Should I stop my 401k?

[Choate]

I think it ultimately depends on your personal situation. It is currently 10% of your salary. The other important variables are the amount of free time you have and what other % of your salary is tied up. If you have lots of free time and minimal bills, then no problem keeping the 401k going. After the 10% and your monthly expenses, you still have extra of money for play for ideas, businesses, and taking on risk should an opportunity arise. I think this is the optimal path.

But if your time is further tied up by family commitments, the job, and so forth; or your remaining salary isn't enough to fund ideas or take risk, then the extra money can be used as cash flow or in creative ways such as personal assistants which will either free up more time for you to work on your business or allow your business to function while you work your day job.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[DaveC]

Like most investment advice, it depends (age, assets, debt, spending tendencies, 401k vesting schedule, taxes, regular vs ROTH 401k, etc...).

If you're going to cancel it only to blow it at the mall, then no don't do that. If you have an immediate 20% match, even with a 10% withdrawal penalty you're still beating any savings account.

There's also ways, albeit convoluted, to use 401K and IRA funds to fund businesses. Basically your account buys the stock of the business---IANAL though. You can also loan yourself the money through your 401K, but you would need to stay employed there.

The money is more liquid than you think, but I tend to lean toward keeping my assets earning where they are at until I have a better risk/return option to put them in. 401k in a basic index fund with match is pretty good risk/return IMO.

 

[CareCPA]

I guess I'm more pessimistic than most people on here because I got burnt last year. Put $5500 into a Roth IRA, then took it out a few months later to fund my business aspirations. Immediately lost $570(but also gained 200). Same thing would have happened with a 401K. If I'd done the same thing with a regular fund, I'd have only lost $70(profiting $130).

I'll stick with regular investing when I've got money not allocated for a business venture so that I can use it as I see fit, thank you very much.

Why? Non-rollover (i.e. regular) contributions to a Roth IRA can be withdrawn with no tax penalty. Earnings cannot.

 

[Millenial_Kid5K1]

Why? Non-rollover (i.e. regular) contributions to a Roth IRA can be withdrawn with no tax penalty. Earnings cannot.

Oh. Lol. Oops.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[luniac]

I worked almost 4 years in an office and was the only one without a 401k, besides my crazy polish coworker friend who later quit.
I wanted as much of my paycheck as i could get now.
Plus isn't there big penalty for taking money out of 401k prematurely?
I figure anyone conflicted about a 401k is also conflicted about the fastlane.

 

[GMSI7D]

Hi there,

At the moment I work at a company full time and 10% of my salary goes into a 401k. My plan is to start my own company soon but in the meantime, should I stop my 401k?

I am a little bit confused!

Thanks so much!

the only question you should ask is this :

how will be the world in 5 to 10 years ?

i know the answer because i have spent the last 10 years studying social engineering dynamics among others things

and i also know that people won't accept what i have to say so i won't say it : better to remain silent than to be hammered


but you should at least consider what the variables are

there are not what you currently think

at all.



.

 

[lowtek]

Not an investment professional, and none of what I say constitutes investment advice

Even if the company matched, I wouldn't put a single penny into it. I see no upside to giving up control of your money for thirty years in the hopes that the investment will actually materialize into something that justifies the opportunity cost.

On the flip side, there is enormous potential downside:

One look at the balance sheet of the USA tells you that this charade isn't going to go on forever. There is a strong possibility that the .gov will tax 401k holdings of the citizens, because "shared sacrifice". Even if that doesn't happen, it's likely that whatever steps the feds take to deal with their fiscal mess will result in a stock downturn, which means you take a haircut and have to hope the market recovers in the coming years.

Even if you think the above is tinfoil hattery of the highest order and that I'm smoking some Alex Jones grade shit, ask yourself, would you ever give money to a friend under the following conditions:

The friend will take the money to the casino for you and possibly give you a 5-10% return over the next 30 years - but this isn't guaranteed and he could lose it all and you have no recourse to get a single penny back, because hey... you knew the risks.

Your friend will also charge you a fee for the privilege of letting him gamble with your money. He charges it whether he makes money for you or not, because he's providing such a valuable service.

Don't like the terms and decide you want your money back? That'll cost you 10% right off the top, plus whatever extra you're going to owe the tax man.

.... I'm guessing that these conditions, offered by a friend, would scream SCAM. Why should it be any different because it's strangers on wall street offering those terms?

