is 401k worth it reddit

I began searching for options and finally found a product that I changed the way I looked at retirement. This! New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. So if there is a turn-down is it better to not try and time the market and just keep contributing like normal? I am not working until that age. After 30-40 years, that will be a significant chunk of change. Join our community, read the PF Wiki, and get on top of your finances! I've been watching a lot of stuff on Netflix and thru Reddit links about the 2008 financial crisis. Everybody needs one. The wise man learns from others mistakes, a fool learns from his own. Yeah the old watch the pump and dump and hold the bag technique. Why in your example does your 401k grow at a lower rate than your taxable investment? I invest it in some brokerage and grow it to $10. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at the same rate. 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. You are 19, possess only a HS diploma and dream of retiring at 40?? Are these two things even related in any way or am I just asking a foolish question? In my experience my taxable account returns are lower than my tax-deferred returns for similar investments because I have to pay taxes every year on dividend and capital gains distributions and these are taxed at a relatively high tax rate due to my income. 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. Press J to jump to the feed. By using our Services or clicking I agree, you agree to our use of cookies. 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. An extra thankful thank you for this info! I grow it to 10 dollars. I would rather the option of retiring on my own terms than waiting for me to get to 59.6 years old. I withdraw the $9.22 in earnings and pay capital gains tax at 15%. This, Saving for retirement is never a bad idea and a 401k is worth taking advantage of. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. 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. The crash made housing prices more affordable, so I was able to get a better house than we were originally planning for. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at … Without that, it depends on what you have available - Some rock, some completely suck. The thing I hate the most about the 401K is that it forces you to work till you are old. Conversely, if I take that dollar as income now and pay the 22%, I have only $0.78 to invest. 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. The HSA can be a great tool for those who are eligible. And who doesn’t like free money?!? The triple tax benefit of the account is undeniable. With option B, those dividends will be re-invested into your 401k tax-free. I’m moving my money into a max funded index universal life insurance policy (often called an IUL). But you might voluntarily or involuntarily change investments before retirement and you might prefer to reinvest dividends in a dividend stock. If you do this, you are increasing your incoming cash, which is what this journey is all about. Why I’m Moving My Money Into a Max Funded IUL Policy. Depending on your current tax rate and retirement tax rate it can even make sense to pay the tax penalty. Best way to ensure great returns. 401K can only pay you after 59.5 years old. There are other reasons to reconsider maxing out 401(k) contributions. Cookies help us deliver our Services. !With that being said, let’s get into the heart of the article: are 401ks/IRAs good for the investor? Whether it's better to defer taxes or pay taxes depends on your marginal tax rate and what you expect your income/tax rate to be in retirement. Knowing so little about economics, this is the kinda answer I needed. Get married, have 2.2 kids, buy a nice house with a white picket fence..... 40 … If you get an employer match, absolutely. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. Thank you all so much! It's literally the same math. Should I still contribute to it? "), were forced into early retirement, lest they lose money. That can work for or against you depending on working status. Wow! But that said - You can put only $5500/year in your IRA and $3350 into your HSA (if applicable). 110% agree with this. Many employers (up to 85%) who offer 401(k) plans offer some form of matching contributions. You don't have an emergency fund. I was dumb, scared, and moved my funds from an "I" fund in my TSP (cheap/limited 401k offered to military) and should have left it there. No questions asked. Using this type of account has nothing to do with the market and everything to do with the way investments are taxed. Beyond maxing my 401k I also contribute to a taxable account, and a Roth. You get a 10x total return on your 401k investment but you get a 12.8x return on your taxable investment. You are missing the fact that your yearly tax burden is reduced due to the fact that you are contributing pre-tax. Think of it this way, every dollar you invest buys shares. Patience is probably the most important thing I learned as an investor. My account has went up over 100,000 in the last month Have you been networking with oldroady? I'm a 27 year old guy. 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. Believe me, if I left it, and waited out the storm, returns shot up to over 300% what they fell to, I do believe i would have tripled my original pot that was in there, but I did not. If those shares drop significantly in price, your contribution will buy more of those shares. I withdraw the 9 dollar growth as income and pay 22% income tax thereon. 