"leskaPaul" <leskaPaul[at]gmail.com> wrote in message
news:1162420927.309405.151100[at]m73g2000cwd.googlegroups.com...

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OK, you're wrong.

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What do you mean "tying up"? Presumably that money is going to be invested
somehow. You haven't said how, but I've never heard of a 401(k) that didn't
offer some kind of investment option. What are your options there?

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Only if you can find another form of investment that does much better than
what's available through your 401(k).
So what are your 401(k) investment options?

Mark Freeland wrote:

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Well, I was thinking that if you're going to take the bozzle, you're
also going to take your contributions. I think that you pay the 10%
penalty on the contribution as well, right? So I was thinking of this
as 50% - 10% penalty on entire balance which is a 35% return (1.5 *
0.9). But given a question posted earlier about this, perhaps the
entire balance is not subject to the 10% penalty?

-Will

"rick++" <rick303[at]hotmail.com> wrote:

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Yes 22k is typical of what I've made in past. Matter
of fact it is the most

I'm not proud of that. Matter of fact I'm worried abt
saving for retirement.

I'm "trying" to save for retirement but at 22k its hard
to make any REAL progress.

I live in a small rural town and the only jobs
available are low paying factory jobs

Since you are near the low end of US income, social security will
pay out about 55% of your income, if that was typical of your career.
You only need to come up with an additional 25% or so yourself then.

joetaxpayer <joetaxpayer[at]nospam.com> wrote:

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Thanks

Me too. <G

jIM wrote:


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18K gross
8450 STD deduction + Exemption (5150+3300 in 06)

9550 taxable

Tax is 1055.

The OP is in the 15% bracket. I recommend the Roth for him, and wish him
the good fortune to find himself in a higher bracket later in life. The
tax deduction of the non-matching 401 isn't worth it.
JOE

me[at]privacy.net wrote:
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22k per year, 4k into roth or 4k into 401k

4k is 18% of 22k. 18% is an excellent savings percentage.

401k 4k contributed (pre tax) to 401k, 18k gross, $1945 is tax paid and
net income is $16,055

Roth IRA 4k contributed (post tax), 22k gross, $2545 total tax paid,
net income is $15,455.

You pay less taxes with 401k up front.

"jIM" <noreplysoccer[at]hotmail.com> wrote:

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OK

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I make 22k a year...that's it.

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:_7ydnSFVivhmF83YnZ2dnUVZ_tqdnZ2d[at]comcast.com...
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For yet another perspective, may I repectfully suggest that Will was correct
originally?

A 10% penalty on a 50% match is 5% of the original amount (10% * 50%),
reducing the match from 50% to 45%. As to the additional taxes that Joe is
considering, he is forgetting that the original contribution that is matched
(in his example, $1000) also comes with a tax liability of 25%. That is,
$1000 matched with $500 each have a 25% tax liability, thus the ratio
remains fixed (or after penalty of 10%, $1000 matched with $450 each have a
25% liability, leaving the ratio at 45%).

One other point - the bozzle may not be immediate - if vesting is not
immediate, then the match is not "yours" immediately (though you do have
some immediate value - the right to invest it, but that's certainly less
than 100% of the value of the match).

Mark Freeland
BnetOnewsX[at]sbcglobal.net

me[at]privacy.net wrote:
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If you want to maximize long term benefits, the Roth will be a good
choice.

If you want to improve your current tax situation while building a long
term wealth building strategy, 401k puts more money to work today
(because investments are pre-tax).

If you can handle the Roth, it is a better option, IMO.

If you make 40k per year and invest 10%:
the 401k would be a 4k investment, you would pay tax on only the 36k
not invested. I calculated the tax paid to be $4345. Take home pay is
$31355.

the Roth IRA would be a 4k investment, and you would pay tax on the
entire 40k. I calculated tax paid to be 5245 and amount of take home
pay is 30755 (after 4k is invested in Roth).

The withdraw advantages of the Roth make it a better long term
solution, however 401k allows you to take home more now (but pay taxes
later).

Will Trice wrote:
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Isn't it 30%? At an assumed 25% tax rate, you put in $1000 and get the
matching, $500, you now have $1500 in the account and are out of pocket
only $750. You take it out, pay the 10% ($150) pay the tax ($375), you
still have $975. 975/750 = 30%
Doesn't the tax bracket for the short round trip impact the instant bozzle?
JOE

Will Trice wrote:

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Hmmm.... bad math. That would be a 35% return. That 3 and 4 are
verrrry close together on the keyboard...

Mark Bole wrote:

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You're right, in my case the return is delayed by two days typically.
Not quite immediate. What's the annualized return if I get 50% on my
investment after two days? Hmmm....

