October 2009 Weddings
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Retirement accounts?

Who has one and what do you have? Would you recommend it? I'm clueless. Teach me how to retire before 80. K? Thanks.

Re: Retirement accounts?

  • I got nothing. I just made FT and benefits, and before that due to moves, school, etc, I had a spotty job history. I'm 36, and am just now starting to build my retirement- scary....
  • I had a 401K at my last 2 jobs (2 different states), and now at my current job I have a 403b.  So I actually have 2 retirement plans.  DH keeps saying I need to "cash out" the 401K and the 403b people said it's better to have as many as possible.  Whatev....  All I know is that they take money out of my paycheck each time and put it in my 403b retirement plan.  I don't know the "exact" details off the top of my head though...
  • image Cipolla2Be:
    I had a 401K at my last 2 jobs (2 different states), and now at my current job I have a 403b.  So I actually have 2 retirement plans.  DH keeps saying I need to "cash out" the 401K and the 403b people said it's better to have as many as possible.  Whatev....  All I know is that they take money out of my paycheck each time and put it in my 403b retirement plan.  I don't know the "exact" details off the top of my head though...
    Why does he think you should cash it out?  You'll have to pay a tax penalty if you do that which means you'll lose money.

    And Dana, why don't you want to work to 100?  Seriously, we should all work til we die!  ING is offering a fee free, no minimum traditional IRA now.  Have you posted this on MM?  They're pretty helpful about this stuff.

    Matt loves Munkii!!!
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and it's
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and it's a
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and it's a great
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and it's a great place to
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc. and it's a great place to start.
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc...
  • I have a 401K that my employer matches so I do the minimum there just because they match.  I suggest reading Conspiracy of the Rich:  The 8 New Rules About Money by Robert T. Kiyosaki -- it completely changed the way DH and I looked at money, investing, etc... and it's a great place
  • Why does my computer do that sometimes!?  I am SO SORRY!
  • image munkii:

    image Cipolla2Be:
    I had a 401K at my last 2 jobs (2 different states), and now at my current job I have a 403b.  So I actually have 2 retirement plans.  DH keeps saying I need to "cash out" the 401K and the 403b people said it's better to have as many as possible.  Whatev....  All I know is that they take money out of my paycheck each time and put it in my 403b retirement plan.  I don't know the "exact" details off the top of my head though...
    Why does he think you should cash it out?  You'll have to pay a tax penalty if you do that which means you'll lose money.

    And Dana, why don't you want to work to 100?  Seriously, we should all work til we die!  ING is offering a fee free, no minimum traditional IRA now.  Have you posted this on MM?  They're pretty helpful about this stuff.

    Oh well dang then I won't cash it out.  It's just sitting there though, and I think it's only $200 or something...  stupid penalty.

    What do you have Millie?  I didn't quite catch that.... Stick out tongue

  • image munkii:

    image Cipolla2Be:
    I had a 401K at my last 2 jobs (2 different states), and now at my current job I have a 403b.  So I actually have 2 retirement plans.  DH keeps saying I need to "cash out" the 401K and the 403b people said it's better to have as many as possible.  Whatev....  All I know is that they take money out of my paycheck each time and put it in my 403b retirement plan.  I don't know the "exact" details off the top of my head though...
    Why does he think you should cash it out?  You'll have to pay a tax penalty if you do that which means you'll lose money.

    And Dana, why don't you want to work to 100?  Seriously, we should all work til we die!  ING is offering a fee free, no minimum traditional IRA now.  Have you posted this on MM?  They're pretty helpful about this stuff.

    Oh well dang then I won't cash it out.  It's just sitting there though, and I think it's only $200 or something...  stupid penalty.

    What do you have Millie?  I didn't quite catch that.... Stick out tongue

  • image munkii:

    image Cipolla2Be:
    I had a 401K at my last 2 jobs (2 different states), and now at my current job I have a 403b.  So I actually have 2 retirement plans.  DH keeps saying I need to "cash out" the 401K and the 403b people said it's better to have as many as possible.  Whatev....  All I know is that they take money out of my paycheck each time and put it in my 403b retirement plan.  I don't know the "exact" details off the top of my head though...
    Why does he think you should cash it out?  You'll have to pay a tax penalty if you do that which means you'll lose money.

    And Dana, why don't you want to work to 100?  Seriously, we should all work til we die!  ING is offering a fee free, no minimum traditional IRA now.  Have you posted this on MM?  They're pretty helpful about this stuff.

    Oh well dang then I won't cash it out.  It's just sitting there though, and I think it's only $200 or something...  stupid penalty.

    What do you have Millie?  I didn't quite catch that.... Stick out tongue

  • Haha. I know I need to post on MM... I'm just shy. 

