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Author: bhmirage Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: New to 401K...confused Date: 5/21/1999 5:05 PM
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Hi there. I'm started investing 2 years ago with a Roth IRA and a taxable account. Those i feel very comfortable with and like i know what is going on and can see where my money is and how it is doing every day. I recently started a new job and will be elgible for the 401(K) in August. I'm having a devil of a time getting information on this and to my amazement none of my coworkers seem to know any details, some of them contribute but don't seem to feel the need that i do to know everything about it..I want specifics, expense ratios, if there are loads, what is a "deferred sales charge" (of 5 percent, sounds like soemthing i need to be aware of, 5 percent is a LOT). From the company i've gotten a big package of materials that i thought would answer my questions but all it really is is a bunch of stuff telling you how great a 401k is and how compound interest works, basic info on asset allocation etc. Nothing specific about our fund choices. The company that does our 401 is Aetna and it's the Aetna MAP V. However when i go to Aetna's web site and look at that product, it lists many funds to choose from, whearas from what i've been able to find out so far, through our companies 401K we have only about 10 choices. The funds are not ones that i can find in Morningstar or see how to track on a day to day basis...Aetna funds and Janus "aspen" funds and some Fidelity funds that I can't find listed in Morningstar or find ticker symbols for. The info pack i got from my company doesn't even say what the specific fund choices are. Also this Map V thing is a "annuity contract"....What does that mean to me??? I'm getting a 15 percent raise in August and planned to use that to contribute the max 15 percent to the 401(K), however i want to get some reassurance that this is the "smart" thing to do and that i'm not going to be getting ripped off by ununderstood expenses. I guess I'm paranoid. But having not that long ago gotten interested and in control of my finances, I'm obsessed and frustrated and worried about what seems to me at this time like a bunch of smoke and mirrors LOL....Sorry for rambling, you know all I really wanted was an "index fund" but guess what there isn't one in there...the closest thing is a "Aetna Index plus Large Cap" fund. which of course i can not find a ticker symbol for and going from the name I'd guess it's not a true index fund. I dont know what anyone can say here to help or reassure me, just wanted to get this off my chest!
stephanie
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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10662 of 76418
Subject: Re: New to 401K...confused Date: 5/21/1999 5:16 PM
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Relax, Stephanie. It may seem complicated, but it's not that hard. First, it's a great idea to be doing this. Putting money away is a good idea. Second, the funds you've got as options may be unavailable to the general public. So, check out what they are and see if they're investments you're interested in. See if the expenses are too high, see how they've performed versus the appropriate index, and see if you can put together a nice diversified portfolio with those funds.

That's it. If you attack it like that, it's a lot less complicated. You fly planes, that's more complicated than investing. It really is.

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Author: PJGeorge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10663 of 76418
Subject: Re: New to 401K...confused Date: 5/21/1999 5:40 PM
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bhmirage mentioned putting her 15% raise into a 401(k) to max it out.

Question: Is there a federally mandated upper limit to contributions to your 401(k)?

I spoke to my dad who said it varies depending on the company you work for.

I thought it was $10K across the board (for everyone). Some employers will tell you 15% is the max they will take out of your paycheck, but sometimes that's more than $10K (let's see, that's if you make more than $66,666/year). So if you put in too much (IE: over $10K) in a year, your employer will tax it and give it back to you, sort of like a year end savings account that doesn't pay ANY interest. :(

Which is right?

Thanks,
Paul.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10664 of 76418
Subject: Re: New to 401K...confused Date: 5/21/1999 5:45 PM
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Stephanie: I am with tonyw44 who wrote: "Relax. It may seem complicated, but it's not that hard. First, it's a great idea to be doing this. Putting money away is a good idea. Second, the funds you've got as options may be unavailable to the general public."

Regardless of the fund choices you do have, there should be a prospectus for each fund. That is the document you want to get your hands on for the answers you want and the research tony suggests.

"5% percent deferred sales charge" is a back-end load that is charged to you if you sell the fund before some defined time period. I am guessing, 5% if you sell in less than 1 year, decreasing by 1% per year until after 5 years it no longer exists. Ugly - and to be avoided if at all possible.

"annuity contract" - I cannot understand why someone would want a tax deferred investment inside a 401-k plan, which is itself a tax deferred plan. Probably to be avoided, but not enough details to really comment.

You still have the balance of May, all of June and July, and possibly part of August to sort this out before your expected raise. 2+ months should be more than enough time.

Keep us posted on your progress. Hope this helps.

Regards, JAFO

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10665 of 76418
Subject: Re: New to 401K...confused Date: 5/21/1999 6:12 PM
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PJGeorge: You wrote, "Question: Is there a federally mandated upper limit to contributions to your 401(k)?

I spoke to my dad who said it varies depending on the company you work for."


There are federally mandated limits - the $10,000 per limit you referred to; there is also a percentage limit - 15% sounds rights to me but I am not certain.

