Comments on: The End of the 401K Match and Random Thoughts on the 401k vs a Roth IRA http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/ Save Money, Get Out of Debt, and Live a Frugal Life! Sat, 21 Nov 2009 02:16:04 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: PT http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3718 PT Sat, 02 May 2009 14:02:40 +0000 http://ptmoney.com/?p=2560#comment-3718 @Steven - "virtually everyone in reasonable health (the life insurance portion of the plan becomes costly if you are in bad to severe health) would have been much better off in a 7702 Private Plan than in their 401k over the past 10 years." You could say that about any investment other than stocks. Good thing most people have 40-50 years to invest over their lifetime. And when they get to 10 years before retirement they can begin moving their stocks into cash and bonds. Or invest in stocks the whole time and then just wait a couple of years if a downturn like this happens. Stop spinning the numbers just to make a sale. @Steven – “virtually everyone in reasonable health (the life insurance portion of the plan becomes costly if you are in bad to severe health) would have been much better off in a 7702 Private Plan than in their 401k over the past 10 years.”

You could say that about any investment other than stocks.

Good thing most people have 40-50 years to invest over their lifetime. And when they get to 10 years before retirement they can begin moving their stocks into cash and bonds. Or invest in stocks the whole time and then just wait a couple of years if a downturn like this happens.

Stop spinning the numbers just to make a sale.

]]> By: Steven Duval http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3715 Steven Duval Sat, 02 May 2009 06:32:43 +0000 http://ptmoney.com/?p=2560#comment-3715 I found this article researching for my own article I am working on "what's better than a 401k" - There is a tax code section 7702 that allows the use of life insurance (hang in there) as an investment vehicle. This law was intended to close a tax loophole for the rich, but it created a phenomenal opportunity for low to upper middle class incomes. The basic premise of a properly structured 7702 Private Plan is control, liquidity, and the opportunity to earn market based gains without the possibility of market losses. Although this investment plan is gaining popularity (one of the largest 7702 Private Plan administrators recently had to shut down new applications coming in because they are 2 months behind processing and the rate of applications is increasing. In a 7702 Private Plan there are no deposit limits, payments to the plan are after tax and all funds grow tax deferred, income is 100% tax free and doesn't increase taxation on Social Security. The bottom line is virtually everyone in reasonable health (the life insurance portion of the plan becomes costly if you are in bad to severe health) would have been much better off in a 7702 Private Plan than in their 401k over the past 10 years. I found this article researching for my own article I am working on “what’s better than a 401k” – There is a tax code section 7702 that allows the use of life insurance (hang in there) as an investment vehicle. This law was intended to close a tax loophole for the rich, but it created a phenomenal opportunity for low to upper middle class incomes.
The basic premise of a properly structured 7702 Private Plan is control, liquidity, and the opportunity to earn market based gains without the possibility of market losses. Although this investment plan is gaining popularity (one of the largest 7702 Private Plan administrators recently had to shut down new applications coming in because they are 2 months behind processing and the rate of applications is increasing.
In a 7702 Private Plan there are no deposit limits, payments to the plan are after tax and all funds grow tax deferred, income is 100% tax free and doesn’t increase taxation on Social Security. The bottom line is virtually everyone in reasonable health (the life insurance portion of the plan becomes costly if you are in bad to severe health) would have been much better off in a 7702 Private Plan than in their 401k over the past 10 years.

]]> By: Welcome to the Carnival of Personal Finance @ Finance Help Ideas http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3633 Welcome to the Carnival of Personal Finance @ Finance Help Ideas Mon, 20 Apr 2009 11:07:47 +0000 http://ptmoney.com/?p=2560#comment-3633 [...] Prime Time Money talks on the topic of tax-deferred and tax-free retirement plans. [...]

[...] Prime Time Money talks on the topic of tax-deferred and tax-free retirement plans. [...]

]]> By: Welcome to the Carnival of Personal Finance | Mighty Bargain Hunter http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3631 Welcome to the Carnival of Personal Finance | Mighty Bargain Hunter Mon, 20 Apr 2009 07:39:20 +0000 http://ptmoney.com/?p=2560#comment-3631 [...] Prime Time Money talks on the topic of tax-deferred and tax-free retirement plans. [...]

[...] Prime Time Money talks on the topic of tax-deferred and tax-free retirement plans. [...]

]]> By: Jeremy Pickens http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3579 Jeremy Pickens Wed, 15 Apr 2009 17:15:25 +0000 http://ptmoney.com/?p=2560#comment-3579 PT, I am referring to the fact that 401k contributions are not taxed until you are ready to begin withdrawals in retirement, while Roth IRA taxes are paid at the time of contributions. By 'tax exposure' I am referring to the marginal tax rate that you will need to pay -- whether now or in retirement. Ordinarily you cannot be certain whether rates will go up or down in which case a 50/50 split between paying taxes now/later might make sense. However, given the long term downward trend in tax rates and the current state of federal finances there is a better than even likelihood that marginal tax rates will increase in the future. In this instance, I might want to contribute more $$$ to Roth IRA thereby paying today's tax rates in exchange for future tax-free withdrawals. I hope this clarifies my point, PT. I always enjoy reading your posts, so I was hoping to offer something constructive in return. PT, I am referring to the fact that 401k contributions are not taxed until you are ready to begin withdrawals in retirement, while Roth IRA taxes are paid at the time of contributions. By ‘tax exposure’ I am referring to the marginal tax rate that you will need to pay — whether now or in retirement.