    It's hard for me because I'm a student, duh, and I only make a measly stipend. My school doesn't do any matching, I don't think. I would definitely have to do an IRA of some sort, but not sure if Roth or Traditional would be better. And thanks munkii for the ING recommendation. My school has a credit union that also has a fee-less IRA. I'll have to list the pros and cons of each.

    I don't want to work til I'm 100! Nonono. I want to retire and travel the world. Or just sit on the beach and read. And I want to make sure that we can afford that someday in the far far away future. 

  • image dvshaw:

    I want to retire and travel the world. Or just sit on the beach and read. And I want to make sure that we can afford that someday in the far far away future. 

    Definitely pick up that book then!  DH has read several of the author's books/books he recommends also... I can't personally give the thumbs up though because I have less reading time than DH so I let him read them and report back to me.  Stick out tongue 

  • image munkii:

    image Cipolla2Be:

    Oh well dang then I won't cash it out.  It's just sitting there though, and I think it's only $200 or something...  stupid penalty.

    What do you have Millie?  I didn't quite catch that.... Stick out tongue

    If it really is under $200, there might not be a penalty (my job is administration on 401(k) Plans).  They also might force you out because they can if you have such a low balance.  Or, start charging fees to you because you're terminated, but your money is still in the Plan.  Just something to think about.

    Planning & Married Bio... Pro Pics, Vendor Reviews, and Items For Sale!
    image
  • image kelliejo83:
    image munkii:

    image Cipolla2Be:

    Oh well dang then I won't cash it out.  It's just sitting there though, and I think it's only $200 or something...  stupid penalty.

    What do you have Millie?  I didn't quite catch that.... Stick out tongue

    If it really is under $200, there might not be a penalty (my job is administration on 401(k) Plans).  They also might force you out because they can if you have such a low balance.  Or, start charging fees to you because you're terminated, but your money is still in the Plan.  Just something to think about.

    Ya they keep sending me a letter to call them and that I have a balance of $153....I think that's why DH said to cash it out, it would probably help if I read it.  Huh?

  • image dvshaw:

    Haha. I know I need to post on MM... I'm just shy. 

    It's hard for me because I'm a student, duh, and I only make a measly stipend. My school doesn't do any matching, I don't think. I would definitely have to do an IRA of some sort, but not sure if Roth or Traditional would be better. And thanks munkii for the ING recommendation. My school has a credit union that also has a fee-less IRA. I'll have to list the pros and cons of each.

    I don't want to work til I'm 100! Nonono. I want to retire and travel the world. Or just sit on the beach and read. And I want to make sure that we can afford that someday in the far far away future. 

     DH and I opened Roth IRAs through ING. Although I don't have  experience with any others, I'd recommend that type as well. We have other savings accts through them, and that makes it super easy to transfer and maintain. I'm not sure if it's the best interest rate though, since it keeps going down, but I guess that's everywhere now...

    We chose Roth because you put the money in post-paying taxes on it, so as long as you don't withdraw it before you reach the age limit (I think 59.5) there's no tax when you take it out. For traditional, I think it's taxed when you withdraw it, and we'd rather just pay the taxes now. *disclaimer- I'm not an expert!

  • 2dBride2dBride member

    I'm actually a lawyer for retirement systems, so maybe I can provide some help.

    What are the tax advantages of a retirement plan?

    You could obviously save for your retirement just by putting money into investments, so the first issue is why you want a retirement plan at all.  From a tax perspective, an elective retirement plan (one in which you decide how much to put in, such as a 401(k) or 403(b)) generally has two advantages:

    First, if you are having some of your wages put into it, those wages will typically not be taxable to you.  For example, if you earn $1,000, and elect to put $100 into the retirement plan, then your W-2 will show only $900 in taxable wages, not $1,000. This is sort of like getting a tax deduction for your contributions, except that it's even simpler, because the wages that would otherwise show up on your W-2 are reduced by the amount of your contributions.

    Second, investment earnings on the amounts put in will not be taxed when earned.  For example, you put $1,000 into a retirement plan.  In the following year, it has investment earnings of $50.  You are not taxed on that $50 so long as it remains in the plan.

    The disadvantage is that when you take the money out, it will all be taxable. However, the effect of that is still less than paying the taxes up front.

    For example, suppose that you are in the 25% tax bracket, you have $100 in wages that you could save for the first year, and you are willing to leave it in the plan for five years, during which time it earns 5% a year.  If you put it in a normal investment, then $25 of it would go to just paying the taxes, so you will have only $75 to invest.  At the end of the first year, the $75 would have produced $3.75 in earnings.  However, you'd have to pay $0.94 in tax on that $3.75, so you'd only have $2.81 in earnings after paying the tax.  So, at the end of the first year, you'd have $77.81.  If you keep this up, you will have $90.16 at the end of five years.

