The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Is a new 401k Foolish?||Date: 4/24/1998 9:18 PM|
|Author: bacon||Number: 3018 of 76241|
<As I retire from the military at 38, I will begin my new life with an excellent private company in July. One "benefit" offered is the 401k, with full employer matching contributions up to the annual max.
Perhaps I'm not Foolish enough yet but I can find no flaw in participating. Pre-Tax contributions that are doubled by the employer sound pretty good.
Should I skip the 401K and add the contributions to the Foolish 4 or keep it on the side? The second seems better to me.>
Run the numbers. A 100% return on your money is tough to beat, and that's what you get from your employer with his match up to the level at which he's willing to match (I suggest your revisit that with him, too--matching to the full amount _you're_ allowed to contribute is unusual--more usual is an employer's match up to 6% of your salary, which usually is well below your maximum annual contribution). If you can get better than 100% elsewhere, than you should invest elsewhere.
For discussion, assume that your employer will only match to 6% of your salary. Then as you increase your contributions toward your maximum, the return represented by your employer's match decreases. When that return equals what you can get elsewhere (e.g., a BTD variant of, say, 25%) then any further contributions are better made toward the BTD variant.
Hope this helps.
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