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    #16
    Originally posted by creditboosting
    Yep using your 401(k) debt is a great way to pay off your loan. There is no way your 401(k) will produce enough value in the future to even compare to the interest rate that most people are receiving currently. Plus when you pay back your 401(K) you essentially paying back yourself. The number one issue should always be getting rid of debt, then starting to save!
    The whole "paying yourself back" argument is so flawed. You unplug a potentially great investment and suffer an opportunity cost. Then you put the money back into the 401k at a 4% or 5% rate, missing out on any potential upside greater than what you are paying into the 401k.

    Not to mention, you are the one putting the money back with interest, and that money is coming out of your own pocket, as opposed to getting investment returns. So how are you paying yourself back?

    Could someone please explain to me how you are paying yourself back and supposedly that is a benefit?
    Check out my new website at www.payczech.com !

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      #17
      Another thing to consider is that you truly aren't cashing out a 401(k). It's considered a loan. If you leave the company prior to the amount being paid back, the remainder is due in a lump sum.

      Comment


        #18
        Originally posted by Baby_nurse View Post
        Another thing to consider is that you truly aren't cashing out a 401(k). It's considered a loan. If you leave the company prior to the amount being paid back, the remainder is due in a lump sum.
        Just to be clear, there are 2 different topics here. OP was talking about cashing out his 401k. A later poster mentioned a 401k loan. If you cash out your 401k, it does not have to be paid back (and couldn't be even if you wanted to). If you borrow from your 401k, that does need to be paid back.

        For the record, both are horrible ideas in virtually every circumstance.
        Steve

        * Despite the high cost of living, it remains very popular.
        * Why should I pay for my daughter's education when she already knows everything?
        * There are no shortcuts to anywhere worth going.

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          #19
          Originally posted by jpg7n16 View Post
          Are you aware that DRIP programs buy stocks -- in the stock market you say not to be in?
          Of course, but I think you're educated enough to know what I was talking about without picking at every word. I'm obviously differentiating the general stock market, i.e. mutual funds (where performance is measured by the average benchmark), from selecting individual stocks through the company itself (where performance is measured in absolute terms of the company itself). DRIPS buy shares directly from the company itself. The company usually waives the transaction fee or charges only a couple of cents by buying directly this way. Very unlike what mutual funds do or by buying individual stocks through your brokerage account.

          Originally posted by jpg7n16 View Post
          I think it's very odd that you advise against a 401k (which is a personal investment account)
          Are you aware that 401ks were never designed to be personal investment accounts for retirement? And still aren't?

          "401k accounts were only meant to be supplemental accounts to supplement Social Security and defined benefit pension plans, which by 1985, 90% of employers were using as compared to 10% today.

          But employers found these 401k accounts to be much cheaper than having to fund and payout pension plans so they started to scrap them in masse. The mutual fund industry had no complaints as this led the nation’s workforce directly into their products! They jumped on the bandwagon by advertising their products as retirement vehicles, when in truth, they are not. But the 401k going mainstream was such a boon to the mutual fund industry that they don’t want to see any changes to their profit margins, which are extraordinary. This is why their lobbyists fight any attempt at true transparency." -Read "401K- A Pipe Dream for Millions"

          I do agree with transferring debts to a 0% CC. That's a good strategy as long as the person has the discipline to do this according to plan and not get into debt again. This is only a delay though since the CC will resume interest payments in 6 month - year usually.

          Anyway, we can go back and forth about this for years on whether you like 401k or not and for what reasons. For one argument, traders regularly make 100s of percent in one day rather than waiting 20 years for 17% return. (and I know there's all kinds of arguments with that too in both directions but Im not writing a book here) But, again, this would require investment in your personal account of the mind. You already know where I stand on 401ks.

          For the purpose of the OP's question, my OPINION, is to go ahead and pay off the debt. Using the 0% period of CC's is a good strategy to buy some time only - so I'd use those, only if one is disciplined enough to do so, then still pay it off with what's left.

