401(k)

Finally decided to enroll in my company's sponsored 401(k) on Fidelity. They give a 1% match on your pre-tax salary, which I figure is shit, but better than nothing.

I'm opting to throw it all into VMCIX, anybody have any objections to that?

Even without a company match the tax advantages of a 401k are significant. If at all possible you should contribute as much money as possible to it (up to the IRS limit of 18k [24k if you are over 50]).

Contributions to a traditional 401k are tax free, meaning that the money you would have paid to Uncle Sam on that money can instead be used to purchase more securities. When you withdraw the money its treated as taxable income, but hopefully by then you are retired and thus in lower tax bracket.

A Roth 401k on the other hand, if you have the option, works in reverse. You pay all your normal taxes on the money now but when you withdraw the money it and all its capital gains are tax free.

If you only have the traditional 401k you should be using that but if you have the option between the two you'll have to make a more complex decision based on how much money you are earning now and how much money you think you will be earning later.

I just have the choice of a traditional 401(k).

If I'm not mistaken, I can also use funds from a 401(k) for the purchase of my first home, no?

I'm just putting in 4% of my pay salary right now, and then at the end of the year likely putting in a lump sum to make up the difference to the max contribution.

Back to the Roth discussion, I'll probably be opening a Roth IRA within the next month or two and just putting the $5,500 in there.

One other question.

Let's say right now I wanted to buy a home and have $18k in a savings account. Would I be better off throwing that money into the 401(k), and then withdrawing it from there? Would I get a double tax break?

Usually you can only contribute to the 401k per paycheck

What? I thought you could just only make cash contributions to your 401(k).

You cannot tap a 401k before retirement age without facing a 10% penalty. It would be extremely unwise to pull money from a 401k to put the down payment on a house. You -can- however take up to $10k from an IRA without penalty for the purchase of a primary residence. This $10k though is a lifetime limit (though if you are married each spouse can contribute $10k for a total of $20k).

If you are currently looking to make the down payment on a house in the near future, in that one specific case, you would want to either tap an IRA or just put it into a bank account. Since you don't already have an IRA it probably isn't worth it to put the money in there and then withdraw it in a year or two and waste your one-time $10k pull for such minimal gains.

Yeah, if you live until a retirement age. Other than that, you're money is tied up unless you wanna pay huge fees.

Invest your own money and come out on top.

Contributions to 401ks can only be done with wages from the employer. Typically this is done on a paycheck by paycheck basis but some companies that distribute lump sum payments (bonuses and the like) may allow some or all of that lump sum to be contributed to a 401k as well.

Gotcha', so I would just be better off at the end of the year putting ALL of my pay into my 401(k) to reach the max contribution.