As if you couldn’t tell from the title, I’m a big fan of 401(k)s. Contributing to a 401(k) should come before all other investments for most. A 401(k) cuts the tax bill and allows for money to grow tax free. Many employers also match a percentage of your contributions.
Who doesn’t want free money???
Here are some fun facts about Mrs. 1500’s and my 401(k)s:
- We have about $600,000 in our 401(k) accounts, despite a short time period and making some setbacks and a big mistake:
- We both have been working for less than 20 years
- We haven’t always had 401(k)s at our jobs
- When we did have access to a 401(k), we didn’t always max it out (shame on us!!)
- I have “401(k)” tattooed on my body. I’d show you a picture, but it’s in an area that is inappropriate for younger readers. I also don’t want to distract the female readers.
- Last year, we socked away $53,750 into our Solo 401(k). You read that right! A Solo 401(k) is an incredible deal for the freelancer.
- I may use my 401(k) before I’m old and crusty. There are penalty free ways to access the money before the age of 59.5.
- I was drowning once and my 401(k) saved my life.
Sure, I made some of that up, but believe me, 401(k)s are completely awesome.
A 401(k) will:
- help you retire without having to depend on that rich uncle who may or may not blow it all on 27 year old girlfriends before he croaks
- stop that damn cat from peeing on the carpet
- increase your IQ
OK, I made most of that up too. I swear, I’m not on any drugs. Well, the 401(k) is a drug for me, but I’m not normal.
Never forget that 401(k)s are one of the greatest gifts that Uncle Sam gave to us savers.
Please read the rest of the story over at InvestmentZen.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
I’m stuck with a SIMPLE IRA for now, I’m maxing it out though. I remember reading about the SOLO 401(k), within 10 years I’ll probably freelance programming work and start utilizing it.
Focus on the positive: You’re company’s required to give you a matching or non-elective contribution and you’re always 100% vested in their contributions. 🙂 (Yeah, I’m in one too, and it sucks. I remind myself of these two points constantly.)
Setting up my Vanguard Solo-401(k) took me an hour. I was annoyed that you have to mail the application in, but it was super simple.
Now that’s funny stuff! I saw your tattoo leaked on the Internet – they spelled it wrong! 😉
We will probably be breaking into our 401(k) plans a little early as well with a Roth IRA Conversion Ladder. Hopefully we’ll have enough rental income coming in though to help minimize the amount we end up taking out per month when all is said and done.
— Jim
RouteToRetire recently posted…Do You Own Cash-Flowing Assets?
I know, can you believe they did “410(k)???” Man oh man, it’s hard to find good people these days.
Good luck on that rental income!
My goal is to NOT have to access it early. It’s nice to know it’s an option though just in case.
I love my 401K. I wish I had started to max it out from the beginning, but I learned quickly and started maxing it out after 1.5 years of working. The balance in my 401K has been increasing steadily. I should pass the $100K balance mark by the end of the year!!!So excited to hit six figures.
SavvyFinancialLatina recently posted…New Couch Purchase
You’ll be really excited to read what I did two weeks ago. Posts tomorrow! I’m really excited about it! You can probably figure out what I did.. ??
“You’ll be really excited to read what I did two weeks ago.”
I know! I know!! You got a 401(k) tattoo too! 🙂
Close. I joined the Maxed 401k Club! I had to do this before I can get the tattoo…. otherwise I’d just be a poser.
Kate@GoodnightDebt recently posted…The Smallest My Paycheck Will Ever Be
We can only wish that our government ever comes up with such a great scheme…..
You guys over there on the other side of the pond are lucky to have this!
Team CF recently posted…100% Taxation?
The latest recommendations I’ve read about 401(k)s is that you should only contribute up to the amount that returns the full match from your employer. Any additional retirement savings should be directed to other vehicles like IRAs or Roth IRAs. The reason given for this attitude is that most 401(k) plans have poor and/or limited investment choices and higher expense ratios than other investment opportunities.
