Really? I guess I need to look into that.
retirement
- Thread starter ruffryder
- Start date
I was dumping a lot of money into my 401k until my wife and I talked to a friend who is a financial consultant. He explained to us that a 401k is good ONLY because your employer matches to a point what you put into it. The rest of the 401k that is bad is that all that money will grow (hopefully) with time and then when you want to take it out you have to pay taxes on it as if it were income. So for every $1 you take out the government is going to take probably $.30 out of it. He set us up with a type of life insurance policy (don't remember what it's called), but it is guaranteed every year to have at least a 6% interest rate gain no matter what the economy does, and that it will also pay dividends on top of that yearly. He showed us that even during the bad economic times of the past it payed dividends but they aren't guaranteed like the 6%. The best part of it is we can basically put as much money into it as we want, which will increase our life insurance benefit at the same time, but we can take money out of it at any time for any reason completely tax free, because the money we put into it is after what we have left from our paychecks after the taxes are already taken out. I'm no expert and I'm sure I'm doing terrible trying to explain it but it makes perfect sense to be a much better way to plan for the future than relying completely on a 401k.
H
hatchers
Well-known member
been maxing mine out for over 10 years, two 401Ks, a solid "real world pension" from CAT, 2 etrade accounts.....sure the etrade day trading is some stressful chit, good lord it can work a nerve
fact is, most of the posts here are incorrect and misinformed.....but it would be silly for me to explain, so please, spend spend spend so my chit keeps going up
fact is, most of the posts here are incorrect and misinformed.....but it would be silly for me to explain, so please, spend spend spend so my chit keeps going up
been maxing mine out for over 10 years, two 401Ks, a solid "real world pension" from CAT, 2 etrade accounts.....sure the etrade day trading is some stressful chit, good lord it can work a nerve
fact is, most of the posts here are incorrect and misinformed.....but it would be silly for me to explain, so please, spend spend spend so my chit keeps going up
At least it wasn't silly for you to tell us that we were all wrong...
lame..
been maxing mine out for over 10 years, two 401Ks, a solid "real world pension" from CAT, 2 etrade accounts.....sure the etrade day trading is some stressful chit, good lord it can work a nerve
fact is, most of the posts here are incorrect and misinformed.....but it would be silly for me to explain, so please, spend spend spend so my chit keeps going up
QUESTION: How does my spending effect the amount of excrement you produce?
You will have to pay taxes on ANY money you make. You can pay taxes before the money goes into the account or pay it after but you will have to pay capital gains on ANY money you make.
Life insurance is not the same as retirement.
You might make a steady 6%, but there were times I was making over 25% on my 401k. There were also times I lost pretty much my entire quarterly money going in (but again, I didn't lose it all, I still own the stock, the stocks just lost money). I think over the 14 years I have made 15% on it with my losses figured in.
401k is still one of the best things you can do because it reduces your taxable income. If you make less money you are going to pay less in taxes (% wise). I think you can put up to $15k a year into your 401k and up to $22k a year if you are over 50.
Make sure you setup your investments depending on your age. If you are young you can afford to get aggressive and take big gains and big losses. If you are getting close to retirement, you will want to keep it safer. But remember selling your stocks in your 401k during a bad economy will cost you money. You rode the storm out at this point, keep the money in there until there are better times.
If you buy X-stock @ $22 a share (say 100 shares), and it goes up to $44 a share you have not doubled your money until you actually cash out. Likewise if it drops down to $3 a share you didn't lose anything (remember you still have 100 shares).
I honestly do not know the fund I am in. I know I am invested pretty aggressively. I made money the last year but I got pounded for the 3 before that.
I don't know much about the investments I am in. I just made sure I divirsified what I was vested in.
I don't know much about the investments I am in. I just made sure I divirsified what I was vested in.
I am not sure the statement was 15% a year. It sounded like a total increase of 15% over the last 14 years.