The "tax benefits" do nothing to change my argument. You give up control of 18,000 dollars to let your friend gamble with it, and get to lower your taxes by a few thousand a year - which is still a net loss. It doesn't change the fact that you lose control and have a huge downside, with not enough upside to justify the opportunity cost of giving up control of your money for decades.

TL;DR 401k? Not even once.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CareCPA]

So hopefully I won't get kicked out for saying this, but I haven't read the books yet. I came to this forum because it is a business forum full of people taking action on their ideas, and building the lives they want. There is a lot of pessimism and bad math in this thread though. I think if the market tanks enough that you've lost a significant portion of your invested money, then you'll have bigger societal issues than the few thousand you have socked away in your 401k.

Maybe @MJ DeMarco says in his books to never invest. I'll get around to reading the books soon. But I have some faith that the largest international companies on the market that I'm invested in probably know a thing or two about business. Do you really think Johnson & Johnson or Disney are going to tank right to $0? They have enough in physical assets alone that they could sell some and float the company for a while. People are not going to stop buying movies and toilet paper anytime soon. I'm not sure I would compare the free market to gambling. Who do you think the house is in that scenario, the government? That actually is a little too paranoid for my tastes.

Am I going to put every last dollar I have in the market? No, I'm going to invest in myself, but I'm also going to sock some away for the future. If I manage to completely screw up my business, at least I have a rainy day fund to fall back on. And a 10% penalty on a 401k withdrawal in a lower tax bracket is less than I would pay in income taxes on it today, so I still come out ahead.

If you guys want to completely avoid the market, that's your choice. But do it because you have a solid use for the money, not because of some of the fear-mongering going on here. If you have questions on the numbers, I'm happy to give some advice. My crystal ball is a little fuzzy at the moment, so I'm going to leave the speculating on when the global economy is going to collapse to the others here, who seem to know something I don't.

 

[kazmrczk]

One thing I haven't seen mentioned here is a vesting schedule. I'm not sure how long you've been with your company, but many have a time requirement before the match can be yours. So, if you've been there many years you may get 100% of their match but if its only been a few years, you may only get 25% of their match.

With that said, it doesn't appear you need the money right now. As others have said, you can roll the 401(k), no matter what the amount, to a traditional IRA and then maybe take a distribution in a year when you don't have much income, but if the business works well, you can just leave it in the IRA and avoid the 10% penalty.

You can actually hold different types (other than just stocks and mutual funds) of investments in an IRA, you might do some searching to see what types of things are available based on what you need.

 

[fhs8]

It depends on the situation but I think that it's a good idea to put money in the 401k because it's protected by ERISA. If you happen to have a business that does take off you would have wished you put money in your 401k before because you can only put in a maximum of 18k a year. IRA is not protected from lawsuits in a lot of states.

A number of different things can happen if you open a business and insurance doesn't always cover things due to a laundry list of exceptions. If you get sued by a patent troll, someone gets sick, an employee lawsuit, or the place burns down you could find yourself losing everything. Corporation doesn't do much to protect you. You'll almost always be named personally in a lawsuit.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[LauraMorenoCa]

If you're not hurting financially and you're able to have funds for your business while continuing to contribute I'd keep on doing it. Especially since your company matches.

I'll do that! Thanks so much!

 

[Elif]

Surely if you are concerned you can spread the risk.

Drop it to 5%?

 

[CareCPA]

If you guys want to completely avoid the market, that's your choice. But do it because you have a solid use for the money, not because of some of the fear-mongering going on here. If you have questions on the numbers, I'm happy to give some advice. My crystal ball is a little fuzzy at the moment, so I'm going to leave the speculating on when the global economy is going to collapse to the others here, who seem to know something I don't.

If you're going to quote me, at least give me credit.
@MJ DeMarco @Vigilante is this person for real? Emma Lee and Elif seem to have blown this place up in the last day.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[IGP]

If you're going to quote me, at least give me credit.
@MJ DeMarco @Vigilante is this person for real? Emma Lee and Elif seem to have blown this place up in the last day.

These are bots... they grab a past post from the thread and re-post it to look relevant.

All you can do is try to ban them.

 

[Anon101637]

Yup 401k is a complete scam I would never trust my employer controlling my finance and my money and I'm glad I don't people are just getting fooled by 401k that promise wonderful retirement but it's just a big lie stay away from 401k and manage them instead

 

[TheJon]

Appreciate this post! this is something I've been thinking about lately. I have a 6% dollar for dollar match. Seems like I'll keep it for now. Another thought is to borrow against it, which at this current interest for regular money might be a cheap way to get some short term capital

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.