With the employer match, is it still a bad deal (loosing money) if you dont plan to keep it till retirement.
401k question
- Thread starter kalster
- Start date
BlueWeasel
Lifer
- Jun 2, 2000
- 15,944
- 475
- 126
Well, there is a mandatory 10% deduction for early withdrawal (before 59.5 years of age), but that probably wouldn't be greater than the amount that your employer has matched.
IMHO, even if you know you will take it before you are 59.5 years old, you'd be stupid not to contribute at least the same amount that your company is matching. If you contribute less than the match amount, you're losing out on "Free Money".
IMHO, even if you know you will take it before you are 59.5 years old, you'd be stupid not to contribute at least the same amount that your company is matching. If you contribute less than the match amount, you're losing out on "Free Money".
depends on the returns you are getting and how long you plan on keeping it in there but in general i would say yes, 401K is a wise investment
if you don't keep it till retirement you are paying a 10% hit in addition to federal income tax when you withdraw money from a 401K
robphelan
Diamond Member
- Aug 28, 2003
- 4,084
- 17
- 81
no.. 401k is a very good investment - free money. try to stay at your job until you're fully vested - there's a time period, usually 5 years, for the company's matching money to become yours.
some companies give you 20% per year until you're fully vested, others give you 0% until your 5th year and vest you fully then.
if you want to take the money out before retirement, you will be penalized (like 10%). however, you can always roll the money over to an IRA with no penalties.. but that's another story
some companies give you 20% per year until you're fully vested, others give you 0% until your 5th year and vest you fully then.
if you want to take the money out before retirement, you will be penalized (like 10%). however, you can always roll the money over to an IRA with no penalties.. but that's another story
edro
Lifer
- Apr 5, 2002
- 24,326
- 68
- 91
You wouldn't be losing any money that you put in. You are gonna get taxed either way, so the only part that is a hit, is the 10%. I am guessing that the un-taxed growth and the company match is much more than 10% in the end.
My vote... no. It's not a bad deal at all.
My vote... no. It's not a bad deal at all.
StageLeft
No Lifer
- Sep 29, 2000
- 70,150
- 5
- 0
It's your money. You can either keep the money where it is and roll it over to a new job, or roll it into an IRA. I did that, because now it's totally under my control at vanguard.com There is no yearly contribution limit for a 401k rolled into an IRA, unlike the normal yearly IRA limit.
My last employer only matched to 4.5%
Lucklily, my current employer puts in 10.42% of my salary even if i put in 0% And its immedate vesting.
BlueWeasel
Lifer
- Jun 2, 2000
- 15,944
- 475
- 126
There are mainly 2 types of vesting for companies with 401k plans.
Graded Vesting - the amount of matched money you are entitled to increases in percentage every year.
Example - Your company has 100% vested matching over a 5-year period. That means, if you leave after only 3 years, then you get 60% (3 x 0.20 = 0.60) of the amount your company matched. If you leave after 5-years or more, then you get 100% of the matching.
Cliff Vesting - you either get all or none, depending on the time period. Lets say your company has 5-years for fully vested funds. Then if you leave at 4-years, you get nothing. If you change jobs after 5-years, you get all of it.
Graded Vesting - the amount of matched money you are entitled to increases in percentage every year.
Example - Your company has 100% vested matching over a 5-year period. That means, if you leave after only 3 years, then you get 60% (3 x 0.20 = 0.60) of the amount your company matched. If you leave after 5-years or more, then you get 100% of the matching.
Cliff Vesting - you either get all or none, depending on the time period. Lets say your company has 5-years for fully vested funds. Then if you leave at 4-years, you get nothing. If you change jobs after 5-years, you get all of it.
spacejamz
Lifer
- Mar 31, 2003
- 10,927
- 1,574
- 126
your options will depend on the 401k plan that your company participates in...
some companies will automatically write you a check for the amount you have (if you roll this over into an IRA or another 401, then you don't get penalized)...
other companies will allow you to keep the money in their funds and you would need to check with them on what your options...
The bottom line is that you need to call them/check the website to see what options are available to YOU...
Uppsala9496
Diamond Member
- Nov 2, 2001
- 5,272
- 19
- 81
When you go to your new job, your 401k follows you. It is your account to do with whatever you please.
You can roll it over into your new companies account.
You can leave it alone and have it just sit there.
You can cash it in (need to be at new job 30 days - rollover period - before you do so).
I had a 401k from my first job that I never rolled over. It just sat there and fluctuated with the market until I cashed it in earlier this year to pay for my honeymoon. I paid a 10% early withdrawl fee and a 20% tax holding fee. You can elect to not have them hold the taxes, but that is just asking for trouble. Come tax time, I will have that 20% as a tax credit to be applied to my taxes.