          Originally posted by jpg7n16 View Post
          So the point of being out of debt is to let you save money, therefore of the money you have saved, you should cash it out (paying penalties to do so) to pay off the debt so that you can save it again??

          Wouldn't it be easier (and cheaper) to just keep the savings you have and pay off your debts from your income?
          Yes, but do something else with it - I did not say put it back in a 401k, but use DRIPS that pay dividends for money that you are "saving", but mostly and especially, to educate your mind personally, to grow yourself, and start a business. Your 'mind' and the 'truth' are the "accounts" I recommended investing in. But since you will need to "park" money someplace, at least until you learn how to redeploy it profitably, whether that's through personal growth or a business, then I recommend a DRIP to do that as opposed to a 401k, especially if you have no company match. Again, as long as I am working for someone, I'd only get a 401k to get the company match and no more. The rest goes in a compounding DRIP, for me.

          No, it wouldn't be easier or cheaper. On the contrary, it would be harder and more expensive because of the time cost involved. We all know that "time = money". Also, your income is being taxed at much higher rate as it is. And let's not even mention inflation over time, which costs even more. I think its harder to work, spend all your precious, limited time working, only to get 50% taxed money to pay off debt with. (I call earned income, "50% money", since by the time you get paid, half that money has already been taken before you even see it) I think that plan is a LOT harder and more expensive.

          Only because you think its so "odd" that I advise against 401ks, Ive included the info below:
          --------------------------------------------------
          'Most 401ks Stink' from Jim Cramer:
          .....“However, as much as I like the tax-favored status of 401(k) plans and IRAs, I need to tell you something heretical, something almost nobody else will come out and say: Most company 401(k) plans stink,” he said.(emphasis mine)

          “They have high management fees and administrative costs that eat into your returns, and worst of all, they typically offer you lousy choices for your investments and not nearly enough control over them,” Cramer added. “The 401(k) business is a racket for the managers who get to charge you these fees.(emphasis mine)

          “Sometimes it feels like the whole 401(k) system was set up to benefit the financial services industry, not you(emphasis mine). And given the way Washington works I wouldn’t be surprised if that was actually the case.”

          Nevertheless, Cramer added, contributing to a 401(k) is still too good to pass up for its tax-blessed nature.

          “Plus, many employers will match your 401(k) contributions, and I’m a big believer in not turning down free money,” he said.

          Cramer suggested funding a 401(k) until the company match limit is reached, and then stopping." ~See "Most 401K Plans Stink"

          Really not so "odd" at all to those of us that seek the truth.
          Last edited by Manthony; 05-29-2013, 06:33 AM.

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            #20
            Originally posted by Manthony View Post
            Are you aware that 401ks were never designed to be personal investment accounts for retirement?
            You keep saying this, and it's true, but so what? I agree that traditional pensions are better than 401k plans but fewer and fewer people have a choice in the matter. If your employer only offers a 401k, that's what you've got to work with if you want a tax-advantaged plan which your employer also contributes to. Yes you can go out and invest on your own in a taxable account but then you would lose the company match and you'd be paying taxes along the way as opposed to deferring taxes until retirement.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

            Comment


              #21
              Originally posted by Manthony View Post
              Only because you think its so "odd" that I advise against 401ks, Ive included the info below:
              --------------------------------------------------
              'Most 401ks Stink' from Jim Cramer:
              .....“However, as much as I like the tax-favored status of 401(k) plans and IRAs, I need to tell you something heretical, something almost nobody else will come out and say: Most company 401(k) plans stink,” he said.(emphasis mine)

              “They have high management fees and administrative costs that eat into your returns, and worst of all, they typically offer you lousy choices for your investments and not nearly enough control over them,” Cramer added. “The 401(k) business is a racket for the managers who get to charge you these fees.(emphasis mine)

              “Sometimes it feels like the whole 401(k) system was set up to benefit the financial services industry, not you(emphasis mine). And given the way Washington works I wouldn’t be surprised if that was actually the case.”

