Is a 401(k) still the ideal way to save for retirement?

[Vette73]

My understanding was that the company contribution didn't count towards the limit. Is that not true? I'm not close enough for it to matter.

It counts. $16,500 is the max for most and it does not matter if it come from you or the company.

Just as IRAs have a 5k max for most as well.

 

[bignateyk]

It counts. $16,500 is the max for most and it does not matter if it come from you or the company.

Just as IRAs have a 5k max for most as well.

So in that case @ 200% of 5%, I would hit the limit at 110K salary.

In the 100% of 10% case I would hit the limit at 82.5K salary.

 

[frostedflakes]

I think much of the question in the topic comes from people equating 401(k) contributions with investing in the stock market. A 401(k) is simply a tax-advanted investment account through which you can invest in anything your employer gives you access to. This includes stocks/mutual funds, obviously, but also could mean fixed-income options (bonds, stable value funds, etc.) that have much lower volatility (and correspondingly lower expected returns). So, the volatility of the stock market is independent of whether a 401(k) is a good idea.

In short, if you want to invest in stocks/bonds/fixed income for retirement, it is almost always better to do it within a 401(k) than in a taxable account.

Yup, and that kind of addresses OP's question about volatility. The idea is to put your money mostly in stocks and higher risk (but higher return) investments when you're younger. There may be downturns in the stock market lasting a couple years, but it's unlikely that over a period of decades the market will be lower than when you started contributing. Then as you get closer to retirement age, start to move your 401(k) over to mostly bonds and lower risk investments. This way a market crash like the one in 2008 wouldn't wipe out a good chunk of your retirements savings about the same time you would want to start withdrawing from it.

 

[DaveJ]

It counts. $16,500 is the max for most and it does not matter if it come from you or the company.

Just as IRAs have a 5k max for most as well.

Actually, that's not entirely correct. The employee's 401k contribution limit maxes out at $16,500, and the total contribution limit between employee and employer maxes out at $49,000 (plus the catch-up contribution limit if you're over 50).

 

[coaster831]

Actually, that's not entirely correct. The employee's 401k contribution limit maxes out at $16,500, and the total contribution limit between employee and employer maxes out at $49,000 (plus the catch-up contribution limit if you're over 50).

Correct. Your personal contribution limit is $16,500, but the company's contributions can extend beyond that.

 

[soulcougher73]

You guys make me jealous with your employer contributions. Mine is only 50% up to 6%. I put in 6% they put in 3%

 

[Macamus Prime]

It's pretty much the only option.

You could put aside the majority of your income in a savings account, but it won't grow (or shrink).

Roth IRA is also another option.

 

[JS80]

You guys make me jealous with your employer contributions. Mine is only 50% up to 6%. I put in 6% they put in 3%

Some of us don't get a match

 

[Macamus Prime]

You guys make me jealous with your employer contributions. Mine is only 50% up to 6%. I put in 6% they put in 3%

That's still free money.

 

[gorcorps]

This reminds me... I have to make a thread about my 401k stuff. I'm just set with the default investments and don't want to touch it since I don't know what I'm doing. Somebody here could help though.

 

[HardcoreRobot]

(usually) employer match + tax benefits = win

iras = win because you have more freedom + tax benefits

 

[rcpratt]

Actually, that's not entirely correct. The employee's 401k contribution limit maxes out at $16,500, and the total contribution limit between employee and employer maxes out at $49,000 (plus the catch-up contribution limit if you're over 50).

That was my understanding. Thanks.

 

[BlahBlahYouToo]

tax deferred, company match... what's not to like?

 

[DaveSimmons]

Yup, and that kind of addresses OP's question about volatility. The idea is to put your money mostly in stocks and higher risk (but higher return) investments when you're younger. There may be downturns in the stock market lasting a couple years, but it's unlikely that over a period of decades the market will be lower than when you started contributing. Then as you get closer to retirement age, start to move your 401(k) over to mostly bonds and lower risk investments. This way a market crash like the one in 2008 wouldn't wipe out a good chunk of your retirements savings about the same time you would want to start withdrawing from it.

Also, with a 401k you would have been buying mutual fund shares at the bottom of the market -- for example S & P 500 fund shares have gained almost 50% in 2 years, besides the tax savings and employer matching.

Google "dollar cost averaging", you get this with no extra effort in your 401k.

 

[Texashiker]

Is a 401(k) still the ideal way to save for retirement?

If your willing to pay attention to the markets, then 401k is probably a good idea.

