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.

Consult your plan restrictions. Some plans have a maximum contribution percentage. My employer allows no more than 20% for example, but yes. You should get out a calculator and figure how much you need to contribute each check to hit $18k in a calendar year. Keep in mind that if you exceed your contribution limit the plan administrator has to refund you the difference. This may make them unhappy with you personally because of the extra paperwork but if that doesn't bother you go for it.

Thanks again.

My plan allows me to contribute 100% of my pay so it works out nicely for me if I'm a bit low at the end of the year, but now I see the goal is the spread out the contributions throughout the year to maximize that compound interest. Our match is technically worded to match 25% of up to 4% of my pre-tax salary contributions.

Is this normal or considered pretty weak by most employer matched 401(k) plans?

There is no real "normal" when it comes to company match. I actually work for a company that handles this stuff and I've seen company matches that would make your eyes water with how complicated they are. That said, 1% small, very small, but it's better than nothing.

Examples:
- My company match is a flat 100% up to 7% (lol retirement company)
- My GF works for a hospital and gets 75% of her first 6%, but after ten years that rises to 100% of her first 6%, and if she's there for 20 years it goes to 125% of the first 6%.
- Wal-Mart matches up to the first 6% of salary apparently. I wanted to look up a weak plan to compare the two above plans but apparently Wal-Mart, for all its chintzy wages, actually has a good 401k.

This won't matter much since your match is only 1% but if you ever change roles to something that matches more it's important to note that the employer contribution ISN'T counted for your $18k contribution limit and is essentially unlimited (it's legally $53k per IRS rules but no company matches anywhere near 200%, which they would need to to hit that limit). So if you put in $18k and your employer puts in $4k or so that's $22k total and perfectly kosher with the IRS.

I didn't know that the employer matched section wasn't counted. That's great to know.

I guess my last question, for now, comes back to my first post: is VMCIX a good fund to invest in? I hear Vanguard thrown around a lot here because it has low fees and is fairly reliable. Would you agree with this sentiment?

I honestly have no idea and I'd be telling you a fib if I said one way or the other. I've never researched that fund. If it's just a broad index fund then all you should really care about is the fees. Compare them to a few other index funds and if you like what you see go for it.

No
Only i your plan supports it
Think its called true-up
otherwise you have to skim off your paycheck all year only or you wont get the match

vmcix is good in the sense that its an institutional version of the mid cap vanguard fund which means it has a huge minimum investment on the part of the employer, like 10 mil with an expense ratio below even admiral shares

However it shouldnt not be a huge part of your stock composition by any means
Dont you have a large cap fund like vinix?

Should not*

These are all my choices for stock investments.

Bingo
fxsix should be your priority
fsivx after that
vmcix after that


This is based on the assumption you are young and plan to retire in decades

I'm 25 and would like to retire at the age of 60, so yeah, decades.

Google three fund portfolio
You dont need bonds yet but you will
Also google 'approximating total us stock market'
Do that with those funds
The fidelity funds listed on bogleheads are investor class funds that are the same as yours but more expensive

yeah if you're going to self-direct your 401k, choose FXSIX and then something more risky. most 401ks have a retirement-age directed plan, like 2045, 2050, 2055, depending on when you plan to retire. the age plans are more risky for the first decade or two, then switch investments more towards bonds instead of securities.

Looked at that, but there doesn't seem to be anything with much risk that I'm able to choose from. What do you categorize as higher risk?

>contributing too much to retirement
>not leaving enough to live in the hear and the now

>making so little that you have to choose

>stockpiling money that you could use today for your death

you are literally buying the peak of a bubble.

of course nobody will actually think about it until %30 of their portfolio vanishes in two months, well, fuck it man

I've invested in a 401k for my company for the last 3 years. Meager amounts and I've cut my contribution, but the fidelity account is at about $12,000.

I want to withdraw this, all of it, and use it to pay back a bulk of my student loans. I know this is ill-advised but that's a bulk of money I can use and thus invest more in my future and 401k going further.

That said..

How can I withdraw it? How can I get the least amount taxed on it and what is the process of taxation on your 401k for early withdrawal?

Interesting... So how am I doing? I'm not new to 401k, I've just tried to focus on index funds. My YTD performance is horrible.

After 10 years of sending like 15% to a 401k both roth/non-roth, I picked up a new job and am thinking along your same lines user.

I still have the 5% pension that hopefully still exists when I retire, but otherwise just sending money to vanguard and buying a few funds. The retirement age is going to be like 90 years old.