    Now suppose that instead of putting that $100 into a normal investment, you put it into a retirement plan.   You don't have to pay tax on that $100, so you get to invest it all.  At the end of the first year, you have $5 in earnings, so a total of $105.  However, you don't have to pay tax on the $5.  Thus, at the end of the first year, you'd have $105.  If you keep that up, you will have $127.63 at the end of five years.  If you take that money out at the end of five years, you will have to pay tax on it.  However, even after paying the 25% tax, you will still end up with $95.72, instead of the $90.16 you would have had if this amount had been in a normal investment.  And notice that this example works even if your employer is never putting any money into the plan.

    All of the above is a very simplified calculation, but it still shows the tax advantages of a retirement plan.  (I'll discuss the disadvantages below.)  So, assuming you want to put money into a retirement plan, where should you put it?

    What are the nontax advantages of a retirement plan?

    The first place to consider is your employer's retirement plan.   In many instances, an employer makes matching contributions to the plan.  This means that your employer puts in money that reflects what you put in.  For example, if there is a 50% match, then for every dollar you put in, your employer puts in 50 cents.  So, in our example above, if you put $100 into the plan, your employer would put $50 into the plan.  So instead of having $75 to contribute (as would have been the case with a normal investment) or $100 (as would have been the case in an employer plan without matching), you would have $150 to contribute.  Obviously, you are way ahead on day 1, without even considering the effects of investments.

    Even if your employer does not make matching contributions, an employer plan is typically the best place to put your money.  The reason is because your employer plan is typically investing a lot of money at once.  Thus, the fees and commissions it pays are typically less than what you would pay if you tried to invest on your own.

    However, if your employer plan has a maximum limit on how much can be contributed, and you have more you want to invest, you could consider an individual retirement plan ("IRA").  Such a plan has the same tax advantages as an employer plan.  A bank or mutual fund company will typically offer IRAs.  You basically want to look around for which ones are offering the best rates of investment return over time.

    What are the disadvantages of a retirement plan?

    So, in what circumstances might you not want to contribute to a retirement plan?  Basically, the major reason you might not want to contribute to an employer retirement plan is if you think you are going to need that money before you leave employment with the employer. In many instances, the money you put in cannot be withdrawn before you leave employment.

    Even if you put the money into an IRA, or can get the money back before leaving employment, it may not be worthwhile to put money into the IRA or retirement plan if you are going to need it within the next few years.  The reason is that if you take money out of a retirement plan before you are age 59?, with limited exceptions you will have to pay not only income taxes but an extra 10% tax penalty.  In our example above, the $127.63 in the retirement plan would only be $82.96 after paying income tax of 25% plus the 10% tax penalty.  That would be less than the $90.16 you would have had if you had invested it outside of a retirement plan.

    The calculations on how long the money needs to stay in the plan before it is worth it to invest in the plan instead of in other investments are complicated.  But in general, if you can leave the money in the plan for at least five years, it is better from a tax perspective to invest through the plan than through other investments.

    You also need to look at the nontax aspects.  The employer contributions often require some time to "vest."  What that means is that if you leave employment within X number of years (which cannot be more than 5), the employer contributions plus earnings will not go to you, but will be divided among the other employees.  In some instances, not all of the vesting occurs at the same time.  For example, a plan might say that 20% vests after the first year, 40% after the second year, etc.  So if your employer has matching contributions, and you can stay long enough to have those contributions vest, you may be better off investing through the retirement plan than investing elsewhere even if you have to pay a penalty.

    What about a Roth IRA or a Roth account in a retirement plan?

    As described above, for most retirement plans, you get a tax break when the money goes in, and that money plus earnings are taxable when the money comes out.  However, there is an exception to that rule, which is known as a Roth IRA, or Roth account in a retirement plan.  (For convenience, I'll just refer to both as Roth IRAs.)  When you put money into a Roth IRA, you have no tax advantages up front--that money is still taxable.  However, so long as you use the money in the Roth IRA for retirement (or limited other approved purposes), it is not taxable when it comes out.  That means that the investment return on the plan never gets taxed at all, either when it is earned or when you take it out.

    If you have already contributed the maximum amount you can to your employer retirement plan and your IRA, and still want to put away more, a Roth IRA is something you should think about.  Otherwise, deciding whether the regular employer plan/IRA or the Roth is better is more complicated than I can get into here, and you probably want to talk to a professional financial adviser.

     HTH!

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