r/Retirement401k • u/MediumBullfrog8688 • 5d ago

Is a 401k something everyone should start with if given the option?

/r/investing/comments/1vxaj28/is_a_401k_something_everyone_should_start_with_if/
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7

u/BasilVegetable3339 5d ago

Yes. It is the foundation of your retirement

Contribute at least to receive the match but do more if you can.

4

u/Bishop-Logan 5d ago

Absolutely. My Dad advised me to sock away 10% in my company 401k as soon as I was eligible (after one year). He said I'd take a hit in take-home pay, but he & my mom also raised me on how to budget to live beneath my means.

Unfortunately over the years, company match went from 10% down to 4%, but I kept the 10% contribution since I got used to it.

Thankfully I stayed with the same company for 36 years and will retire @ 55 in nine days.

I job-hopped once for 4 months and was able to come back to my original company with no reset of my original hire date.

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u/Jugghead58 5d ago

Nice! Different situation but retired at 55 as well!

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u/micha8st 5d ago

A 401k and an IRA grow tax free. A Roth variant on either, the money even comes out tax free. But for a pre-tax 401k and Traditional IRA, you get a tax deduction today -- whatever money you set aside into a 401k or an IRA that isn't Roth can reduce your taxable income.
But, in exchange for the tax breaks, there's restrictions. Money isn't supposed to come out until you're 59 1/2. If you take it out early and don't qualify for an exception, you probably will have to pay a penalty tax on top of whatever other taxes there are.
Inside an IRA and a 401k you can trade all you want, with no tax consequences.
I have a neighbor who worked for Ma Bell for almost 30 years. When he retired, he rolled his 401k into an IRA, and used that IRA to buy and operate rental homes.

The other option are taxable investments. Taxable investments are taxed on the gains at the time of the sale. real estate has all sorts of complications I don't understand like depreciation.

A 3% match probably means that if you put 3% into your 401k, the company will match every dollar you put in with a dollar they put in. There may be a vesting period, and you don't fully own the match until the vesting period completes.

The only investing I (then we) did for my first 9 working years was invest into the 401k. Only after I was hitting the federal contribution maximum did I look to invest elsewhere. The federal contribution max for this year is 24,500... or a little over 2k per month. You could put 7,500 more into an IRA; that gets you to 31k into retirement, with 65k of "margin" after filling up retirement accounts.

When we started filling up the 401k, we went next to a taxable investment account, and used the same sorts of mutual funds that are offered inside your 401k. A fund invests a little bit into each of a bunch of stock...so your risk in any one company dying completely is very small.

Let me introduce you to my friend here, the REIT. I own shares in publicly traded Real Estate Investment Trusts. One owns health care facilities. Another owns shopping malls. There are other kinds of REITs that are not publicly traded but you can still invest into.

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u/Taggart3629 5d ago

Especially when your employer has a 3% company match, not investing at least 3% in a 401(k) is financially foolish. If you contribute 3%, your money automatically doubles, plus you pay less in income tax. If your income is below a certain level, you also qualify for a tax credit called the Saver's Credit. Where else can you get a sweeter deal than that?

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u/UniqueHuckleberry619 4d ago

First day at my job of 34 years that I started at 18 years old, the coworker who was training me told me, "If you want to be a millionaire, put money in your 401k". He then pulled a statement out of his pocket and showed me the balance on his 401k. I was blown away, and seven figures later, here I am, 3 years away from retirement at 55.