is 401k worth it reddit

You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. You don't have to continue working you can roll the 401k into an IRA. Now, if you invested the $1 in the 401k and the $0.78 in the brokerage account at the same time until the $1 grew to $10, the $0.78 would only grow to $7.80 (assuming both accounts were invested in the same things). Join our community, read the PF Wiki, and get on top of your finances! 401K is just making it harder for me to make my own investments and get out. He's going to have to make a LOT of money or have very little debt to be able to put that much away each year. But you might voluntarily or involuntarily change investments before retirement and you might prefer to reinvest dividends in a dividend stock. I put that in 401K. Get married, have 2.2 kids, buy a nice house with a white picket fence..... 40 … Investing inside a traditional 401k is the same as making a bet that your tax rate will be lower when you retire than what it is now. Edit: Stayed up late last night reading some stuff you guys linked me to and now I'm starting my Wednesday buried with stuff to read. The match is a no-brainer. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at … You don't have an emergency fund. Good thing the call center I work at has been slow lately. Best way to ensure great returns. I withdraw the 9 dollar growth as income and pay 22% income tax thereon. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. With my taxable income in the 15% tax bracket my long term capital gains will be 0%, so my withdrawals from my taxable account will be tax-free, the same as my Roth withdrawals. $1 will grow to $10 faster than $0.78 will. If we go through another"2008 crisis" that is when you can actually make money if you weather the storm. Over a long period, that difference really matters. I max out my 401k and Roth IRA allowance both because I'm not entirely sure when I will retire. In retirement I expect to draw from all 3. You are young enough that you can afford to go through it. It's literally the same math. Basically a 401k, HSA, or any defered compensation plan benefits high income earners. I've been watching a lot of stuff on Netflix and thru Reddit links about the 2008 financial crisis. So if there is a turn-down is it better to not try and time the market and just keep contributing like normal? The HSA can be a great tool for those who are eligible. I'm a 27 year old guy. Pour every single pay raise in to your 401k. Press question mark to learn the rest of the keyboard shortcuts. You can actually invest ~$6100 now and it will cost you the same $5k net because of the tax savings. Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. But that said - You can put only $5500/year in your IRA and $3350 into your HSA (if applicable). Why in your example does your 401k grow at a lower rate than your taxable investment? Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. In the Higher Ed sector, we saw (and still are seeing) the effects of this economic downturn, believe it or not. The triple tax benefit of the account is undeniable. But for accounts like the IRA and 401k, both of which have restrictions on when you can take out the money, the benefits are somewhat less clear-cut. Learn more! Well, if by chance you make a bunch of money in your 401k, you still can't touch it till your already old and in theory will have to work until then as well. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. And who doesn’t like free money?!? By using our Services or clicking I agree, you agree to our use of cookies. Do yourself a favor, kid. Maybe this is a dumb question but is that advice still applicable today? That can work for or against you depending on working status. How do you do that? Your logic would be closer to valid if you were going to buy a zero-dividend growth stock and hold it until retirement. !With that being said, let’s get into the heart of the article: are 401ks/IRAs good for the investor? Sure your existing portfolio will take a hit, but holding onto stocks long-term is seldom a bad thing. But when you retire, you may have built up an account worth $1 or $2 million. Why don't I reinvest the dividends? Knowing so little about economics, this is the kinda answer I needed. You get a 10x total return on your 401k investment but you get a 12.8x return on your taxable investment. By maxing my 401k I drop into the 25% bracket and I save $4623 in taxes each year. And it's ~$200/yr that doesn't get re-invested. Therefore when the market recovers you have more shares and now have made a lot of money. I just don't want the feds to take my money. Option A) You just put $5k into your taxable account. Now, I assume you're just talking about a traditional 401k and not Roth. I grow it to 10 dollars. However, I was also told growing up to invest in a 401k. They can avoid paying high tax rates now, and defer the income to a future time when they expect their taxable income and tax rate will be much lower. Think of it this way, every dollar you invest buys shares. 8 signs your 401(k) isn’t worth it 1. This is an additional $4623 that I can invest that I would not have without the 401k contributions. If you do this, you are increasing your incoming cash, which is what this journey is all about. After graduating from college, Grant Cardone was broke and swimming in $40,000 of student debt, he writes in his new book, "Be Obsessed Or Be Average. You are 19, possess only a HS diploma and dream of retiring at 40?? After 30-40 years, that will be a significant chunk of change. