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Author: birdgirl90025 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: My First 401(k) Date: 7/8/2004 11:34 PM
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Hi Fools! I could use some of your retirement investing wisdom.

I just passed the one year mark at my first "real" job and am now eligible to participate in the 401(k) plan. I work for a small company so there is no choice in funds. They split the money across four funds with expense ratios ranging from 0.94-1.4. Last year I opened a Vanguard Roth IRA with their 500 Index Fund so in comparison the 401(k) expense ratios look rather high.

There is no match for the 401(k). They have a separate profit-sharing plan.

Should I just stick with the IRA? I am young (turn 25 next Friday!) but I know I need to get moving on retirement savings. I make $34,000/year and live in costly Los Angeles so my contributions will not yet be sizable.

Thanks for your help.

Birdie
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41516 of 75383
Subject: Re: My First 401(k) Date: 7/8/2004 11:43 PM
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The usual reasons to go for the 401K plan rather than a Roth are 1) the employers match, 2) the higher contribution limits let you put more in, and 3) it can be less costly especially if subsidized by your employer. The match makes the 401K preferable, although aftertax Roth and pretax 401K are equivalent in retirement if tax rates are equal.

If your resources at this point do not allow more than the $3K max contribution to the Roth, then Roth is OK. But you do want to get started as soon as you can. So be sure to pay yourself first whenever you get a chance. Increase your contributions by putting at least part of future raises into one of the plans.

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Author: SisypheanFool Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41517 of 75383
Subject: Re: My First 401(k) Date: 7/9/2004 1:16 AM
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Ahhh...it is perhaps brazen for Grasshopper to add to the wisdom of Master Paul, but...

Two thoughts to toss in the mix for you.
1.) Is the employer's profit share distribution based on your 401k participation?
My last employer's was and those that didn't participate in the plan missed out on some free money each year.

2.) How disciplined are you to save money from your paychecks to fund an IRA?
If I dig into my unreliable memory banks from when I was around your age, I recall that I only was successful at doing this once in the 5 years before 401k's were offered.
When I started up in a 401k, it imposed the discipline I was missing since the money never touched my grubby hands. It seemed like menial amounts at the beginning, but once the balance grew to a few grand, that was soooooo motivating and I quickly escalated to maxing out each year by bumping my contributions to offset each raise.

Guessing from your screen name, you're in a fun part of town, so you're probably struggling with wanting to keep some mad-money free to enjoy it now as well.
At any rate, congrats on adopting some Foolish thinking so young. In hindsight I wish I would've, but then again, I have some damn good memories from the things I did while spending it so foolishly.


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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41518 of 75383
Subject: Re: My First 401(k) Date: 7/9/2004 9:52 AM
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First max out the Roth. If there's savings left over, do contribute as much as you can to the 401k.

While you may pay a bit more in fees in the shorter term (you won't be working there forever), that cost is tiny compared to the benefits of the tax free contribution + 50 years of tax free compounding. The k is still an outstanding deal.

You might also drop by HR and question why they didn't shop around for a cheaper plan.

Nick

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