Financial Question

[alrocky]

Originally posted by: KillerCharlie
I'm still not sure which to do... although I can always switch later. I was also thinking about doing 4% of each.

The only thing I enter when I enroll in this is what percent I contribute to pre-tax and what percent I want to contribute to after-tax, then I enter what funds I put it in. That's it.

Well, that's certainly vague enough. The paperwork doesn't provide more information? What fees or costs are invovled in the plan and what mutual fund companies or mutual funds can you choose from?

While 8% gets you the company match, you should consider investing more for retirement if you can, either with the company plan or outside it.

 

[ghostman]

Sorry for hijacking the thread for a while, but with all this talk about Roth 401ks, I'm still confused with something.

Since I've been qualified to contribute to my 401k last year (~May 2005), I've always had the option to do it pre-tax or post-tax. Is this post-tax option the Roth 401k (which it has never been labelled as such)? Or is that another option that's somehow different than the Roth 401k?

I've always maxed out my pre-tax 401k plan based on other people's advice ("the money that would have gone to taxes will now compound as part of your investment"), but I've recently questioned it. Oh, and I have 40 years to go before I retire.

 

[KillerCharlie]

They have tons of funds - bond market index, balanced index, S&P Index, International Index, Russell 2000 Index, along with small/mid and large company funds that are actively managed. The most popular funds are the lifecycle funds which are also actively managed. These start off more risky and go more conservative as you approach retirement - most people do the lifecycle funds. I just don't have the time now to sift through tons and tons of funds and learn how to properly invest money. I'm putting it all in the lifecycle funds for now.

There's a ton of information but like I said, it's hard to go through it all. What kind of fees should I be looking for? I haven't seen anything about any types of fees yet except short term redemption fees (withdrawing within 30 days of putting money in). The lifecycle funds are managed by Barclays Global Invesotrs.

My main issue now is how much pre-tax and after-tax I should do. I'm going to put in more than the matched 8%, but I'm just not sure which tax option to use. Eventually I'll sit down, research and understand this stuff, then decide what's best. However, that won't happen for a while as I'm extremely busy and I want to make sure I put something in in the meantime.

 

[jersiq]

Are you able to change your investments later?

My company uses Fidelity, and we can manage just about every aspect of the account online.

I can change my contributions (both percentage, and pre- or post-tax options.)
I can move money between investements (aggressive, conservative)

See if your plan allows this so you can get started with something for right now, then "tweak" it later after some of your own research.

 

[Evadman]

If they match a percentage up to 8%, put in AT LEAST 8%. I put in exactly the maximum I am allowed to put in tax free. The company only allows so much (up to 50% pre-tax) but the government only allows you to put in a max of $14k a year IIRC.

 

[KillerCharlie]

Originally posted by: jersiq
Are you able to change your investments later?

My company uses Fidelity, and we can manage just about every aspect of the account online.

I can change my contributions (both percentage, and pre- or post-tax options.)
I can move money between investements (aggressive, conservative)

See if your plan allows this so you can get started with something for right now, then "tweak" it later after some of your own research.

That's what I pretty much just said - I'm going to put my money in the managed lifecycle fund for now, then switch and/or move money around once I understand this stuff better. I'm still not sure on the tax thing though. Yes, I will put in 8% - but should it be pre- or after- tax?

 

[jersiq]

I guess my question would be: Can you change your contributions later?

Based on the little discussion in here earlier, a couple of months either way (post or pre) wouldn't matter right now. Do some of your own research in that time, then change your contribution later.

A couple of months won't make that much of a difference, giving you the time to look it up and go with what YOU think is right.

 

[Evadman]

Originally posted by: jersiq
I guess my question would be: Can you change your contributions later?

That varies company to company. The one I am at now allows you to change it each pay period,a nd move stuff around within funds day by day, The last company was once a quarter for changes, once a month for moving stuff around.

 

[KillerCharlie]

Yes, I can change contributions anytime. I'm pretty sure you can do it any day, but it takes 2 days for the contributions to be actually changed from when you change them online.

 

[alrocky]

Originally posted by: KillerCharlie
Usually if you expect to stay in the same tax bracket or drop to a lower one when you retire, pre-tax is better since you'll be taxed in that lower bracket when you take the money. After-tax is typically better if you expect to be in a higher tax bracket since when you withdraw the money it'll be tax free.

---

What kind of fees should I be looking for? I haven't seen anything about any types of fees yet except short term redemption fees (withdrawing within 30 days of putting money in). The lifecycle funds are managed by Barclays Global Investors.

My main issue now is how much pre-tax and after-tax I should do.

The answer is in your original post. Do "you expect to be in a higher tax bracket"? I can't answer that. Do you think you'll advance or remain at your current position? vi_edit linked a site wherein you can test various scenarios.


Fees. Please give the 5 letter ticker of the lifecycle mutual fund you're getting or of any other fund that's available. Which mutual fund company(s) are available? Hopefully it's a no load fund company or if a load fund company that said load is waived as per aggreement with your employer. The other fee to look out for is the Expense Ratio of the mutual fund.

I'm guessing that you and ghostman both have the option to invest in ROTH 401Ks. You guys gotta talk to someone in HR to verify if that's what is meant in your plan as "after-tax basis."