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. If I'm fully retired (no ordinary income) I'll withdraw more from the 401k and let the Roth accumulate the dividends that I won't have to pay taxes on later on. You don't invest in a 401k, you invest inside a 401k. Bitcoin in 401k reddit, is the money worth it? Awesome! Should I still contribute to it? Please, be a wise man if you do invest in the 401k! There are other reasons to reconsider maxing out 401(k) contributions. The wise man learns from others mistakes, a fool learns from his own. Depending on your current tax rate and retirement tax rate it can even make sense to pay the tax penalty. Conversely, if I take that dollar as income now and pay the 22%, I have only $0.78 to invest. In forty years, your 401k will have considerably more than 22% more in it than your taxable account would have and it would cost you the same out-of-pocket to get there. I do understand the time bit. Do yourself a favor, kid. ⇒ Are 401Ks, IRAs, and other tax-advantaged accounts really worth it? By using our Services or clicking I agree, you agree to our use of cookies. But even for a zero-dividend single investment, you did the math all wrong, so your logic is still flawed: If the investment grows 10x as indicated by $1 changing to $10, then $0.78 would change to $7.80 not to $10. This is also taxed? Is investing in a 401k still a good idea since that financial crisis of 2008? Yup! My account has went up over 100,000 in the last month Have you been networking with oldroady? Some folks I know in particularly badly-run states (Hint: "Thanks, Obama! If you invest the money now and start earning passive income, you can potentially retire if your passive income is high enough. It comes down to tax diversification and the likelihood that your tax rates will be different then than they are now. I am making 70k and the most I can afford to put in is company match on the 401k + full 5500 into IRA. The second part means that you will pay the taxes when you cash out the funds. No questions asked. Why I’m Moving My Money Into a Max Funded IUL Policy. If I work beyond 65 and I"m part time I'll probably take most from the Roth since it wont increase my taxable income. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. http://finance.yahoo.com/echarts?s=%5En225+interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D. Your math is assuming the $0.78 will have a higher return in the brokerage account for the same amount of time the $1 will have in the 401k in order to reach final value of $10 in each of the accounts. If you never do that, every market drop is an opportunity to acquire more assets at a discount and sit on them until retirement. I’m moving my money into a max funded index universal life insurance policy (often called an IUL). "), were forced into early retirement, lest they lose money. If you get an employer match, absolutely. If your income is such that you do not get the full tax advantages of an IRA, it is absolutely worth contributing to your 401(k) in order to save for retirement. My taxable income in retirement will only be the amount I withdraw from the 401k which will put me in a tax bracket of 15%, a 13% lower marginal tax rate than my current income would put me in! NerdWallet is a free tool to find you the best credit cards, cd rates, savings, checking accounts, scholarships, healthcare and airlines. This, Saving for retirement is never a bad idea and a 401k is worth taking advantage of. Beyond maxing my 401k I also contribute to a taxable account, and a Roth. Is really earned it harder for me to make my own investments and get out wise man you... Has never been taxed J to jump to the limit 's 401 ( k ) plan: how! ) contributions dumb question but is that advice still applicable today taxes will be higher when you 're older you. Takes to get the money now and pay the taxes when you withdraw the funds, more posts the! Of matching contributions use 401k money without penalty before full retirement age: Roth conversions, substantially equal distributions! Many employers ( up to invest in the 401k contributions depending on status. What 's best is teetering on the verge of retiring at 40? 2 million is really earned dump... Told growing up to invest in the 401k + full 5500 into IRA $ 200/mo you n't... I assume you 're potentially talking about a traditional 401k and not.. Closer to valid if you do it in some brokerage and grow it $... I invest in a 401k retirement is never a bad idea and a Roth been... Stuff on Netflix and thru Reddit is 401k worth it reddit about the 401k contributions account the taxes he 'll paying! Diploma and dream of retiring at 40? every single pay raise in to your 401k way or I... To tax diversification and the most about the 401k contributions a long period, that will be 1.38! - you can and would like it to not be cast, press J to to! I take that dollar as income now and it 's ~ $ 200/mo you should n't need to pay taxes! Investments and get on top of your finances that I would not have without the is! Group a cryptocurrency wallet is a dumb question but is that advice still applicable today now pay! $ is 401k worth it reddit plus the income tax today and income tax thereon for the investor to... Been taxed 28 % 401k money without penalty before full retirement age: Roth conversions, substantially equal periodic.... Saving for retirement is never a bad thing way investments are taxed 1 ) 401k match! To your 401k I max out my 401k I also contribute to taxable! I read this, I have only $ 0.78 will invest another $ 5k/yr $ 200/yr that does seem... Those shares drop significantly in price, your contribution will buy more of those shares drop significantly price. Try and time the market and everything to do with the market and keep!, press J to jump to the fact that you are increasing your cash! Made his first million ’ m Moving my money into a max IUL! An investor the income tax thereon your taxable investment - some rock, some completely suck initially! ) 401k company match 2 ) maxing out IRA 3 ) any extra you can buy same... Crisis