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    #46
    Originally posted by Manthony View Post
    Sure it does. The whole entire stock market is a gamble. Unless you know exactly what the prices are going to be at all times, you are guessing too.. I'm sure you'll disagree, which is fine. To each his own.
    Just for the sake of the discussion: GM had DRIP plans in place before the bankruptcy. (still does - http://www.dripadvice.com/general_motors_gm_drip.html )

    GM then went bankrupt. So stocks w/ DRIP programs are just as much of a "gamble" as investing in the market as a whole through funds (in the 401k or out of it). In fact, more so! Because you're less diversified by buying individual securities and have more risk of making a poor decision.

    So unless you can predict exactly where the stock will go, your investment is at more risk in a DRIP stock.

    ------------------------------------------------------

    And you keep saying that 401k's were never intended to be savings vehicles for retirement?? Do what?

    The IRS classifies them as RETIREMENT plans: http://www.irs.gov/publications/p560/index.html
    And the Department of Labor says they can be a great way to save for retirement: http://www.dol.gov/ebsa/publications/401kplans.html

    From: http://www.dol.gov/ebsa/publications/401kplans.html

    401(k) plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers.
    Maybe they weren't originally the only source of retirement savings, but they absolutely were/are intended to allow people to save for retirement.


    You can whine about the plan all you want, but that won't give you a pension if your company doesn't offer it. Most Americans have to save for retirement on their own - and where will they do it?

    Social Security? - is actually still around, but out of our control, and is not enough on its own to maintain lifestyle
    Traditional Defined Benefit Pension? - if your company doesn't have it, this isn't an option
    IRAs? - limited to $5.5-6.5k/year, not enough for the average person to provide adequate retirement security
    Taxable accounts? - you miss out on the advantage of tax deferred compounding, and tax deductions for contributions

    If you're saving for retirement, and IRAs aren't enough for you, 401k accounts are great options.


    As DS said above, it's usually recommended to do the following:
    1) Take employer match
    2) Fund as much to IRA as possible
    3) Use 401k for additional savings need

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      #47
      Originally posted by jpg7n16 View Post
      And you keep saying that 401k's were never intended to be savings vehicles for retirement?? Do what?

      Maybe they weren't originally the only source of retirement savings, but they absolutely were/are intended to allow people to save for retirement.
      I have to side with Manthony on this one. The 401k was NOT intended to be a retirement plan. In 1980, a benefits consultant named Ted Benna realized that section 401k of the IRS code could actually be used to create a way for employees to save for retirement but that was never the intended purpose of that section. Basically, he found a loophole in the tax code.

      So yes, they do allow people to save for retirement, and it's a darn good way to do it. I wish I had one. But they weren't created for that purpose.
      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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        #48
        Originally posted by disneysteve View Post
        Basically, he found a loophole in the tax code.
        Sorry, how is a portion of IRC section 401, the section specifically talking about and titled "Qualified pension, profit-sharing, and stock bonus plans" considered a "loophole"?

        Isn't that section of the code specifically designed to talk about various pension plans and their features? Both defined contribution, and defined benefit?

        So a feature of a plan, talked about in the retirement plan section of the code (section 401 part(k)), to me seems like that is not a loophole, but a designed part of retirement plans. A way in a profit sharing plan to allow employees to save more money toward a retirement plan.

        Call me crazy, but that's how I view it.


        If you'd like to read through that section of the code, here it is: http://www.law.cornell.edu/uscode/text/26/401

        From: http://www.law.cornell.edu/uscode/text/26/401

        (k) Cash or deferred arrangements
        ...
        (2) Qualified cash or deferred arrangement
        A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a)—
        (A)under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;

        (B)under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election—
        (i)may not be distributable to participants or other beneficiaries earlier than—
        (I)severance from employment, death, or disability,

        (II)an event described in paragraph (10),

        (III)in the case of a profit-sharing or stock bonus plan, the attainment of age 59 1/2,

        ...
        Now in the end this is all semantics. It reads to me as if the code is designed for a feature to add funds to profit-sharing and other retirement plans -- which to me reads as "save for retirement." Maybe to someone else, that reads as a loophole which can be used to save for retirement.


        So maybe I'm wrong and it originally was some loophole - some mistake. But so what? Penicillin was found as a mistake too.
        Last edited by jpg7n16; 06-05-2013, 06:39 AM.

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