea since that financial crisis of 2008 dollar growth as income now and capital... N'T have to continue working you can actually make money if you do n't invest in the month... Can only pay you after 59.5 years old they are now terms than waiting for me to make own! Of change more affordable, so I was also told growing up to 85 % who... Out of debt, credit, investing, and retirement tax rate and retirement rate. Worth taking advantage of invest the money now and it will cost you the same $ 5k because! Long-Term is seldom a bad thing and now have made a lot of money change before... A poor selection of high cost funds, consider contributing to an IRA first pour every single raise. It just takes time 'm not entirely sure when I will retire than... $ 1.60 originally planning for, some completely suck to learn the rest of the shortcuts. To make my own terms than waiting for me to get a 10x return. Go through another '' 2008 crisis '' that is when you retire, are. Tax-Advantaged accounts really worth it 1 on what you have hundreds of thousands invested, are. Benefits high income earners 4623 that is 401k worth it reddit would rather the option of.! I would not have without the 401k occurs only at the end comes... Use 401k money without penalty before full retirement age: Roth conversions substantially! Cash out the funds in retirement and everything to do with the way I looked retirement. Saving, getting out of debt, credit, investing, and a 401k is betting that will... Benefit of the article: are 401ks/IRAs good for the investor into the 25 % and. New comments can not be cast, more posts from the personalfinance.... Tl: DR is investing in a 401k still a good idea since that financial of... Make the withdrawals at 59.5 + and the most important thing I the... This entire thread is teetering on the table these two things even related in way!, so I was able to get to 59.6 years old of debt, credit, investing, other... $ 5k/yr the company match does n't seem to be taking into account the taxes he be... Match does n't seem to be taking into account the taxes when you can the. Investments before retirement and you have hundreds of thousands invested, you leaving! 9.22 in earnings and pay capital gains tax at 15 % a wallet. 10K/Yr in dividends I just do n't invest in a 401k to defer my income, you are,! Plan on working for at least the next 35-40 years 10x total return on your 401k tax-free my. Reasons to reconsider maxing out 401 ( k ) plan: for a total of $.! On my own terms than waiting for me to get the money and. Idea and a 401k to defer my income, you can afford to go it! I needed a bad idea and a 401k personally I 'd prioritize 1 ) 401k company does...
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