              Nevertheless, Cramer added, contributing to a 401(k) is still too good to pass up for its tax-blessed nature.

              “Plus, many employers will match your 401(k) contributions, and I’m a big believer in not turning down free money,” he said.

              Cramer suggested funding a 401(k) until the company match limit is reached, and then stopping." ~empowernetwork.com/netscript/most-401k-plans-stink

              Really not so "odd" at all to those of us that seek the truth.
              Yes, some 401k plans do stink. This is well documented, no need to rely on Jim Cramer.

              Those with "stinky" 401k plans should still invest enough to get any offered match, and then evaluate their own circumstances. Speaking for myself, in a taxable account, I would opt for tax efficient total market index funds or etfs, domestic and foreign. I will pass on the DRIPs. When you select individual securities, you take on what is termed "uncompensated risk"; this means additional risk for which there is no additional expected return.

              However, some of us are more fortunate and have excellent 401k or similar employer plans.

              And if you are stuck with a "stinky" plan, keep in mind that unless you intend to stay with your present employer for many years, the day is coming when you will have the option to roll your
              401k money into an IRA with the custodian of your choice. So if the plan is only somewhat "stinky", it may still be worthwhile as a method to get your money into tax-deferred status.

              Comment


                #22
                The stock market averages about 8.50% for an annual return. According to the ICI, the average annual expense ratio for mutual funds was 0.77%.

                So I ran the numbers using 8% as a return proxy and 0.77% as an expense ratio on an annual basis. My calculations assumed someone making $50,000 per year and investing 15% per year for 40 years. The total amount paid in expenses was $163,245 and the person ended up with a total of $1,750,854. So about 9% of the nest egg went to expenses throughout the entire term.

                Could you imagine if the person invested in say a taxable brokerage account and had to pay taxes? Yes, on a 401k you will pay taxes on the back end. But that is a lump sum versus having to pay taxes as you go. The paying taxes as you go kills returns as they come and reduces any compound effects. That brings to light one of the REAL advantages to tax advantaged arrangements.

                Mutual funds get ripped apart by some people like Jim Cramer and Robert Kiyosaki. But the mutual fund industry is just like any other industry- there are winners and losers. There are expensive mutual funds, and inexpensive mutual funds. There are great investments, and poor ones. Just because there are losers in existence does not mean that we can generalize and call the entire batch losers. This is a reality that I am beginning to realize myself, especially in regards to financial products, and it has caused me to really take a more objective approach when making judgment calls.

                As for bashing on the 401k-
                I laugh when I hear radio commercials saying that "this investment will knock the pants off any 401k or IRA!" They make these claims, yet do not consider the fact that a 401k or IRA is not an investment, thus cannot be judged as one. A 401k or IRA are tax shelters and should be judged on their tax advantages and any costs associated with them. But to say that all 401k and IRA accounts are lousy investments- well, we have to take a look at what is under the hood. Maybe its drawing of a motor, or maybe its a hemi.

                You are going to pay money to invest no matter what. So why not use a 401k or IRA, possibly get a match, get tax advantages, and avoid the headache of having to fill out the tax return on investments?
                Last edited by dczech09; 05-28-2013, 07:17 PM.
                Check out my new website at www.payczech.com !

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                  #23
                  Originally posted by dczech09 View Post
                  So why not use a 401k or IRA, possibly get a match, get tax advantages, and avoid the headache of having to fill out the tax return on investments?
                  I never said not to get one at all. If you can get a company match, and since 401ks are "blessed" with tax preferred status, I think this is the only reason to have one. But I wouldn't put in more than the company match because I think you can get better returns elsewhere, even while you're paying taxes. Remember the 401ks are "taxed" with fees the whole time as you go too. Some you wont even know about. Then you get the lump sum tax at the end. The establishment will get their money from you, as long as they can make you think youre doing a good job.

