Thread: The Big 401k Blunder

Originally Posted by Ska2free

Where do you guys come down on SEP IRAs?

I had one created when I first started a business many moons ago. When I firmly solidified that I didn't want to retire at 65, I stopped contributing. It's nice to have around for tax planning if you want to lower your tax burden via contributions - I think I did that a few times to lower my tax cost.

Originally Posted by Runum

I do agree it is a vehicle that MAY contain cash, bonds, REITs (basically a mutual fund of commercial real estate), gold, silver, commodities depending on what your employer offers. Mine never offered REIT's but did offer company stock as an option.

Jeremy, you did not read my post correctly. I did not say I did not make any gains over 15 years. My funds gained rapidly in the 1990's just like everyone elses. My fund also lost 40% in 2001. I rearranged my portfolio in a rollover IRA at that time and made all my losses back. I then cashed out. By the time I paid penalties and taxes I did a little better than broke even. Had I left the money in I would have had a significant loss in 2008 and now 2011. Had I invested in rental properties instead I would have had the monthly cashflow and capital gains until 2008.

My wife's 403B has been going through all of this. All I have to do is look at her balance to know what my 401k would have done over the same time and then compare it to what my REI has done.

What I did say, was over those 15 years, my 401k did not put any money directly in my pocket, cash. My properties do.

I do agree with the bankruptcy protection. Gotta love that.

I do believe some people will benefit from 401k's and 403b's just as some people benefit from REI. 401k's are fine for some but you better know all the risks and options before you start. Once you start it's hard to get out.

Point taken on the cash flow issue--you're right, until you are 59 1/2 years old, a 401(k) will not generate spendable cash flow without incurring IRS penalties or having to arrange a loan which has its own problems.

Also, you're right about what employers offer--some offer terrible plans with high fees and little choice.

On the other hand, fastlaners ought to look at solo 401(k)s and similar plans (e.g. SEP-IRA) for the tax advantages and asset protection features. It's not a bad thing to have $40,000/yr socked away pre-tax, growing tax-free until it is withdrawn, and protected from creditors. Not to say this will make you rich, but it is a way of diversifying risk.

You can even do solo-Roth 401(k)s where the contributions are after-tax, but when you withdraw the money, it's tax free. Great plan if you think taxes will be higher in the future.

With a solo 401(k), you are the employer and get to choose the investments. The only cons are that you can't withdraw the money without penalty until a certain age.

Quick question. Say the market does crash. What will happen to 401ks then, even if your in a stable fund? Will you be safe?

I've also heard talk that if things get out of control, the government would "borrow" from our retirement plans.

Originally Posted by Runum

I have not heard anything about government "borrowing" from 401k's. Here's one way to look at it...If the markets still keep going down there won't be enough valuation in the 401k's to be worried about. One less thing...

In all honesty, I wouldn't worry about the government borrowing from the 401k's. They made it clear this week that they can print all the money they need.

I have heard this rumor about the government "confiscating" 401(k)s. It's mostly hyped on survivalist and gold-bug websites and forums.

I guess they think that the government will tread that fine line of corruption where it will be evil enough steal your 401(k), but not so evil as to attack your retreat in the woods stocked with MREs and gold bullion...Good luck with that one, guys!

Originally Posted by Likwid24

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When I got on my Job 6 years, I thought I was doing the smart thing. I put 15% of my paycheck into my 401k. And hey, it was taken out before taxes! That's great!

I was a few steps ahead of everyone else because I started young and was putting away a larger %. I was a GENIUS! When I retired I would have more money than I could have ever dreamed of!

I would have been able to get the house I wanted, put the kids through college, retired at the ripe age of 47 and never have to worry about getting another job for the rest of my life!

And Then I Woke Up!!!!!

Wow, what a terrible nightmare!

I can't believe I listened to those people. But they were all so much wiser than me. They've been through it all. They knew best. Or did they???

The reality of it is that I've lost tens of thousands of dollars this week. There was really nothing much I could do about it. I inquired about taking my money out of my 401k a few weeks ago but was informed that I can not touch it until I was disconnected from service. I couldn't pay a penalty and take it out early so I could use it for a wise investment.

Well, my first post here - hat eto make it a sort of negative one... but I'll be honest, I have no idea what the OP is talking about! IF he'd been putting 15% of pay into most mutual funds in a 401K over the past 6 years he'd have to have some decent PROFITS as of the end of 2011! Where did the losses come from? 2008 was a big down year to be sure, but the markets have fully recovered AND he'd have been buying lots of share cheap during the downturn - then up 30% or so for 2009.

You can't trash the idea of a 401k IF it was YOU who made the lousy investment choices that lost YOU lots of money. As someone else said, a 401K isn't an investment, it's a tax-defferred vehicle you hold investments within. Sometimes they have limitations, but almost all offer a decent range of choices. Also, a City worker would normally NOT have a 401K, but more likely a 403B or similar vehicle. What's up there?

Lastly, HOW did you get to move the account to a self-directed IRA? These plans typically cannot be moved until seperation from service or age 59 1/2. Can you explain?

All that said, I do support the idea of investing in yourself and your own business, so not saying everyone should pour $$$ into 401K's. It's just that in reading this thread I didn't see anyone question the "how" and "why" of the story or question the wisdom of the assertion that 401K's are "horrible investments". They are what they are - no scam, no big secrets. C'mon, take responsibility for your decisions for gosh sake. No corporate ploy stole your 401K money - it performed exactly how the investments YOU selected performed.

In reality, a 401K in the "fastlane" world would be one option for a vehicle within you might create the future income source for age 59 1/2 onward; NOT the wealth generator! Make money in your fastlane business, maybe put away some in a solo 401K, invest wisely and for income if/when you're 59 1/2. Again, no big secret, just smart after-tax income planning for many. Solo 401K's can even be used for passive real estate investing - just be careful of the rules.

I personally utilize a Roth 401k (essentially a Roth IRA - taxed now, not at withdrawal- with employer-match like a 401k). I like that I have the ability to take a loan out against it as long as I'm employed at very good %'s, and also the bankruptcy protection.

That said, once I leave this company I will likely cash it in to invest in my business, unless I'm at risk of bankruptcy.