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You're right, it is not free, it is bozzle. And it is deferred for two
days (for me). I may have to pay a 10% penalty if I withdraw after two
days (by quitting my job), so it's really only a 45% return over two
days, which is how much annually? Hmmm...


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Employer match for a Roth 401(k) is treated just as a pre-tax
contribution to a 401(k) by law. Who said differently?

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All this is the same for any mutual fund/stock investment regardless of
savings vehicle except the withdrawal penalty and the "slight" tax
break. The withdrawal penalty is the price you pay for the "slight" tax
break of no tax up front (or no tax in the end in the case of the Roth
401(k)). In many cases this tax break will be more than "slight."

-Will

me[at]privacy.net wrote:

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Yes, Roth is your best option, given the circumstance you describe.
JOE

"jIM" <noreplysoccer[at]hotmail.com> wrote:

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Understood

But my income is low so I will be lucky to save
anywhere near the Roth limits of 4k a year.

So what advice now?

Just go for the Roth over non-matched 401k?

rick++ wrote:
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One 'simple' observation - at an assumed 25% tax rate, you put in $1000
and get the matching, say just $500, you now have $1500 in the account
and are out of pocket only $750. You take it out, pay the 10% ($150) pay
the tax ($375), you still have $975. This is basically from day one.
(and only reflects a 50% match, some match the first 3-5% dollar for
dollar) (I will concede that some companies have a vesting schedule for
the matching amount, as much as five years. To this point, one shouldn't
plan their investments based on this aspect of the impact of job loss.)

I think the semantics of whether it's free or something that was part of
one's pay package is a distraction to the math. Isn't 'part of the
package' all the reason to take advantage up to the match at a minimum?
Alternately, shouldn't one know if there's a matching provision when
considering the job?

JOE

me[at]privacy.net wrote:
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Roth IRA has income limits to when one is eligible, a 401k limits are
much higher income amounts. The income limits depend on single or
married tax status.

A person which makes 200k will probably be above income limits for
Roth, but can still contribute to a 401k. I think the income limits
for married couples is $150,000 (and partial contributions allowed up
to $160,000).

A 401k can lower one's income (AGI) and possibly allow them to
contribute to a Roth, but a Roth does not "affect" 401k eligibility.

If the person making 200k can find a way to contribute 40k (25%) to a
401k, or defer 40k worth on income, they can maintain Roth eligibility
for that year.

The advice on "use Roth AND 401k AND taxable accounts is the best.

1) My general suggestion is to contribute 10% of income to 401k. Match
or no match. This will reduce your taxes now and help establish a
pattern of setting a sizeable amount of money aside. Saving 10% of
income will also help you retire into a comfortable lifestyle, as you
will be living below your means. Doing this single step is the least
amount of paperwork and setup. If a person can spend additional time,
they can maximize benefits better. Spend time understanding tax rates
and knowing "how much income" you will need in retirement.

2) Max our Roth IRA next. 4k per year now, 5k in 2008. If you are
over age 50, their are additional catch up contributions you are
eligible for.

3) I would then fund taxable accounts with any amount you can afford to
save above and beyond the 401k and Roth.

If your income level in retirement will be higher than it is now, tax
rules for 2 and 3 will benefit you. Consider though that eliminating
1) may reduce eligibility for 2). If 3) does real well, it is possible
this will also eliminate eligibility for 2).

In addition if you are going to fund kids college, having 3) may not be
a good idea in this regard, either.

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Thats robably the best answer since (1) tax laws change and (2) there
are
limits on tax deferred accounts. A mixture bets on multiple horses.

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Most people will disagree with you here.

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I'm finnally at the point where compounding is a huge factor and
there is nothing "slight" about it.

Plus you can start your retirement withdrawals at any age as long you
follow the same rules and keep up for five years.

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You dont have to spend it however. You just lose the effects of
tax-deferred
compounding.
A Roth 401K is better, but probably too late for most boomers.

Mark Bole wrote:
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The difference is that it is optional. If employee A and employee B
receive identical salaries, but only employee B enrolls in the 401k
plan, then employee B receives *more* total compensation than employee
A. The employer will generally not increase employee A's salary to
offset this.

John Cowart

"Mark Bole" <makbo[at]pacbell.net> wrote
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Seems to me that using reasonable intepretations of the
words here, it most certainly is immediate and, it may be
reasonably characterized as free.

I think you're obfuscating the main issue here. Namely, a
person has a job. The employer offers a 401(k) with
matching. Should he or she invest at least up to the
matching? Yes.

Please also note that in your lecture on what was available
to people 30 years ago, you neglect to point out that
pensions were much more common then. Today people must
typically instead plan using either the 401(k), an IRA, etc.