I’m not sure about this one. The tax savings are huge. Also, if the options are bad, just roll it over when you leave.
In theory investing up to the match then filling either traditional or Roth IRAs is the better route. But it also introduces the “you” factor. You never see your 401k withholdings come out but you will see the monthly transfer for the IRAs. The more money that you see the more opportunity you have to give in to its constant screaming of “spend me”. It really comes down to your own will power/comfort zone/ability to ignore that money you see leaving each month.
Great reminder of the value of 401k’s. The only down side with many plans are really poor investment options. I see it often with clients I coach. But the free money (in the form of company matching) makes it worthwhile.
Some plans allow for withdrawals while you’re still employed at the company. If the investment options are poor, it may be worth speaking to your Human Resources department to see if in-service withdrawals are allowed.
Thanks again for your post!
John
John recently posted…Three Ways to Use Your Cash
Free money, yes please! And the great thing is the contributions are on auto pilot. Taken right out of your check before you even see it.
Brian @DebtDiscipline recently posted…Are You Ready for the Tax Man?
401(k)s are pretty damn amazing. Mine folds *and* presses my laundry, and babysits the kids. In seriousness, the options in it are a little disappointing. Only about 20 or so options, many of them with expense ratios of 1%+. (Are f*cking kidding me?!) So my tactic has been to pick three decent options with low, low expense ratios but broad market exposure: VINIX (0.04% expense ratio), VMCIX (0.08% expense ratio), and FSITX (0.12% expense ratio). I’ll dump money in there and take my share of the market for the foreseeable future, and laugh as these super cheap funds outperform 90%+ of everything else. (Granted my contributions are relatively small while I work to pay off my debt, but taking advantage of pre-tax contributions and the power of time is still important to me reaching my financial goals.)
Mortimer recently posted…Grow Happiness with a Fill-the-Bucket List
$600,000 in your 401(k)s is great! Mine has been sitting at ~$100,000 since mid-2014. It’s the beginning of the year and time to frontload though, so it’s finally getting some traction again. I’m excited to see where it goes in the next few years! I would love to have over $200,000 in there by my 30th birthday.
Leigh recently posted…2015 In Review: Spending
Love my TSP (Federal Employee version of the 401k). While we don’t have a huge selection of funds (6 in total) they do a great job matching their associated funds. All that and the fees are lower than you will find on pretty much any fund (.03%). Not the biggest match (5% if you put in 5%) but I am also part of a traditional pension plan (which pays 1% x years of service x (average of your top 3 years) at age 62).
I have a hard time maxing out my 401(k) because the limited 30 mutual funds don’t seem all that great. I’m considering just doing the minimal amount that my employer will max and use the rest in an IRA that I feel will get better returns. I see some people feel similar, but now I’m going through and selecting the best investment. Has anyone done the IRA through Lending Club? I’ve actually been considering that lately. The return seems pretty nice.
Wallet Squirrel recently posted…Lending Club Review, My Experience Investing With Them
Even if you have bad investments, never forget the tax savings. If you’re in the 25% ta bracket, putting away $10,000 will save you $2,500 in taxes. That is nothing to sneeze at. As soon you quit, you can rollover into Vanguard or something with better choices.
Fair Point
Yup, this. I’d have to be darned sure I was going to stay at a job for decades before I considered giving up the tax savings. High expense ratios don’t mean anything in comparison to tax savings. It’s possible your plan’s available funds will change over time. I had a bad plan at some point and it has iteratively improved over time. Many plans also have at least one reasonable fund, like an S&P 500 index fund and then you can just balance that out with other funds in your other accounts.
Leigh recently posted…January 2016 update (+0.5%)
Some of the best tattoos are from artist that no one has ever heard of. You have to do your homework before getting your new tattoo just like anything else. I can see 1000s of gorgeous tattooed women on Beautifully Inked and Suicide Girls and see some good and bad tattoos. Just need to be careful and take your time when choosing a tattoo artist