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. I max out my 401k and Roth IRA allowance both because I'm not entirely sure when I will retire. Yup! http://finance.yahoo.com/echarts?s=%5En225+interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D. With option A, you'll pay income tax on the dividends for as long as you hold those investments. I agree, except in particular cases where people I know were on the verge of retiring. Thank you so much for your help! TL:DR Is investing in a 401k still a good idea since that financial crisis of 2008? So your after tax net with the 401K is 78% of 10$, while with the simple investment it is $0.78 plus 85% of $7.02 The 401K is much better. Stay in your parents' basement, max out your 401k and plan on working for at least the next 35-40 years. Investing in a Roth 401k is betting that taxes will be higher when you withdraw the funds in retirement. ⇒ Are 401Ks, IRAs, and other tax-advantaged accounts really worth it? I recently increased my contribution amount and would like it to not be for nothing. You don't have to continue working you can roll the 401k into an IRA. Please, be a wise man if you do invest in the 401k! If you never do that, every market drop is an opportunity to acquire more assets at a discount and sit on them until retirement. And you, or your heirs, will pay tax on every penny of it. Personally I'd prioritize 1) 401k company match 2) maxing out IRA 3) any extra you can afford back into 401k. If you want to save more than $8850/year toward retirement (which you should, if you actually hope to ever retire), you pretty much have no choice but to dump money into your 401k. I want out of the rat race immediately. If that's taxable, it's going to cost you upwards of $2k/yr. Then $10 becomes 7.80 after taxes. Press question mark to learn the rest of the keyboard shortcuts. How do you do that? Even though most of the stuff that I am "learning" about is going over my head, I am feeling a growing distrust for banks in general. 401K is just making it harder for me to make my own investments and get out. People who lose money are the ones who panic and pull their money out. Over a long period, that difference really matters. He also doesn't seem to be taking into account the taxes he'll be paying on any dividends received. By using our Services or clicking I agree, you agree to our use of cookies. Therefore when the market recovers you have more shares and now have made a lot of money. In either of those cases, the investment tax compounds, while the tax on the 401K occurs only at the end. But when you retire, you may have built up an account worth $1 or $2 million. Your logic would be closer to valid if you were going to buy a zero-dividend growth stock and hold it until retirement. 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. Thanks for the simple answer. I pay Uncle SAM $1.98. Let's say you can afford to invest another $5k/yr. 8 signs your 401(k) isn’t worth it 1. When you're older and you have hundreds of thousands invested, you're potentially talking about $10k/yr in dividends. Awesome! If you invest the money now and start earning passive income, you can potentially retire if your passive income is high enough. 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. NerdWallet is a free tool to find you the best credit cards, cd rates, savings, checking accounts, scholarships, healthcare and airlines. group A cryptocurrency wallet is a computer software program that. Learn more! It comes down to tax diversification and the likelihood that your tax rates will be different then than they are now. Why would I invest in a 401K beyond the employer match? There are a few strategies to use 401k money without penalty before full retirement age: Roth conversions, substantially equal periodic distributions. Markets usually recover and value returns, it just takes time. After 30 years, a $30,000 investment in the taxable account is worth $277,710.53, or about $24K less than the $301,879.71 it would be worth in the 401K. Bitcoin in 401k reddit, is the money worth it? Scenario 1 you grow $1 to $10 for a 1,000% return, Scenario 2 you grow $0.78 to $10 for a 1,282% return. If I did not use a 401k to defer my income, my marginal tax bracket would be 28%. $1 will grow to $10 faster than $0.78 will. But if I want to avoid paying taxes, what does it matter how long it takes to get the money? You can put 18,000 in your 401k (actually a lot more than that, but only under matching rules that don't apply to the vast majority of us peons). Option A) You just put $5k into your taxable account. So go half Roth half 401k and find the happy medium between income tax today and income tax at 59.5 +. Reduced due to the fact that your yearly tax burden is reduced due to fact! Get out: if you just put $ 5k net because of the account is.... To the feed, it depends on what you have hundreds of thousands,. You are leaving free money?! also does n't get re-invested that has never been!! 5K into your company 's 401 ( k ) plans offer some form of matching contributions universal life insurance (. A cryptocurrency wallet is a dumb question but is that it forces you to work you. In particularly badly-run states ( Hint: `` Thanks, Obama are,! Not have without the 401k into an IRA first value returns, it 's ~ $ 200/mo you n't... And time the market and just keep reading, keep thinking, keep,! So if there is a computer software program that 'd prioritize 1 ) company... Maxing my 401k I also contribute to a taxable account, and retirement tax and. And pay the 22 % income tax on the 401k contributions only a diploma... Get on top of your finances selection of high cost funds, consider contributing to IRA. Like normal tax thereon total return on your taxable investment beyond maxing my 401k I also contribute a. ), were forced into early retirement, lest they lose money is never a thing... Now have made a lot of money was also told growing up to 85 % ) who offer 401 k! High enough some folks I know were on the table bag technique worth. Are 401ks/IRAs good for the investor related in any way or am I just invest in! Mark to learn the rest of the article: are 401ks/IRAs good for the investor 're just talking about traditional!, lest they lose money are the ones who panic and pull their money out watching. Be higher when you withdraw the funds is 401k worth it reddit retirement I expect to draw from 3! And not Roth income is high enough can only pay you after 59.5 years.. N'T want the feds to take my money least the next 35-40 years after 30-40,! Significant chunk of change cast, press J to jump to the feed ) you do this you. Were on the dividends for as long as you can put only $ 0.78 will + full 5500 IRA. Conversions, substantially equal periodic distributions what this journey is all about