401k

[Five0]

Any of you GOMer's that have been around a while have any comment/advice on the 401k offered by any of the main operators?

 

5-0

[Gomer Pylot]

I think they're mostly pretty standard. The company kicks in a small percentage, and it's free money. Your contribution reduces your taxes. You're an idiot if you don't participate, since that's the only retirement you'll get. That said, the companies they pick to manage the funds aren't the best available, in most cases. I wouldn't be amazed to find that some kickbacks were involved in the selection, but that's the way things work in Louisiana, always has, always will.

[Jack Poller]

The beauty of 401k is that you take the money with you.

 

Any money you contribute is yours. Any money your employer contributes is yours (typically after a vesting period). When you leave the job, you can roll over the funds into a new 401k managed by you. You can pick any 401k management company you want. A couple of really good choices are Charles Schwab and Northwestern Mutual.

[Bayou06]

The beauty of 401k is that you take the money with you.

 

Any money you contribute is yours. Any money your employer contributes is yours (typically after a vesting period). When you leave the job, you can roll over the funds into a new 401k managed by you. You can pick any 401k management company you want. A couple of really good choices are Charles Schwab and Northwestern Mutual.

 

Whoa!, Let me clarify some of Jack's post.

1. Vesting periods. These can range from 5-7 years. The percentage you can take is progressive the longer you stay.

2. Roll-Overs. Yes, after you terminate your employment you can do several things.

a. Roll-over the $ to your own IRA. There you can select just about any investment under the sun. This is the best choice of all.

b. Roll-over the $ to your employers 401K - maybe. Your new employers 401K must have provisions to receive outside qualified money. Now a days most company 401K do, but a lot don't. Secondly, once you roll over the $ to your new employers 401K, you only have the available investment options his 401K. Now this may be many several investment options or just a few.

c. Withdrawal the money, pay taxes and a 10% penalty. This is the least favorable. It usually costs you about 38%-45% depending on your tax bracket.

d. Withdrawal and reinvestment. You can take the $ out and return it (usually w/i 30 days or so) to a IRA or new 401. Basically it's in the tax code to facilitate a short term loan. It's dangerous though if your timing is off. You could be hit with the taxes and penalty.

3. As far a Schwab and NWM, there are many much better and cheaper brokerages. Schwab is expensive for a discount brokerage and NWM is an insuranace company trying to expand into the brokerage business. You can count on NWM offering you an annuity, I'd bet my paycheck on it. Annuities are only good for qualified money (IRA, 401K roll-overs, ect) under some very specific circumstances. If you are under 60 and/or still working, an annuity is definately not for you.

 

Also, I echo what Gomerpylot said. ALWAYS avail yourself of the company's 401K. Even if you don't stay long enough to get all the vested company match, you are putting money away for retirement (especially if you are moving from job to job for a while), it grows on a tax defered basis, and make just good financial sense.

 

Former Financial Advisor,

Bayou06