Ordinarily you cannot be certain whether rates will go up or down in which case a 50/50 split between paying taxes now/later might make sense. However, given the long term downward trend in tax rates and the current state of federal finances there is a better than even likelihood that marginal tax rates will increase in the future. In this instance, I might want to contribute more $$$ to Roth IRA thereby paying today’s tax rates in exchange for future tax-free withdrawals.

I hope this clarifies my point, PT. I always enjoy reading your posts, so I was hoping to offer something constructive in return.

]]> By: RC@ThinkYourWayToWealth http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3578 RC@ThinkYourWayToWealth Wed, 15 Apr 2009 17:13:47 +0000 http://ptmoney.com/?p=2560#comment-3578 Sorry to hear about that PT- but thanks for the mention. I think you have the right attitude-and hopefully for your company it will be temporary. Sorry to hear about that PT- but thanks for the mention. I think you have the right attitude-and hopefully for your company it will be temporary.

]]> By: Jeremy Pickens http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3577 Jeremy Pickens Wed, 15 Apr 2009 17:13:12 +0000 http://ptmoney.com/?p=2560#comment-3577 I am sorry to hear about your situation. I appreciate your positive attitude regarding the situation, but for a little levity -- don't. Just before I read your post, I saw this one ( http://finance.yahoo.com/news/More-CEOs-got-pay-hikes-than-rb-14921297.html?sec=topStories&pos=5&asset=&ccode= ) regarding CEO pay increases for 2008. More importantly, I am more concerned with your future tax exposure. Whereas the limit on your 401k is likely $16,500 for 2009, it is only $5000 (depending on your income) for the Roth IRA. Even if you were to max out both, you would be placing about 77% of your contributions in a tax-deferred account. That percentage is higher with your current allocations. Are you that confident tax rates will decrease in the future? I am sorry to hear about your situation. I appreciate your positive attitude regarding the situation, but for a little levity — don’t. Just before I read your post, I saw this one ( http://finance.yahoo.com/news/More-CEOs-got-pay-hikes-than-rb-14921297.html?sec=topStories&pos=5&asset=&ccode= ) regarding CEO pay increases for 2008.

More importantly, I am more concerned with your future tax exposure. Whereas the limit on your 401k is likely $16,500 for 2009, it is only $5000 (depending on your income) for the Roth IRA. Even if you were to max out both, you would be placing about 77% of your contributions in a tax-deferred account. That percentage is higher with your current allocations.

Are you that confident tax rates will decrease in the future?

]]> By: SaveURRetirement.com http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3576 SaveURRetirement.com Wed, 15 Apr 2009 17:12:35 +0000 http://ptmoney.com/?p=2560#comment-3576 Hey PT, Sorry to hear about your predicament. I just blogged about how its becoming more & more common for companies to cut back on benefits, including matching 401k's: http://www.saveurretirement.com/2009/04/what-to-do-if-your-company-cancels-your.html However .... "By the way, while I was writing this post I was also wrapping up 2008 taxes. It should be noted that maxing out my 2008 401k contributions saved me around $4,000 in taxes. Take that, upper tax bracket!" So, it seems you managed to take the lemons life gave you and make lemonade! Rico Hey PT,

Sorry to hear about your predicament. I just blogged about how its becoming more & more common for companies to cut back on benefits, including matching 401k’s:

http://www.saveurretirement.com/2009/04/what-to-do-if-your-company-cancels-your.html

However ….

“By the way, while I was writing this post I was also wrapping up 2008 taxes. It should be noted that maxing out my 2008 401k contributions saved me around $4,000 in taxes. Take that, upper tax bracket!”

So, it seems you managed to take the lemons life gave you and make lemonade!

Rico

]]> By: Jason Unger http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3575 Jason Unger Wed, 15 Apr 2009 17:11:59 +0000 http://ptmoney.com/?p=2560#comment-3575 My company cut the 401k match in December, along with a 10% time and pay reduction. I stopped contributing to the 401k since I needed the cash, but probably would have moved it to my Roth IRA instead -- which doesn't get filled every year anyway. My company cut the 401k match in December, along with a 10% time and pay reduction.

I stopped contributing to the 401k since I needed the cash, but probably would have moved it to my Roth IRA instead — which doesn’t get filled every year anyway.

]]> By: the weakonomist http://ptmoney.com/2009/04/14/the-end-of-the-401k-match-and-random-thoughts-on-the-401k-vs-a-roth-ira/comment-page-1/#comment-3574 the weakonomist Wed, 15 Apr 2009 17:11:08 +0000 http://ptmoney.com/?p=2560#comment-3574 It all depends on what funds your employer offers. From where I sit, my Roth IRA offers better funds than the 401(k). There is also the tax consideration for most. Since not everyone makes enough to max out both funds, you have to decide if you want to pay taxes now or later. I prefer now so in the event of losing my employer match I'll max out my roth first, then work on the 401(k). From your point of view your method should work. Just remember most people don't make enough for that to work and so maxing the Roth may be the priority. It all depends on what funds your employer offers. From where I sit, my Roth IRA offers better funds than the 401(k). There is also the tax consideration for most. Since not everyone makes enough to max out both funds, you have to decide if you want to pay taxes now or later. I prefer now so in the event of losing my employer match I’ll max out my roth first, then work on the 401(k).

From your point of view your method should work. Just remember most people don’t make enough for that to work and so maxing the Roth may be the priority.

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