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Author: FooledRob Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: 401k Date: 7/30/2006 8:09 PM
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What do you do if the investment options in your company's 401k plan all charge more than 2% annually? It seems that it may be more profitable to simply invest post-tax dollars in an IRA.

Any thoughts?
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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52884 of 75381
Subject: Re: 401k Date: 7/30/2006 8:17 PM
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What do you do if the investment options in your company's 401k plan all charge more than 2% annually? It seems that it may be more profitable to simply invest post-tax dollars in an IRA.

If your company is matching your contributions, then even a 2% annual load would probably be a good idea.

Hedge

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52885 of 75381
Subject: Re: 401k Date: 7/31/2006 8:19 AM
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1) Talk to your co-workers and get them to agree its not reasonable, then talk to your bosses. Afterall, they're putting their retirement money there too. People can and have prompted change this way.


2) Still get any company match, afterall that's a 100%, or maybe 50%, free return, which outweighs a 2% expense ratio pretty easily.


3) Yes, definitely go to a Roth or deductible Tradition IRA next, as eligible.


4) For any additional money, determine if the high expenses outweight the tax advantages of a 401K.

How? Well, here's a good start:
http://www.retireearlyhomepage.com/401ksft.html

Note that a high annual expense ratio matters less if you're don't plan on being at that company for a long time. At which point you can rollover to a IRA or your new company's 401K.

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Author: FooledRob Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52886 of 75381
Subject: Re: 401k Date: 7/31/2006 10:41 PM
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Unfortunately, the company does match, but it only vests
20% every two years.

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52887 of 75381
Subject: Re: 401k Date: 7/31/2006 11:45 PM
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Maybe, I am reading your response incorrectly, but 20% sounds great!!! Most companies invest between 2-4% yearly. Although you company vests only every other year, it is still 10% per year.

Donna (who would not complain)

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52888 of 75381
Subject: Re: 401k Date: 8/1/2006 8:19 AM
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vests, not invests.

It means that they match, but the company portion isn't really yours until it 'vests'. If you leave before that point, the unvested portion of the company contribution disappears.


In that case, you have to ask yourself how long you expect to be there, as best as you can figure. If you're probably going to best at least some, or especially at least 40-60%, then I would imagine that it is still a good idea to get the match.

Of course, on the flip side, if you don't expect any of it to vest, then you obviously won't be there very long, so the expense ratios won't have time to do much damage. Yet you will have the benefit of the money being tax deferred for decades.


I would run some numbers if I were you, but it still seems to me that its worth putting in to get the match (whatever portion you actually get is TBD). And maxing a Roth IRA. After that the question becomes more difficult, but, that's what the spreadsheet is for :)


And definitely work on talking to co-workers and bosses. Show some examples of a $10,000 investment, 10% growth, and how much would be taken in fees over 20 years or something. Change doesn't just happen on its own.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52889 of 75381
Subject: Re: 401k Date: 8/1/2006 9:30 AM
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Unfortunately, the company does match, but it only vests
20% every two years.

------------------------------------------------------------------------

You need to recheck the vesting schedule.

To my knowledge employer contributions to a 401K deferral plan are either on a 5 year vesting schedule where 20% of contributions vest each year or a 3 year cliff vesting schedule where all employer contributions vest after 3 years.

There can be some limitations regarding when the employee is first eligible. Check with HR.

buzman


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