geertom wrote:
- quote -

I would have to agree with the other poster, a 401K is not something
meant to borrow against unless in an extreme hardship or emergency. If
you plan to buy a house soon, do not contribute to the 401K now. And
plus with mortgage rates so low, it might be better to just take out a
conventional mortgage than borrow from your retirement fund.

"Elle" <elle_navorski[at]nospam.earthlink.net> wrote
- quote -


Oops. Post-o. Change "IRA" in the paragraph above to "401(k)."

Great responses. I wan to suggest one more option. If the plan allows
loans, you could contribute to the 401(k), then borrow for the down
payment. NOw, when you do that, the interest is nondeductible, and the
loan is treated as an investment of your account in the plan, so many
folks don't like plan loans; I did this when I was younger, and it
worked fine for me. There are limits on the amount of loan you can
take; if it's your first, the limit works as follows:

First $10,000--100%
Second $10,000--0%
Next $80,000--50%

I just salary reduced $10,000 into the plan, then borrosed it out for
my down payment.

"SD" <siddharthgdalal[at]COLDmail.com> wrote
- quote -

Isn't the second one above a post-o? Should read "Max out Roth IRA"?

Pardon SD. I figure you'd catch it sooner or later. Just obnoxiously making
it sooner.

Elle wrote:
- quote -

post-o it is..

Normal Rule for 401K/IRA contribution IMHO is

1. Invest minimum amount in 401K to get maximum employer match
2. Max out 401K
3. If more is left over, add more to 401K

Since step 1 doesn't apply to you, you can start at step 2.


dufffman[at]gmail.com wrote:
- quote -

dufffman[at]gmail.com wrote:
- quote -

It sounds like you have a year and a half to think about the company
stock fund/match - that's a separate question because there are some
special tax benefits that come with company stock in a 401k.

In choosing Roth vs. 401k (with no employer match) the answer is - well,
the answer is to do both, but if you only do one - if your taxable
income is low right now, it favors the Roth. If your income is high
right now, the 401k is probably better, because of the tax deduction you
get now for the contributions you make. And if it's really high it's an
easy decision because you can't contribute to the Roth anyway.

A nice thing about the Roth is that it's protected from future income
tax hikes. Once the money is in there, it's tax-free. Your 401k dollars
are going to be taxed when you take them out, at whatever the tax rates
are at the time. So the Roth hedges you against high future tax rates,
assuming you keep the money in there until retirement. And over time you
may not be able to use a Roth (there are income limits for contributing
to them) so stuffing a Roth early in your career makes sense.

Rather than sorting out all the rules on early distributions...any $
going into a house within the next year shouldn't go into a retirement
plan at all. Just save that up in a savings account. You should sock
aside money for retirement regularly, as part of an overall savings
plan, and only raid that money if you're hit with some bad-luck
circumstances. The accounts aren't intended as a place to park money for
the short term.

Buying a home vs. saving for retirement? That's another question...
hopefully your plan is to do both...

-Tad

I would contribute to the 401k immediately. There are limted open
enrollment periods to enroll, and I would suggest suggest starting to
save NOW. delaying "until next year" may allow you to talk yourself
out of saving next year for another reason... so starting is the
biggest issue, IMO.

I would do this regardless of the match. 401k's can be rolled over
into IRA's and the money can be withdrawn prior to age 59.5 if you
follow specific "withdraw rules". You will pay taxes on the withdraws
without an additional penalty IF you follow the withdraw rules
(substanially equal withdraws is term, I believe).

as far as the match, I would sell the company stock once per year or
once per quarter if you would prefer not to own company stock. I
personally prefer to own SOME company stock of my employer, but also
prefer not to own too much.

In my case I decided to invest my 401k in 50% large cap fund, 20% mid
cap fund, 20% small cap fund and 10% international fund. My company
matched these contributions into company stock. Every quarter I would
see the matched stock and buy the lower performing funds to "rebalance"
my portfolio back to 50-20-20-10.

One quarter my mid caps would be doing well, so I was buying small,
large and international. A tear later small caps were doing well, so I
was buying large cap, international and mid cap... kept my funds in
line with what I wanted and minimized how much company Stock I was
holding.