There are also limits when the company contributes matching money, but I do not keep them on top of my memory because my employer does not match.

It is also possible that the plan adopted by a company has other lower limits.

In addition, there is (or was) the mandated "top heavy" testing to insure that "highly compensated employees" were not taking a disproportionate advatnage of the tax deferral.

My understanding of that test is very limited, except that it can be a pain in the @ss for the company, and may result in lower limits for certain employees.

Hope this helps. If I missed anything, I am sure that the experts on this board will jump in and clarify.

Regards, JAFO

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10666 of 76418
Subject: Re: New to 401K...confused Date: 5/21/1999 6:19 PM
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Stephanie,

You are very smart to be worried about fees. Anytime I hear somebody mention 401k and annuity contract in the same breath I fear they're being gouged.

You don't say whether or not there is a company match, but if there isn't and the fees are too high, you'd actually be better off skipping the 401k and just investing in a taxable account.

JAFO31 makes a good point. Sift through the information you obtained from your employer and find the prospectus. The fees and annuity expenses should be described in the prospectus. You might also ask your employer who pays the administrative expenses for the 401k plan. That's another layer of expenses on top of mutual fund and annuity expense ratios. Some employers pick up the admin expenses, others lay them off on the employees.

Total up the expenses and post the results. I'm sure the members of this thread can help you out once we have a better description of your 401k plan.

intercst

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Author: tmackfool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10671 of 76418
Subject: Re: New to 401K...confused Date: 5/22/1999 1:32 AM
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Stephanie,

I started an Aetna 403-b (like a 401K for non-profits and universities) back in October, started getting Foolish in January and February, and am now moving everything to Fidelity. The fees were listed in a pamphlet (don't remember the name of it, and I'm visiting my parents right now and can't get to it for 10 days). If I remember correctly, the total fees were between 3.1 and 3.6 percent. The Large Cap Index Plus is sort of like an index fund but tries something to beat the S&P 500 index. Never did figure it out but it was seemed a bit like active management. Anyway, it still had high fees (for an index fund). Once I found out what an annuity was, I decided that I didn't really like paying extra fees for basically nothing. http://www.quicken.com had a some good pages on annuitites. I can't furnish the exact link right now because my mother only has a 33.3 modem (I'm used to the quick university link - I'm spoiled!). But the Quicken page was rather anti-annuity, and I am more or less also.

Get in touch with your human resources people and find out who the Aetna representative is. My Aetna rep is a nice guy, and even got me two football tickets for a sold out college game! (My alma mater won, but the school I teach at now lost - I came out even). I have no problem with the Aetna reps I have met, and they have even offered to take me out to lunch when I can make it. I actually feel bad for him about changing my account, but the fees are so high!!!! Anyway, call the Aetna Rep and tell that person you need prospectuses and information on fees and the whole plan. They will send you enough stuff to choke a small cow!

Check with the human resource people about any matching funds. Matching funds from your employer are free money! You have to weigh the free money in matching funds against expected returns and the fees. The matching funds may be enough to offset the high fees. But then, maybe not. You will have to do the math yourself.

Again, no problem with Aetna's reps (actually, I have found them to be terrific) or the funds' performance, just their high fees and the fact that it is an annuity.

Hope this helps. You can e-mail me (click on Post Reply, then towards the bottom check "E-mail this reply to Author") and I when I get back I will dig out the materials I have from Aetna.

Taylor

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Author: FatJack Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10674 of 76418
Subject: Re: New to 401K...confused Date: 5/22/1999 10:08 AM
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Paul,

The maximum pre-tax contribution is $10,000. However, if you are part of the group that is considered to be "highly compensated," you will be limited to a multiple (a couple of variations) of the average contribution for the "lower compensated" group.

Jack

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Author: moseykitty One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10678 of 76418
Subject: Re: New to 401K...confused Date: 5/22/1999 3:32 PM
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>The maximum pre-tax contribution is $10,000. However, >if you are part of the group that is
> considered to be "highly compensated," you will be >limited to a multiple (a couple of variations) of
> the average contribution for the "lower compensated" >group.

I thought the highly-compensated limits only applied to the allowed salary reduction agreement percentage and that the upper limits on total annual contributions were identical for all ($10K max elective deferral, total elective + match less than 25% of compensation).



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Author: Canth Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10711 of 76418
Subject: Re: New to 401K...confused Date: 5/23/1999 10:24 PM
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The maximum pre-tax contribution is $10,000. However, if you are part of the group that is
considered to be "highly compensated," you will be limited to a multiple (a couple of variations) of
the average contribution for the "lower compensated" group.

I thought the highly-compensated limits only applied to the allowed salary reduction agreement percentage and that the upper limits on total annual contributions were identical for all ($10K max elective deferral, total elective + match less than 25% of compensation).