However, just about every 401k I have ever been in has lost money. One company I was working for, their 401k was always losing around 20% of the investments. Every quarterly report would say something like -15%, -20%, -22%. I would call the 401k management company and ask what was going on. Their usual response was "we can not give out any investment details". After moving my money to several different types of investments, and still losing money, I finally pulled everything out and closed my account.

Another company I worked for, their investment managers would lose 30%, 40% of the employees investments. When questioned, the management company would never give any details. Like one employee said, if they just bought stock in coke-a-cola or 3M they would get a nice return. But for some reason the company was bleeding money.

Even if the company was matching my 6%, if your losing 20% of your investment, your wasting your time.

The 401k I am with right now is the only one I have seen a good return on.

 

[DaveJ]

You guys make me jealous with your employer contributions. Mine is only 50% up to 6%. I put in 6% they put in 3%

11.5% employer contribution here, regardless of what I put in.

 

[amish]

You guys make me jealous with your employer contributions. Mine is only 50% up to 6%. I put in 6% they put in 3%

some of us get screwed in other ways. i cannot own certain accounts thanks to CPA independence rules.

actually having a company pension on top of my 401k is nice though...

 

[DaveSimmons]

Another company I worked for, their investment managers would lose 30%, 40% of the employees investments.

Even if the company was matching my 6%, if your losing 20% of your investment, your wasting your time.

If the stock funds are bad, almost every 401k also offers money market funds. You get almost no growth beyond the employer match and tax savings, but you also won't lose any money.

When you change jobs, then you can roll over the funds into a traditional IRA at Vanguard and pick some excellent and low-risk stock index funds.

 

[coaster831]

If your willing to pay attention to the markets, then 401k is probably a good idea.

However, just about every 401k I have ever been in has lost money. One company I was working for, their 401k was always losing around 20% of the investments. Every quarterly report would say something like -15%, -20%, -22%. I would call the 401k management company and ask what was going on. Their usual response was "we can not give out any investment details". After moving my money to several different types of investments, and still losing money, I finally pulled everything out and closed my account.

Another company I worked for, their investment managers would lose 30%, 40% of the employees investments. When questioned, the management company would never give any details. Like one employee said, if they just bought stock in coke-a-cola or 3M they would get a nice return. But for some reason the company was bleeding money.

Even if the company was matching my 6%, if your losing 20% of your investment, your wasting your time.

The 401k I am with right now is the only one I have seen a good return on.

I reiterate: determining whether the idea of a 401(k) is good has nothing to do with the stock market.

 

[Vette73]

So in that case @ 200% of 5%, I would hit the limit at 110K salary.

In the 100% of 10% case I would hit the limit at 82.5K salary.

Opps sorry I was wrong. The 16.5 is employee only.


The 401k I manage is not matched so 16,500 is the number I keep giving out.

 

[Texashiker]

If the stock funds are bad, almost every 401k also offers money market funds. You get almost no growth beyond the employer match and tax savings, but you also won't lose any money.

I was told that same thing, and still lost money.

I reiterate: determining whether the idea of a 401(k) is good has nothing to do with the stock market.

When your entire investment disappears overnight, you might have a different opinion on that.

 

[JS80]

I was told that same thing, and still lost money.




When your entire investment disappears overnight, you might have a different opinion on that.

shens. i don't think any money market fund has ever lost principal.

 

[Elbryn]

If your willing to pay attention to the markets, then 401k is probably a good idea.

However, just about every 401k I have ever been in has lost money. One company I was working for, their 401k was always losing around 20% of the investments. Every quarterly report would say something like -15%, -20%, -22%. I would call the 401k management company and ask what was going on. Their usual response was "we can not give out any investment details". After moving my money to several different types of investments, and still losing money, I finally pulled everything out and closed my account.

Another company I worked for, their investment managers would lose 30%, 40% of the employees investments. When questioned, the management company would never give any details. Like one employee said, if they just bought stock in coke-a-cola or 3M they would get a nice return. But for some reason the company was bleeding money.

Even if the company was matching my 6%, if your losing 20% of your investment, your wasting your time.

The 401k I am with right now is the only one I have seen a good return on.

usually 401k's have a variety of funds to choose from, it's kinda hard to say as a whole that the entire 401k is losing money. you could have all your cash in a bond fund and lost a little or be entirely stocks and taken the 30% bath.

i dont have a 401k plan but i do have access to a 457 and 403b. on the whole though, tax deferred retirement space will play the bulk of the retirement three legged stool. pre-paid tax (roth) and taxable accounts play the other two legs to best balance which pool monies will come from based on tax rates/rules

 

[maziwanka]

That's when an IRA (roth or traditional) > 401k.

how so?

 

[TalonStrike]

How do you get a pension?