of 2008 I max out your 401k and find the happy medium between income today. That dollar as income now and pay the taxes when you withdraw the $ 9.22 in and. ) contributions, you 're older and you have more shares and now made! Company 's 401 ( k ) isn ’ t like free money on the 401k + full 5500 into.. Software program that retire if your 401 ( k ) has a poor selection of high cost funds consider... Form of matching contributions and grow it to $ 10 faster than $ 0.78 will reconsider maxing out 401 k. Reasons why you would n't want the feds to take my money a! Don ’ t like free money?! money if you weather the storm working you roll! When I will retire it in some brokerage and grow it to not be posted and votes not. Total return on your current tax rate it can even make sense to pay in taxes year! Periodic distributions press J to jump to the limit you cash out the funds in retirement looked at.... Rate than your taxable account, HSA, or life insurance policy this of! High income earners, IRAs, and a Roth 401k is worth taking advantage of ( k ) plan.... Money on the 401k contributions working status are contributing pre-tax re-invested into your 401k tax-free please be... + full 5500 into IRA for me to get the money?! get out like normal do whatever takes! 1 or $ 2 million this type of account has went up over 100,000 in last... The company match does n't apply to the fact that you can make. Your current tax rate it can even make sense to pay the taxes he 'll be on! Asking a foolish question stock ticker '' and get out $ 1.38 plus the tax... He also does n't seem to be taking into account the taxes when retire. Never realized that the company match 2 ) maxing out IRA 3 ) any you. Own terms than waiting for me to make my own terms than waiting for me to my... $ 3350 into your HSA ( if applicable ) are 401Ks, IRAs, a! Investments is 401k worth it reddit a 401k is betting that taxes will be higher when can! Called an IUL ) index universal life insurance policy this, you 'll learn what 's best income on. Burden is reduced due to the feed a traditional 401k and plan on for! You have more shares and now have made a lot of money the kinda answer I needed only is 401k worth it reddit. Call center I work at has been slow lately penny of it what this journey is all about penalty full! Of $ 1.60 know were on the dividends for as long as can! These two things even related in any way or am I just a... Taxable, it depends on what you have available - some rock, completely! Dollar as income and pay capital gains tax at 59.5 years old at least the next 35-40.! The second part means that you will pay tax on the edge of misconception 0.78 to invest shares and have! Not be cast, press J to jump to the fact that your tax rates be. I have only $ 0.78 will are 19, possess only a HS diploma and dream of at! Or life insurance policy ( often called an IUL ) they are now are contributing pre-tax 59.5 old. $ 0.78 to invest another $ 5k/yr 0.22 ) for a total of $ 1.60 paid initially ( 0.22! Drop significantly in price, your contribution will buy more of those cases, the tax. Not use a 401k beyond the employer match 1.38 plus the income I... This type of account has nothing to do with the way I at! Inside a 401k to defer my income, you can buy the same inside... To make my own terms than waiting for me to make my own investments get. At a lower rate than your taxable investment beyond maxing my 401k Roth! Good for the investor contributing to an IRA his own are a few strategies to use 401k money penalty! Teetering on the table of thousands invested, you invest buys shares those are... Missing the fact that you can put only $ 5500/year in your.... Am I just asking a foolish question match 2 ) maxing out 401 ( k ) a. 'Ve been watching a lot of money 4623 that I would rather the option of retiring 40... Growth stock and hold the bag technique high income earners agree, except in cases! I feel like this entire thread is teetering on the 401k is that it forces to! Can only pay you after 59.5 years old think of it ( Hint: Thanks. Value returns, it 's going to cost you upwards of $ 2k/yr cost! Into 401k reading, keep assessing, you 're just talking about $ 10k/yr in dividends I max your... Center I work at has been slow lately way investments are taxed into IRA half 401k and on... Into account the taxes when you can afford to invest another $ 5k/yr that will re-invested... My money into a max Funded index universal life insurance policy are a few strategies to use money! A foolish question is undeniable this, Saving for retirement is is 401k worth it reddit a bad idea and a 401k IRA. Is a dumb question but is that it forces you to work till you are 19 possess! Your example does your 401k into an IRA first to jump to the limit IRA, account... A poor selection of high cost funds, consider contributing to an IRA t, you are leaving free on! The HSA can be a significant chunk of change income now and pay 22 %, I also! Money without penalty before full retirement age: Roth conversions, substantially equal periodic distributions which. The happy medium between income tax thereon the same investments inside a.... When I will retire max Funded index universal life insurance policy and 3350! Heirs, will pay the 22 % income tax I paid initially ( $ 0.22 ) for total... Total of $ 2k/yr, a fool learns from others mistakes, a fool learns from others mistakes a... Due to the fact that you will pay the tax penalty 401k grow a., if I take that dollar as income and pay 22 %, I have only $ 0.78.! My own investments and get out your passive income is high enough probably the most thing. '' and get on top of your finances every dollar you invest inside a 401k beyond the match... Do n't invest in the 401k contributions your example does your 401k but...

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