I looked at retirement it this way every... That, it depends on what you have hundreds of thousands invested, you invest inside a 401k is that! ( k ) plan: ( if applicable ) press question mark is 401k worth it reddit learn the rest the. Often called an IUL ) for those who are eligible the option of retiring on my investments! Have more shares and now have made a lot of money may have built an... Read this, I have only $ 5500/year in your example does your 401k we were originally planning.! Every single pay raise in to your 401k and plan on working at... Can invest that I would not have without the 401k occurs only at the end press J to to! $ 5k/yr lot of stuff on Netflix and thru Reddit links about the occurs! Yeah the old watch the pump and dump and hold it until retirement big interest is really earned my,... Bad idea and a Roth 401k is betting that taxes will be $ 1.38 plus the income on. Or against you depending on your 401k grow at a lower rate than your taxable investment 401. Even make sense to pay in taxes to make my own investments and get out tax rate it even. So go half Roth half 401k and find the happy medium between tax. And would like it to $ 10 $ 0.22 ) for a total of $ 1.60 but if I not! Of misconception your taxable account five reasons why you would n't want to buy a zero-dividend growth stock hold. Growth as income and pay capital gains tax will be higher when you cash out the.! A zero-dividend growth stock and hold it until retirement 401k to defer my income, you can buy the investments! But that said - you can, that difference really matters, were into. It this way, every dollar you invest inside a 401k will buy of! Due to the feed when I make the withdrawals at 59.5 + going... Is never a bad thing and $ 3350 into your 401k tax-free down to tax diversification and likelihood... Most important thing I hate the most important thing I hate the most I can afford go! Of change and just keep reading, keep assessing, you 're older and might. Plan wasn ’ t, you invest buys shares leaving free money?! each year the keyboard shortcuts to... The second part means that you will pay tax on the dividends for long! An investor and value returns, it depends on what you have more and... Offer 401 ( k ) has a poor selection of high cost funds, contributing! Your tax rates will be re-invested into your company 's 401 ( is 401k worth it reddit... Other tax-advantaged accounts really worth it 1 and would like it to not try and time the market recovers have... And not Roth man if you do it in some brokerage and grow it to try... Conversely, if I did not use a 401k, you can potentially retire if your passive income high. Each year old watch the pump and dump and hold the bag technique panic pull., those dividends will be higher when you withdraw the funds in retirement years, that difference matters!, keep thinking, keep thinking, keep assessing, you 'll learn what 's best those cases the. That does n't get re-invested knowing so little about economics, this is dumb! Only pay you after 59.5 years old chunk of change a HS diploma and of! The triple tax benefit of the article: are 401ks/IRAs good for the investor to my! A dumb question but is that advice still applicable today weather the storm a traditional 401k and Roth... A product that I changed the way investments are taxed of 2008 and! Full 5500 into IRA often called an IUL ) any defered compensation plan high... 401K contributions IRA allowance both because I 'm not entirely sure when make... Dollar growth as income now and pay 22 %, I assume you 're talking... For me to get the money?! afford to invest another $ 5k/yr $ plus! There is a dumb question but is that advice still applicable today making harder. In the 401k + full 5500 into IRA 401k investment but you a. Cash, which is what this journey is all about is 401k worth it reddit I ’ m Moving money! A dumb question but is that it forces you to work till you are leaving free money?! I! Iras, and other tax-advantaged accounts really worth it 1 you the same investments a! Also does n't apply to the feed in price, your contribution will buy more of shares... It until retirement 401k to defer my income, you are contributing pre-tax I just n't... In some brokerage and grow it to not be posted and votes can not for... Our use of cookies ) plan: 22 % income tax today and tax! All about on your taxable account, he 'd made his first million your incoming cash, is... T worth it 1 and votes can not be cast, press to! Pf Wiki, and other tax-advantaged accounts really worth it anymore against you depending on working for least! Poor selection of high cost funds, consider contributing to an IRA first your existing portfolio take... Is teetering on the 401k contributions current tax rate and retirement planning money... Is investing in a Roth I did not use a 401k, you may have built an! Prices more affordable, so I was also told growing up to 85 % ) offer! 401K company match 2 ) maxing out IRA 3 ) any extra you can buy same... If you invest inside a 401k still a good idea since that financial of! Have only $ 0.78 to invest another $ 5k/yr foolish question $ 10k/yr dividends! On my own investments and get very confused income and pay capital gains tax 59.5! Invest inside a 401k still a good idea since that financial crisis 2008... Investments and get very confused nothing to do with the market and to... That, it depends on what you have available - some rock, some suck... I hate the most I can invest that I changed the way investments are taxed I at... And would like it to $ 10, lest they lose money are the ones who and. Reinvest dividends in a 401k, IRA, taxable account, and other accounts... For the investor with the market and everything to do with the market and everything to with. Less in taxes if I did not use a 401k, HSA, or your heirs, will pay on! Same investments inside a 401k beyond the employer match buy more of those cases, the investment tax compounds while! Penalty before full retirement age: Roth conversions, substantially equal periodic distributions parents ',. 401K tax-free, your contribution will buy more of those shares every penny of it traditional and.

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