Scared of Retirement vehicles/ want to save other ways?

[Gruntina]

Currently I am contributing to my 401(k) at my work. The company matches .40 to each dollar up to their max of $1500.00 p/year. Since every employee income varies, for me its would be 10% unless I get the promotion they might give me later this year.

I thought about getting the Roth IRA when I finish paying off my debts and have been doing some reading. I am finding, the more books I read, the more confused I get lol!

I am hesitant to do the Roth IRA(And even worried that I might think the 401(k) was a curse and regret it the day I retire) and want to find another way to invest or save. The reasons for this is I expect higher tax bracket so I am pretty sure that will take a huge chunk out of my money when I retire (which probably be half?). Also when I retire, I am not going to have a lot of tax exemption or write off since I am pretty sure my future children will all be grown and not making any home payments and so on meaning more goes out to taxes.

Roth Ira has no taxes because its based after tax when putting money into it but they have strict regulations when its time to retire and calculation of 70 and half instead of 59 and 1/2 of age and so on.

Now my question would be: what is another way to save money so I can be more in control and be my on bank on my money and take it out when ever I want? Would this be having CD or high yields savings account all the way until I retire? The reason is I want to have access to my money anytime and not give all of it to Uncle Sam’s benefit more than mine.

[sweeps]

Re: Scared of Retirement vehicles/ want to save other ways?

If you believe that you will be in a higher tax bracket when you retire, you should absolutely be investing in a Roth IRA. Also note that with a Roth, you can leave the money in the account indefinitely -- there is no minimum distribution age. You also mention that you want control over the money: you can withdraw the contributions (but not the earnings) from a Roth IRA at any time without penalty.

I would not give up on the company match from the 401k though. Where else are you going to get a no-risk 40% return on your money? Put $3750/year in your 401k to max out the match, and then max out the Roth.

If you still want to invest beyond that, consider investing in index funds. They tend to be tax-friendly and expense-friendly.

[cptacek]

Re: Scared of Retirement vehicles/ want to save other ways?

I think you may be confused about the differences between an IRA and a Roth IRA.

For an IRA, if you have a low enough income, your investment is tax deductable. In fact, if your income is below a certain income, you can get a tax credit worth half of your investment. When you retire, you can begin taking out your investment at 59 1/2 and you HAVE to start taking out your investment by 70 1/2.

For a Roth IRA, you buy your invesment with after tax dollars. The investment grows (or it doesn't...there is, after all, risk associated with investing ). After 5 years you can take out any of the money you put in with no tax consequences. Anything that the investment made for you must stay in the plan...until you retire. Then you can start taking it out with no tax consequences. But, you can keep the money in the investment forever. You never have to start taking money out of the plan, so you can use this as a way to do some estate planning.

[Ima saver]

Re: Scared of Retirement vehicles/ want to save other ways?

I would contribute to the 401 to get the free $1500 and then to a roth IRA, so you can withdraw that money tax free when you retire.

[Gruntina]

Re: Scared of Retirement vehicles/ want to save other ways?

I am currently reading a book and it mention that the Roth IRA has more complicated guidelines at the time you are eligible for withdrawals and how it is done.

Now I am spending time researching for what exactly happens when you retire and how it all works out for the 401k and Roth IRA. I understand the front-end and back-end taxes on each of the plan but how the money is distributed and what are the limits when withdrawing after of age and time of retirement. Will I be happy with their policy on how I get my money back? It would seem like the plan would be more of a bank on my money in the end rather than myself.

I think I would relax better once I understand how it works when I am retired. How exactly the details are when am eligible would impact my decision for retirement vehicle is important to me as well.

[Ima saver]

Re: Scared of Retirement vehicles/ want to save other ways?

I believe normal age to withdraw in both plans is 59 1/2.

[WellManicuredMan]

Re: Scared of Retirement vehicles/ want to save other ways?

I actually think a Roth IRA is less complicated than other retirement accounts.

• You don't have to withdraw money at any particular age
• You don't have to worry about paying taxes when you withdraw your earnings after 59 1/2
• You don't have to worry about paying taxes or penalties when you withdraw your contributions at any time

[JBinKC]

Re: Scared of Retirement vehicles/ want to save other ways?