All in all, it was in my best interest to cash in the old 401k instead of go into debt to pay for the honeymoon. This way I can have a little more fun. And, it was money I earned, so it is money I will spend (have another 401k with triple the funds, so I'm not too worried about my retirement).
You can roll it over into your new companies account.
You can leave it alone and have it just sit there.
You can cash it in (need to be at new job 30 days - rollover period - before you do so).
I had a 401k from my first job that I never rolled over. It just sat there and fluctuated with the market until I cashed it in earlier this year to pay for my honeymoon. I paid a 10% early withdrawl fee and a 20% tax holding fee. You can elect to not have them hold the taxes, but that is just asking for trouble. Come tax time, I will have that 20% as a tax credit to be applied to my taxes.
All in all, it was in my best interest to cash in the old 401k instead of go into debt to pay for the honeymoon. This way I can have a little more fun. And, it was money I earned, so it is money I will spend (have another 401k with triple the funds, so I'm not too worried about my retirement).
or:
You can do a "rollover" to a Rollover IRA account at a brokerage like Schwab or (my recommendation) vanguard.com (like skoorb said). This is a tax-deferred account like your 401k or a traditional IRA.
This is the best option if you have at least $5K (with less you're hit with extra fees). Vanguard.com offers some of the best mutual funds in the business (e.g. VFINX), so the choices are better and fees are lower than with most employer plans.
As you change jobs, you can keep adding 401k money as rollovers into that IRA account until you finally retire.
That's not entirely true. I believe the cut off is $5k or $10k. If you have less than one of those numbers (I'm leaning towards it being $5k as I don't have my numbers handy) the company managing your 401k can cash you out. They'll send you a check and you have 30 days (could be 60 - I'm not a tax professional, but just finsihed a class on this) to re-enroll it in to a tax deferred account (usually an IRA, not a Roth IRA) without any penalty. If you do not re-enroll it, you owe taxes on it.
- Oct 30, 2000
- 42,589
- 5
- 0
Some companies will allow you to roll over from a previous employers 401K. You need to ask them.
You can also request that the existing account be sent to an IRA account of yours.
Set up one if needed.
By having an employer send the money directly to another account, you will not be subjected to the immediate 20% witholding tax penalty.
If needed, you can then pull the money out of an IRA account without the immediate penalty. Then penalty will still exist at the end of the year, if the funds are returned quickly (30-90 days), however, you do not lose the extra $$ upfront.
By the way I keep an old 401k account at my previous employer just out of spite. The performance is better than my current 401k, but mostly, just to incur costs from adminstration fees, mailings, etc for my previous employer is reason enough.
CPA
Elite Member
- Nov 19, 2001
- 30,322
- 4
- 0
I think most of the questions have been answered, but let's get them under one post:
- 401ks can follow you, but it is generally your choice. This may not apply if your balance is less than $5,000. IRS allows companies to cash you out if your balance is under that amount. A company does NOT have to do it, though. If they do, you can roll the amount over to an IRA or your new employer, if they will allow it. You have 60 days to do it.
- If a company matches, it can either vest over time or vest immediately. Check with your HR department to learn your plan's rules
- Maximum contribution amount for 2005 is $14,000.
- Penalty for early withdrawal is 10% (you pay this when you file your taxes next year). Also, 20% tax will be withheld no matter what your tax bracket is.
- if you really need money out of your 401k, you could always look into a 401k loan
- 401ks can follow you, but it is generally your choice. This may not apply if your balance is less than $5,000. IRS allows companies to cash you out if your balance is under that amount. A company does NOT have to do it, though. If they do, you can roll the amount over to an IRA or your new employer, if they will allow it. You have 60 days to do it.
- If a company matches, it can either vest over time or vest immediately. Check with your HR department to learn your plan's rules
- Maximum contribution amount for 2005 is $14,000.
- Penalty for early withdrawal is 10% (you pay this when you file your taxes next year). Also, 20% tax will be withheld no matter what your tax bracket is.
- if you really need money out of your 401k, you could always look into a 401k loan
awesome idea if your company does any match.
how can you be losing $ on this market?
i know i made back all my loses during bubbles and a bit more.
if you are losing $, you need to reconsider your allocation, maybe you want to put them in steady interest.
how can you be losing $ on this market?
i know i made back all my loses during bubbles and a bit more.
if you are losing $, you need to reconsider your allocation, maybe you want to put them in steady interest.
TRENDING THREADS
-
Discussion Zen 5 Speculation (EPYC Turin and Strix Point/Granite Ridge - Ryzen 9000)- Started by DisEnchantment
- Replies: 24K
-
Discussion Intel Meteor, Arrow, Lunar & Panther Lakes Discussion Threads
- Started by Tigerick
- Replies: 20K
-
-
-
Facebook
Twitter