It depends on the Company and the participation in the plan. My wife's company the max % is 12, at my company where they push the plan to the workers is 20
plus 100% match for the first 5%

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Author: bhmirage Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10718 of 76418
Subject: Re: New to 401K...confused Date: 5/24/1999 3:44 AM
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Thank you for all the replies...I'll be doing a lot of reserach...I'm disturbed by the "annuity" thing but i don't yet know what that means. I'm wondering at what point the higher fees would override the advantage of "before tax" contributions (i'm in 28 percent tax bracket) and tax free growth. The company I work for was bought a year and a half ago by a much larger company. Our company had just voted in a union before being bought. The "union" is in negotitions for a first contract. The company i work for, is owned but still seperate from the much larger company that bought us. Our 401K plan does not have a match, but we're supposedly going to get lumped in with the larger companies 401K or one that the union has (now that's scary). So hopefully one of those is better than the one I'm stuck with now. They are supposedly asking for a 6 percent company match. Which is what the people who work for the company that bought us get. Does a 6 percent match generally mean that 6 pecent of your contribution is matched (big deal..well at least maybe it would offset all those FEES LOL..) or rather that you can contribute 15 percent of your salary and the company contributs 6 percent of your salary?. Anyway once i have done more reserach and have some cold hard facts i'll post some more specific questions..thanks so much for the input. I was getting pretty frustrated with no one seeming to know anything about this here where i work. Maybe i'll become the 401K guru at my job here and be able someday to help people that are in my position now..I'm amazed that no one else I've talked to at work seems to be concerned about this!

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10726 of 76418
Subject: Re: New to 401K...confused Date: 5/24/1999 9:21 AM
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Bhmirage wrote:

<<Thank you for all the replies...I'll be doing a lot of reserach...I'm disturbed by the "annuity" thing but i don't yet know what that means. I'm wondering at what point the higher fees would override the advantage of "before tax" contributions (i'm in 28 percent tax bracket) and tax free growth. The company I work for was bought a year and a half ago by a much larger company. Our company had just voted in a union before being bought. The "union" is in negotitions for a first contract. The company i work for, is owned but still seperate from the much larger company that bought us. Our 401K plan does not have a match, but we're supposedly going to get lumped in with the larger companies 401K or one that the union has (now that's scary). So hopefully one of those is better than the one I'm stuck with now. They are supposedly asking for a 6 percent company match. Which is what the people who work for the company that bought us get. Does a 6 percent match generally mean that 6 pecent of your contribution is matched (big deal..well at least maybe it would offset all those FEES LOL..) or rather that you can contribute 15 percent of your salary and the company contributs 6 percent of your salary?. Anyway once i have done more reserach and have some cold hard facts i'll post some more specific questions..thanks so much for the input. I was getting pretty frustrated with no one seeming to know anything about this here where i work. Maybe i'll become the 401K guru at my job here and be able someday to help people that are in my position now..I'm amazed that no one else I've talked to at work seems to be concerned about this! >>

As I outlined in my previous reply, IMHO you should read Steps 3 and 4 of my 13 Steps to Foolish Retirement Planning at http://www.fool.com/Retirement/Retirement.htm. You'll learn about the 401k, what your match means, and that tax deferral isn't everything. Also see my Foolish Retirement Plan Primer available at the same link to gain some more insight about retirement plans in general. Both will stand you in good stead when it comes to explaining your plan to others.

Regards..Pixy

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10730 of 76418
Subject: Re: New to 401K...confused Date: 5/24/1999 10:02 AM
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"5% percent deferred sales charge is a back-end load that is charged to you if you sell the fund before some defined time period. I am guessing, 5% if you sell in less than 1 year, decreasing by 1% per year until after 5 years it no longer exists. Ugly - and to be avoided if at all possible."

I'm not so sure this is such a bad thing in a 401k. Think about it. You're not going to be tapping into that fund for what, 30 years or so? It's a long term investment vehicle, so, that means that a back end load is okay.

There would have to be an exception, of course, for those who are forced to liquidate their 401k due to moving employers. If there's not, then that does suck.

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10733 of 76418
Subject: Re: New to 401K...confused Date: 5/24/1999 10:20 AM
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Generally speaking, a six percent match means that they will match up to six percent of your salary. Anything you put in over that is unmatched.

Under those circumstances, it's a good idea to put money into your 401k.

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Author: Pat609 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10755 of 76418
Subject: Re: New to 401K...confused Date: 5/25/1999 12:30 AM
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Does a 6 percent match generally mean that 6 pecent of your contribution is matched (big deal..well at least maybe it would offset all those FEES LOL..) or rather that you can contribute 15 percent of your salary and the company contributs 6 percent of your salary?.

Actually, a 6% match can be a "big deal." I'm retired one year now, and the company I worked for also matched the first 6% of contributions. I now have $40,000+ of company stock, which IS a big deal to me. The advantage of dividend reinvesting, compounding, and time can make up for a lot of disadvantages...IMHO.

Pat


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