Starting my 401k right now?

**disneysteve** · 10-13-2008, 02:30 PM

You should definitely start. What %? If you can, at least enough to get the full company match. I'll let others weigh in with which funds to choose.

**jIM_Ohio** · 10-13-2008, 03:21 PM

You should start.

Your age and tolerance for risk will determine which funds to choose

1) choose your risk tolerance
2) identify an asset allocation of % stocks and % bonds which fit that risk tolerance
3) choose funds which map to that asset allocation.

80% stock and 20% bonds or 100% stocks is aggressive
40% stocks/60% bonds and 60% stocks/40% bonds is moderate
20% stocks and 80% bonds is conservative
100% bonds/cash is ultra conservative

**ginger.al** · 10-13-2008, 06:52 PM

I plan to contribute about 8-10% of my salary, and wants to do about moderate (60% stocks and 40% bonds).

Can anyone explain this to me?
"For each $1.00 that you contribute, up to 4% of your compensation, your employer will contribute $0.50."
What does that mean in plain language?

Also, can anyone suggest funds that I should invest in?

Thanks a bunch.

**maat55** · 10-13-2008, 07:07 PM

I look for funds with a long track record of 10 years or more with an average return of 12% or more. You might want to look your choices up at morningstar.com and find ones with a 4 or 5 star rating.

**KGeary** · 10-13-2008, 08:46 PM

Do they offer a Roth 401k?

You should only invest up to the company match and that's it. Open a Roth IRA and put the rest in there. 401ks suck beyond the match.

As for the fund to choose...Hmm...

Alger Capital Appreciation Class R is good but the expense ratio is really high. I went through the list and it looks like this will be your best bet.

Like I said, only invest up to the match and then go put the rest in a Roth IRA.

As for the match...I think it can be translated as:

If you invest 4% of your gross earnings, your employer will match half of the contribution.

If 4% is $200, your employer will give you $100. You should invest 4%, get the match, and put 6-11% in a Roth IRA.

Now is the perfect time to buy. You're in this for the long run. Ignore everything that's going on with the market and start putting money into it systematically. If you own single stocks, sell them (after the market recovers), and put the money in index funds inside of a Roth IRA. You don't want single stocks.

**cooliemae** · 10-13-2008, 09:02 PM

Originally posted by ginger.al View Post

I plan to contribute about 8-10% of my salary, and wants to do about moderate (60% stocks and 40% bonds).

Can anyone explain this to me?
"For each $1.00 that you contribute, up to 4% of your compensation, your employer will contribute $0.50."
What does that mean in plain language?

Thanks a bunch.

Example:

If 4% of of your annual salary (usually pre-tax) equals $100, then the company is going to contribute $50 (or 2%) towards your retirement.

If you dropped your contribution to 3%($75) of your salary, then the company would drop it's contribution to 1.5% ($37.5) of your salary.

The most they will match is 2% if you contribute a full 4%, but if you contribute more than 4% of your salary, the company is going to go any higher than 2%.

**ginger.al** · 10-13-2008, 09:06 PM

Thanks for the advice everyone.

KGeary, I really appreciate that you when thru the list. I was really thinking about Alger Capital Appreciation Class R and BlackRock Global Allocation Fund, but not sure what the ratio would be.

I will have to look into Roth IRA, as I'm not at all familiar with it. Thanks again!

edit: What is the advantage of Roth IRA over 401k? Isn't it better to have tax deferred than get tax now? Since you'll be able to use those money before tax to get more in the investment? Can anyone clarify this for me?

**ginger.al** · 10-13-2008, 09:09 PM

Cooliemae, do you mean that the maximum they will match is 2% of my salary?

Let say, I put in 4% they will match 2%. If I put in 3% they will match 1.5%. If I put in 10, they will match 2%. Is that correct?

**Johansen8** · 10-13-2008, 10:47 PM

See 401k.org : PSCA's Public Education Site for 401(k) Plan Participants > Home

**boosami** · 10-14-2008, 03:16 AM

Originally posted by ginger.al View Post

Cooliemae, do you mean that the maximum they will match is 2% of my salary?

Exactly. The maximum contribution they will make is equal to 2% of your salary, and they will make that much if you contribute at least 4% to your 401(k).

Here's an example assuming $48,000/yr, that's $4000/mo before taxes. The numbers below represent the monthly contribution. The maximum your employer can contribute is $80 (2% of monthly income).

1%, that's $40 from you and they will add $20.
2%, that's $80 from you and they will add $40.
3%, that's $120 from you and they will add $60.
4%, that's $160 from you and they will add $80.
5%, that's $200 from you and they will add $80.
X%, that's $XXX from you and they will add $80.

**jIM_Ohio** · 10-14-2008, 03:47 AM

Originally posted by KGeary View Post

Do they offer a Roth 401k?

You should only invest up to the company match and that's it. Open a Roth IRA and put the rest in there. 401ks suck beyond the match.

As for the fund to choose...Hmm...

Alger Capital Appreciation Class R is good but the expense ratio is really high. I went through the list and it looks like this will be your best bet.

Like I said, only invest up to the match and then go put the rest in a Roth IRA.

KGeary is wrong, and his advice represents someone who knows little about saving or taxes.

Money goes into a 401k pre tax
Money goes into a Roth IRA post tax

This means that if you put $5000 in your 401k you need to earn only $5000- all money goes in before taxes.
You will need to earn $6250 to put $5000 into a Roth IRA or Roth 401k.

I have both a 401k (contribute 11% and get 2/3 match on first 6%) and a Roth IRA (contribute max of $5000).

My 401k choices are cheap but generic (no way to look up ticker symbols). My Roth is with T Rowe Price. My 401k reduces my taxes such that instead of earning $6250 to put $5000 in my roth, I only need to earn $5750- saved me $750 in taxes by upping the 401k a few percent.

I would look at Van Kampman Equity Income (I like dividend funds)
Franklin small value or Oppen small cap
Oppenheimer emerging markets
Blackrock international value
Blackrock mid cap

and try to build from there- butthat would be me putting funds into my allocation. You want 60-40, so emerging markets is out, and you would need to add a bond fund to this mix like AIM real estate and or Blackrock government income.

**ginger.al** · 10-14-2008, 04:15 AM

thanks again everyone for the help..

I was thinking about it and I feel like I'm still young and should be aggressive about the investment I pick, since I still have time to see them recovery if they do go down.

So would 80 stocks/20 bonds sound about right?

**disneysteve** · 10-14-2008, 04:49 AM

Originally posted by KGeary View Post

401ks suck beyond the match.

I totally disagree with this statement.

I generally agree that folks should fund their 401k to the match, then max a Roth and then go back to the 401k, but that isn't always true either because it depends on your income and tax situation.

A 401k allows you to put money away tax-free and reduce your taxable income. Plus, a 401k has a much higher contribution limit than a Roth. I've only got a Roth - no 401k - so I'm limited to $5,000/year in tax-free savings. I sure wish I had a 401k, match or no match, because they most certainly do not suck.

**boosami** · 10-14-2008, 05:41 AM

Originally posted by KGeary View Post

401ks suck beyond the match.

I also completely disagree. If you choose sucky mutual funds for any type of retirement account your investmests suck. 401(k)s can offer the exact same mutual funds choices available to traditional and roth IRAs.

The contribution limit for 401(k) is $15,500--more than three times the IRA limit. You can save more and shelter more from taxation with a 401(k). Best to have both if you can, and neither suck as long as your investment choices don't.

Starting my 401k right now?