It would be interesting to see what that money would be like with it just in a savings account over that time period. I have heard that over time the savings accounts were historically better. Obviously now that is not the case.
You care to make this interesting? I am willing to do the work, but I need some numbers to play with..
As others have said, my employer won't match savings account deposits, savings account deposits also do not reduce my taxable income. I pay less in taxes by putting money into a 401k. There is no way in hell you will ever ever find a savings account returning 15%, even compound.
1% return a year for 14 years is about 15% increase total. This doesn't account for you adding anything either.
5% return a year for 14 years is almost 100% increase total.
I am looking at buying a home soon, and from what I have seen, with the interest rates around 4.3% or so, with a 20% down payment, after 30 years, you have paid double for the house. So the numbers seem to jive.
You are correct, the matching makes sense, and so does decreasing your taxable income, but you are only tax deferring it. As you said, you will pay the taxes eventually, the only real difference is the possibility of being in a lower tax bracket when you take the money out.
As for taking out loans against your 401k, it didn't seem like that was a good idea. You don't get any tax benefit from it, and your money in your 401k (that you borrowed against) stops earning interest.
I am going to try and find some historical savings interest values and make a better comparison, maybe take into account the tax benefits, the matching, and what not.
Though, this is different if you meant 15% increase PER YEAR for 14 years, but I don't think that is what you are saying.
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Let me explain it a little better than I did before what I'm doing, and this is as I understand it, and I don't claim to be an expert but this is how it was explained to me, and after doing a little more research.
Like the differences between a traditional IRA and a roth IRA. In a traditional IRA, the money you put into it year after year is tax deferred. That means that (as I understand it) the money you put into it is deducted from your total yearly earnings so if you're making $50,000 a year for example and put $5,000 into your trad. IRA (also like a 401k), when tax time comes, you are taxed as if you only made $45,000 that year. So you are paying less in taxes that year for the money you made. When you make a withdraw though, you pay taxes on it, thus "tax deferred", it isn't eliminated just postponed to a later date.
In a Roth IRA, all the money you put in is not taxed deferred, so if in the same scenario you put $5,000 into it a year making $50,000 total, you still pay taxes on the total $50,000 giving you no immediate tax benefit, instead you get the tax benefit when you withdraw. I found this site explaining it, and that's the way I understand it. It does say that all the earnings are tax free, where in the trad. IRA the earnings will be taxed when you withdraw.
http://www.stock-market-investors.com/stock-tax-issues/traditional-ira-roth-ira-tax-benefits.html
The life insurance policy I have is in this way similar to a Roth IRA as far as I understand it. A 401k definitely has the potential to make more than the guaranteed at least 6%, but all of it will be taxed when you take the money out where my life insurance policy like a Roth IRA will be tax free when I withdraw it, so even if you have a more in your 401k at retirement, you will only get part of it since you have to pay the taxes on it, where the other is 100% yours tax free. If your 401k is substantially more at retirement you can still end up with more money in the end, but that's part of the risk. BTW, I still have a 401k and contribute to it every month, but I don't put any more than what my employer matches anymore, and put the extra amount I use to put into my 401k into the life insurance thing, but that's just what I do, and it's what was suggested to my wife and I by our financial planner.
BOTTOM LINE:
Traditional IRA's and 401k's:
You don't pay taxes on anything you put into it, but do pay taxes on EVERYTHING you get out of it.
Roth IRA's and my life insurance policy:
You pay taxes on everything you put into it, and pay NO taxes on EVERYTHING you get out of it.
Like the differences between a traditional IRA and a roth IRA. In a traditional IRA, the money you put into it year after year is tax deferred. That means that (as I understand it) the money you put into it is deducted from your total yearly earnings so if you're making $50,000 a year for example and put $5,000 into your trad. IRA (also like a 401k), when tax time comes, you are taxed as if you only made $45,000 that year. So you are paying less in taxes that year for the money you made. When you make a withdraw though, you pay taxes on it, thus "tax deferred", it isn't eliminated just postponed to a later date.