Gruntina I see where you are coming from. I agree with you a 401K is a really a substandard way to invest for retirement mainly because you are very limited in what you can invest in, but for most people that is all you can do because they either are time constrained or don't have the ability to invest on their own effectively. Since your company matches I would invest the minimum for the max employer match (since that would be a 40% immediate return) and perhaps more if you can qualify for the federal tax credit for retirement savings by adding $2000 or less to the account and had totally no acumen for investing .

First of all a Roth IRA is the best way to go as you can invest in about anything in a Roth IRA to even include real estate and tax lien certificates but note the trustee fees can be very high for those accounts with nontraditional investments.

As for drawing it out you could do it anytime penalty free as long as you show you continually draw it out based on this formula the inverse of 85- your age.

I saw on another thread you were very interested in learning how to invest on your own and unfortunately it will take a bit of work to do it by yourself. You should be proficient in analyzing financial statements, be somewhat of ahead of the crowd as a prognosticator, understand macroeconomics and the effect on markets and have continual access to information not only on your chosen investments but others as a potential screen which put most individuals at a huge disadvantage and lots of time researching.


If you want to attempt doing it on your own I would recommend joining the American Association of Individual Investors and try to become active in a local chapter and obtain a couple of books I like Martin Zweig's "Winning on Wall Street." Good Luck.

[Fern]

Re: Scared of Retirement vehicles/ want to save other ways?

I hope you continue with your reading because i believe you are misinformed on a number of counts. No offense meant, but any kind of 'high yield' bank savings account would not hold a candle to a tax deferred stock 401k plan or mutual fund IRA.

Pick up a magazine or book from a trusted, credible source and do your homework. Millions of others are doing it, it's the best way to save for retirement.

[sweeps]

Re: Scared of Retirement vehicles/ want to save other ways?

I saw on another thread you were very interested in learning how to invest on your own and unfortunately it will take a bit of work to do it by yourself. You should be proficient in analyzing financial statements, be somewhat of ahead of the crowd as a prognosticator, understand macroeconomics and the effect on markets and have continual access to information not only on your chosen investments but others as a potential screen which put most individuals at a huge disadvantage and lots of time researching.

This is well-stated, JB. Even if you do all this technical analysis, I would argue there's still an art to executing it successfully. Most people aren't prepared for it, and that's why mere mortals like me should be passive investors.

[Ima saver]

Re: Scared of Retirement vehicles/ want to save other ways?

I like investing in Index funds! I got into stocks and didn't do that well, so I am sticking with mutual index funds.

[creditcardfree]

Re: Scared of Retirement vehicles/ want to save other ways?

Our roth iras are in mutual index funds. If I were you, I'd stick with the 401K, then max out the roths. If you get to a point with a lot to invest there are always variable annuities that are tax free, but these come with really really high fees. Make sure you understand what you are doing if you get into annuities, they can be very complicated and sales people make high commissions on them...therefore its usually a high pressure sale pitch for you.

[LuxLiving]

Re: Scared of Retirement vehicles/ want to save other ways?

Gruntina - I understand your concern. One thing to keep in mind is that in retirement in order to make your money last a lifetime you are usually recommended to only take out 2-5% a year from your 401-K's. I was wondering if you were envisioning a large balance and that you'd withdraw it all at once? Most advisors are saying to take small withdrawals thru the years to make the money last AND to keep your taxrate low.

Take the others advice here and keep reading!

-LuxLivingFrugalis

P.S. I like the Roth IRA over a traditional as it is directly inheritable and you don't have to liquidate your spouse's investing position right at a time of emotional turmoil like you do in a Traditional IRA.

[greedy4chips]

Re: Scared of Retirement vehicles/ want to save other ways?

I am hoping beyond all hope that I am in the highest tax bracket when I retire!

I also say that now about my future job! I hope I make so much money that I am phased out of every tax benefit and will gladly give the govt their 6 figure tax revenue.

....Jump ahead 5 yrs.....

Whats wrong with the tax system? We spend our whole lives trying to get rich and then they tax us like fools! We go to school to better ourselves and then they want half...so does the ex...that leaves me with zilch, nada, zippo...thanks!

[LuxLiving]

Re: Scared of Retirement vehicles/ want to save other ways?

Has anyone here had experience with Zion for bonds?