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                    #24
                    Originally posted by disneysteve View Post
                    I agree that traditional pensions are better than 401k plans but fewer and fewer people have a choice in the matter. If your employer only offers a 401k, that's what you've got to work with if you want a tax-advantaged plan which your employer also contributes to.
                    That's exactly the point. Millions of people have been forced into accepting 401ks as financial gospel. You don't find anything wrong with that? With all those fees they are collecting, its no wonder they did that. Yet, they don't advertise vehicles like DRIPS at all because there's no windfall in it for them.

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                      #25
                      DRIP's have fees that they incur, too. Everything from trade fees to monthly fees depending on what company you choose to purchase them through.

                      I'm also adverse to "get rich" schemes that involve MLM's. Just saying..

                      Comment


                        #26
                        Originally posted by Manthony View Post
                        I never said not to get one at all. If you can get a company match, and since 401ks are "blessed" with tax preferred status, I think this is the only reason to have one. But I wouldn't put in more than the company match because I think you can get better returns elsewhere, even while you're paying taxes. Remember the 401ks are "taxed" with fees the whole time as you go too. Some you wont even know about. Then you get the lump sum tax at the end. The establishment will get their money from you, as long as they can make you think youre doing a good job.
                        This statement makes me think that you don't actually know what 401k's actually ARE. They are accounts - like buckets - into which you PUT investments. They are not investments in and of themselves. Some people have poor choices in their 401ks, I agree, but many people have excellent choices with low fees. At both of the jobs I've worked, and at my husband's job, we have been able to invest in Vanguard index funds with expense ratios less than 0.2%.

                        Unless by "better returns elsewhere" you're talking about strange unconventional investments like multilevel marketing or bizarre investment products. I think this, too, because I feel like your point here is to prepare to "sell" us all something risky that offers meteoric returns.

                        I feel like no one could be this obtuse without having an ulterior motive.

                        Comment


                          #27
                          Originally posted by Manthony View Post
                          That's exactly the point. Millions of people have been forced into accepting 401ks as financial gospel. You don't find anything wrong with that?
                          I never said 401ks were perfect. Yes, they have issues. Yes, pensions are better. But pensions really don't exist anymore in the private sector.

                          I agree, as do most financial professionals, that the routine should be to invest in a 401k to get the full match, then switch to a Roth IRA, and only then, if you still have money left to invest, return to the 401k.
                          Steve

                          * Despite the high cost of living, it remains very popular.
                          * Why should I pay for my daughter's education when she already knows everything?
                          * There are no shortcuts to anywhere worth going.

                          Comment


                            #28
                            Originally posted by Manthony View Post
                            That's exactly the point. Millions of people have been forced into accepting 401ks as financial gospel. You don't find anything wrong with that? With all those fees they are collecting, its no wonder they did that. Yet, they don't advertise vehicles like DRIPS at all because there's no windfall in it for them.
                            Who is it you are expecting to advertise DRIPs? Employers? 401k plan providers? Dish detergent manufacturers? If anyone is going to advertise DRIPs, it will be someone who has a financial interest to do so. That means additional fees for you, the buyer of DRIPs. Is that really what you want?

                            I would prefer that contribution limits on IRAs were raised substantially, and employers were permitted to make contributions to employee IRAs and expense them. That would give the individual freedom to choose low cost providers on ALL of their retirement money. This could replace 401k, 403b, 457, Simples, SEPS, and Keogh plans. You would hear no complaint from me.

                            I don't realistically think such a thing will ever happen. The government wants us to save for our own retirements and the government knows the majority of employees won't even sign up for their employer sponsored retirement plan unless you sign them up by default and require them to opt out. Such people aren't going to take the inititiative to establish their own IRAs.

                            Comment


                              #29
                              Everything has a cost. There is no such thing as a free lunch. With that being the reality, we have to make choices based on what is going to cost us less financially, psychologically, and time-wise.