In a Roth IRA, all the money you put in is not taxed deferred, so if in the same scenario you put $5,000 into it a year making $50,000 total, you still pay taxes on the total $50,000 giving you no immediate tax benefit, instead you get the tax benefit when you withdraw. I found this site explaining it, and that's the way I understand it. It does say that all the earnings are tax free, where in the trad. IRA the earnings will be taxed when you withdraw.
http://www.stock-market-investors.com/stock-tax-issues/traditional-ira-roth-ira-tax-benefits.html
The life insurance policy I have is in this way similar to a Roth IRA as far as I understand it. A 401k definitely has the potential to make more than the guaranteed at least 6%, but all of it will be taxed when you take the money out where my life insurance policy like a Roth IRA will be tax free when I withdraw it, so even if you have a more in your 401k at retirement, you will only get part of it since you have to pay the taxes on it, where the other is 100% yours tax free. If your 401k is substantially more at retirement you can still end up with more money in the end, but that's part of the risk. BTW, I still have a 401k and contribute to it every month, but I don't put any more than what my employer matches anymore, and put the extra amount I use to put into my 401k into the life insurance thing, but that's just what I do, and it's what was suggested to my wife and I by our financial planner.
BOTTOM LINE:
Traditional IRA's and 401k's:
You don't pay taxes on anything you put into it, but do pay taxes on EVERYTHING you get out of it.
Roth IRA's and my life insurance policy:
You pay taxes on everything you put into it, and pay NO taxes on EVERYTHING you get out of it.
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I am like 99% sure that you have to pay taxes on ANY earnings.
If you put $50k in and make another $5k on that money, you will have to pay taxes on that $5k
I have a 50% match up to 8% on my 401K and have choices of funds and can watch the performance of those funds. Lately most are losing 1-3% (YTD) but others are earning 6-16% (YTD).
In past years when the market was booming there were funds that made over 200% in a year....some guys made ALOT of $$, but others got in later and lost their pants when it dropped.
I Just looked and the average (this year) was about 4% earned (YTD) in the funds I am in.... some have lost some have gained.
My 401K will likely generate about the same/month at retirement as my company pension.....so to answer your original question I would say I am close to 50% 401K dependant for retirement....plus SS if it still exists.
In past years when the market was booming there were funds that made over 200% in a year....some guys made ALOT of $$, but others got in later and lost their pants when it dropped.
I Just looked and the average (this year) was about 4% earned (YTD) in the funds I am in.... some have lost some have gained.
My 401K will likely generate about the same/month at retirement as my company pension.....so to answer your original question I would say I am close to 50% 401K dependant for retirement....plus SS if it still exists.
Read this from the link I submitted talking about roth IRA's 1st paragraph under "Roth IRA Benefits":
"Roth IRAs differ from traditional IRAs in tax terms in this that withdrawals from your account are freed from taxes. The funding of a Roth IRA account is done by after-tax dollars. Thus your contributions have been taxed once and your withdrawals will not be taxed. Another difference between the Roth IRAs and their traditional counterparts is that the earnings within the first are free from taxes."
Like I said before,
401k's and traditional IRA's : The money you put into it is tax free, but the money you take out of it along with it's growth you pay taxes on.
Roth IRA's and my life insurance policy: The money you put into it you pay taxes on, but the money you take out of it along with it's growth is tax free.
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I just double checked with the Mrs. (she's a certified public accountant) and I had it right about the tax free on earnings with the roth IRA and the life insurance policy. Call any bank, credit union, other financial institution, or even the IRS and they'll tell you the same. Our financial guy we've found is honest and straight forward at explaining everything. He's in the Boise, Idaho area but does travel a bit also. If anyone is interested, send me a pm and I'll give you his name and number.
Interesting... I wonder how an Roth IRA is free from paying capital gains.