If I'm reading the statement about the company common stock fund correctly,
it's not a big deal to simply switch from it to the other investment options
(if any) the 401(k) plan offers. So what other investment options are
offered right now within your company's 401(k)?

Re how much to put in the 401(k) before your matching starts about 1.3 years
from now: This depends on (1) the 401(k) investment options; (2) how much
money you'd like to grow tax-deferred; and (3) your plans to buy a house.
For me, (3) would probably be most important (were I your age, etc.). I
agree with Mike that you should not contribute to the 401(k) before Jan. 1,
2007, when matching kicks in. Instead, save for a house.

Re withdrawing from your 401(k) before age 59.5: Generally, you can't
without facing a severe penalty (10% of the amount you withdraw goes to the
federal government; states may impose penalties, too; plus you pay income
tax on the withdrawn amount). However, depending on your employer, you
can take a loan from your IRA for certain hardships or buying a house.

Generally, to establish good habits (living within one's means) and ensure
you're well-provided for in your old age, one should try hard never to touch
any retirement plan's investments until one is retired.

For more info, see
http://www.smartmoney.com/ask/index.cfm?story=20050307

http://www.bankrate.com/brm/news/DrDon/20011015a.asp

http://invest-faq.com/articles/ret-plan-401k.html

(Notice they all say pretty much the same thing. This is a popular topic on
the net. Try googling sometime for these topics... )

I would max out the Roth IRA contribution ($4k annually for individuals at
the moment) starting this year.

Whatever's in your Roth IRA will likely grow. You cannot withdraw any of the
earnings on your Roth IRA contribution, but you may withdraw without penalty
the original amount of all contributions. So suppose you put $4k into your
Roth IRA today. It grows to $4300 by late 2006. You can withdraw $4k from it
any time with no penalty. You must leave the $300 of earnings in the
account, though, or else face a penalty. To withdraw, you contact whatever
institution(s) (Fidelity, Vanguard, Wells Fargo, Waterhouse, etc.) holds
your Roth IRA account and tell them to cash in whatever investment vehicle
the money is in, and send you a check. It's very easy.

One may also withdraw $10k (or earnings and contributions) from one's Roth
IRA after the contribution has been there for five years for a first-time
home purchase. See http://www.fairmark.com/rothira/first.htm

There are some other vagaries about these options that some day may be of
interest to you, but this is the big picture.

Well right off the bat, you can put more into a 401k than a IRA. For
the year 2005 you can put up to $14,000 into a 401k as opposed to
$3,000 ( or $3,500 I forgot) for the IRA. Which also means your
taxable income is reduced more. Plus your company is giving you "free
money" with their contributions .
But, depending if you qualify, I believe you can still make a Roth IRA
contribution even with the 401K plan.
As far as withdrawals, I'm not to familiar with the rules. But if you
are looking into buying a house next year. I would hold off on the
contributions and wait until you buy your house and settle in. Because
chances are you will be having expenses fixing it up. And you can't tie
up your money right now if thats your plan.

Hi,

I just started a new job, and am confused as to where to invest my
money. My dad keeps asking me to invest it in 401K. Until dec 31 2006
my employer is not going to match my investments. Even after that,
"All Employer Contributions are credited to the MY_COMPANYS_NAME Common
Stock Fund. You can transfer out of the Common Stock Fund on the first
business day following the date your account is credited with any
matching contributions you receive."

So in this regard would it be better to put the maximum on a Roth IRA
and then take the rest and put it in 401K?


Another question I had regarding 401K's are, what are the terms of
withdrawal of money? I have heard that there are allowances in
withdrawing money in cases of i) hardship ii) buying a house. IN my
case, I am looking to buy a house next year and will need this money.
So, when I withdraw would I only get a federal tax on it, or also the
local taxes? ANd any penalty fees for withdrawal?

And in the case of a RothIRA, how does withdrawal of money work? Any
penalties?

Your help is much appreciate. Just trying to sort out my future while
I still have one.. =)