                              As a blogger and a writer, I write general personal finance information for the typical everyday consumer. You know, the person who is not in the financial industry and has a full time job, a family, and hobbies aside from money and economics. That person is not going to want to invest in something complicated; they want something simple. And 401ks and IRAs are extremely simple arrangements to invest through- they provide tax protection at a reasonable price (obviously depending on the carrier). Mutual funds are simple investments that simplify the investment process for regular everyday people, and the cost is overall pretty reasonable.

                              Based on my studies, someone who accumulates $2 M for retirement will have paid about $200k in fees to the mutual fund company and broker/dealer. After taxes, that can produce a $60,000 annual income AND still leave behind a pool of money in the end. Not to shabby. And this is based on some pretty conservative numbers.

                              No one is arguing that mutual funds take-in quite a bit for fees. But they are providing a valuable service- they ought to be paid.

                              Manthony-
                              What are these alternative investments that could beat mutual funds even after fees and taxes? Are they simple for a regular everyday investor? My initial impression is that you are referring to "bank on yourself" and similar schemes which tell you to overfund a whole life policy. Those plans are dumb because they never mention the risk of MEC.
                              Check out my new website at www.payczech.com !

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                                #30
                                Originally posted by BuckyBadger View Post
                                This statement makes me think that you don't actually know what 401k's actually ARE. They are accounts - like buckets - into which you PUT investments. They are not investments in and of themselves.
                                Did you put these investments in there? Or were they put there by someone else for you to "invest" in? And if you could put investments in there yourself, why would you charge yourself fees for the privilege of doing so?

                                Originally posted by dczech09 View Post
                                Manthony-
                                What are these alternative investments that could beat mutual funds even after fees and taxes? Are they simple for a regular everyday investor? My initial impression is that you are referring to "bank on yourself" and similar schemes which tell you to overfund a whole life policy. Those plans are dumb because they never mention the risk of MEC.
                                No, cant say they would be simple for the average person. Take trading for instance. Many traders make 100s of percent or even 2% per day and that's a better return. Of course, they risk a lot more (and know a lot more) too but its still an example. There's also private placements, and the like. ETFs and Inverse ETFs (these trade like stocks but no 401k even allows these). I think the average person would do better compounding within a few DRIPs than a mutual fund. Or they could mimic a large cap index fund using DRIPs instead and they would beat that mutual funds returns - but, I guess that would still take more work and education than the average person is willing to do...so off to the target dated mutual fund they would go.

                                Even within a 401k itself, I have been able to beat the average performance of the funds included just by choosing what times I actually stuck money in one. Staying largely out of the market - with money held in a cash account in the 401k - then only buying into one of the funds in certain times when I think the market is going up, since 401ks only include funds which are designed to go up when the general market is up. (They are horrible accounts when the market is going down or sideways). Then I'd sell out of the fund after Ive made my target percentage and go back to the cash account. Then repeat. During market downturns, which 401ks are not designed to handle, I would usually not even be invested - that's why I'd use a separate cash account so I can use Inverse ETFs, which are designed to go up when the market is heading down. I was able to generate 20%+, when the average performance was not even close to that, in a year doing this, in a 401k, when I was actually "invested" only 4 times the whole year, and never longer than a couple of months each time. 1 time it was only for 5 days. The rest of the time, I just parked the money in the cash account at 3%. During downturns, this 3% guaranteed account beats the pants of anything else - even in your 401k - when everything else is going down. But again, the average person would not know or do this.

                                But for the average person, Id recommend they take their favorite index mutual fund, look at the strongest companies which pay dividends over time, then see if they offer a DRIP plan and just stash cash in those. They will beat the mutual funds performance over time. Even this may be too much work for the average person though!

                                "Train yourself to let go of everything you fear to lose." - Jedi GrandMaster Yoda
                                Last edited by Manthony; 05-30-2013, 01:35 PM.

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