I started one in January and put in 8%. I wanna be able to retire at around 53 with enough money between my 401k and pension to travel all over the world when I retire.
I've been looking into this stuff the past few weeks. Sounds like I'm not really in a position to start a 401k or any other kind of investment at this stage but I'd really like to start some kind of investment as soon as possible. Just started paying student loans back this past week. :MARIS61:
You might want to consider putting in the minimum amount to get your employer to match, then opening an IRA. You should be able to put an additional 6K in there and be a little more aggressive with it. Also look to purchase some bonds. 401k's used to be more sure fire than they are now because people thought when they retired they would be in a lower tax bracket, but the way the economy is today, most experts now think that might not be the case.
Mick, how old are you? The older you are the more you need to put in. I worked at crappy jobs for so many years when I got to Genentech I had almost no retirement funds and was already 50 so I put in max plus catchup. It means cutting a lot of stuff now. And of course I am aware it could all go south if the stock market crashes again - which is why workers prefer the old retirement that is now pretty much a thing of the past. My father has guaranteed montly income from his pension plus Social Security. I don't know if I'm going to have either.
There is a maximum of 5k per person in an Ira; and that's without any other pension involved. If you put 5k in a 401k; you can't put in an Ira with the benefits of tax deferment. Our work offers a "simple Ira", with the company matching up to 6,000 of total employee investment. This plan allows the employee to put as much as 5% of their earnings.
Here is the details of a "Simple IRA" http://www.irs.gov/publications/p560/ch03.html#en_US_2012_publink10008872 Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. You, as the employer, must make either matching contributions or nonelective contributions, defined later. No other contributions can be made to the SIMPLE IRA plan. These contributions, which you can deduct, must be made timely. See Time limits for contributing funds, later. Salary reduction contributions. The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $11,500 for 2012 ($12,000 for 2013). These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $11,500 ($12,000 for 2013) limit. If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,000 for 2012 and $17,500 for 2013) on exclusion of salary reduction contributions and other elective deferrals. Catch-up contributions. A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. The catch-up contribution limit for 2012 and 2013 for SIMPLE IRA plans is $2,500. Salary reduction contributions are not treated as catch-up contributions for 2012 until they exceed $11,500 ($12,000 for 2013). However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. The catch-up contribution limit. The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Employer matching contributions. You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. This requirement does not apply if you make nonelective contributions as discussed later. Example. In 2012, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. You make 3% matching contributions. The total contribution you make for John is $2,000, figured as follows. Salary reduction contributions ($25,000 × .05) $1,250 Employer matching contribution ($25,000 × .03) 750 Total contributions $2,000 The total contribution you make for yourself is $5,200, figured as follows. Salary reduction contributions ($40,000 × .10) $4,000 Employer matching contribution ($40,000 × .03) 1,200 Total contributions $5,200 Lower percentage. If you choose a matching contribution less than 3%, the percentage must be at least 1%. You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Nonelective contributions. Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Only $250,000 of the employee's compensation can be taken into account to figure the contribution limit in 2012 ($255,000 in 2013). If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Example 1. In 2012, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. You make a 2% nonelective contribution. Both of you are under age 50. The total contribution you make for Jane is $4,320, figured as follows. Salary reduction contributions ($36,000 × .10) $3,600 2% nonelective contributions ($36,000 × .02) 720 Total contributions $4,320 The total contribution you make for yourself is $6,000, figured as follows. Salary reduction contributions ($50,000 × .10) $5,000 2% nonelective contributions ($50,000 × .02) 1,000 Total contributions $6,000 Example 2. Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,000, figured as follows. Salary reduction contributions (maximum amount allowed) $11,500 2% nonelective contributions ($75,000 × .02) 1,500 Total contributions $13,000 Time limits for contributing funds. You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions.
Started when I was 24. Wish I'd put in more at the start. Should have well over a million bucks in there when I'm done. Assuming the world doesn't implode or some major life thing doesn't derail it. I recommend everybody at least spend a few minutes with a 401k calculator every few years and see if where they are makes sense. Here's one, but there are bunch out there. http://www.calculator.net/401k-calculator.html
He should go to a backdoor Roth IRA. Again, if his goal is to retire at 60 and travel, put money in everything. My employer matches 50%, so I put in the max and get an extra 8k a year for free. I still am able to put a lot into a backdoor IRA and pay those taxes up front. That has allotted me an extra 5k or so a year for basically free. Plus, with Roth's you can take the money out tax free after 5 years, allowing him to buy gold
Yes you can do that, but the whole advantage of an IRA is the tax deferment. If you aren't getting the tax break, then why not open a personal investment account and pay the taxes when shares are sold? You have way less limitations with that program, without having any penalties for taking it out early.
I agree, but the way taxes are headed, a lot of investment experts are saying it's not bad to pay them up front for some of them
I started one at 21 at my prior job. Unfortunately, it's not what it should be because I pulled out money to buy some property (the positive here is that it helped me get into a house at a reasonable price that just may be my "forever" house, or at least a house that I could live in for 10-20 years, and if the market does recover, significant gains will be made, and then I can get into a smaller house and have significant cash in the bank or to invest). I have another 401k at my new job (well, of 2+ years). My wife has one as well. All things considered, where we have money invested between real estate, 401k's, etc.... I feel pretty comfortable.
I know you are an investment guru, so I wanted to see your opinion on my retirement strategy. 1.) I have a no term life insurance policy of $500k 2.) I have a simple IRA that brings in around 11k per year 3.) I have a personal investment account that is diversified with 75% in mutual funds and 25% in actual stocks. I put in 10k per year in this program. 4.) I own 3 investment properties (all paid in full); all with my ex wives or family members, paying little rent. These houses aren't really for me though. I willed each house to each of my 3 kids.
I started late, and didn't even have one until I was 29... so I'm making up for lost time. I'm putting in the max each year, plus my employer is putting in 3% (which doesn't count towards the limit). My goal is to be able to retire by 65 even if stock growth is abysmal (~2%). The better the market does, the sooner I'll be able to retire. I live a bit "below" my means but I'm not even feeling like I'm living without anything, since I grew up pretty poor.
I'm not super familiar with life insurance plans, so I don't have a comment on that. For your IRA... do you have a pre-tax 401k? In my opinion, the pre-tax 401k is the first retirement plan that should be maxed out. Deferring tax payments now is like having free money working for you over the next 20-40 years. Everybody's situation is different, buy many people will have lower income, but possibly higher capital gains, when they are retired so paying taxes later in a lower tax rate may help. For your investment account... Is there a reason why you buy mutual funds instead of ETFs? You can likely find an ETF that replicates almost any mutual fund, but the fees are usually much lower. For example, you can buy the SPY ETF which tracks the S&P 500, pays 2% dividends and has a negligible fee structure. Overall, I like the 75-25 split between funds and individual stocks. As I learn more and more, I'm less and less in individual stocks and only in ETFs / funds. Why do you have your investment properties paid in full? In a market where you can get almost free money at 3.X%, why not have the minimum amount down on those places and put your extra cash into other investments? Especially when taking into account that you get to write-off that interest, which makes your "effective" interest rate closer to 2.x%. Perhaps it isn't easy to find low-risk investments at > 3.5% right now, but at some point in the future, we'll see higher interest rates which means you may be able to put that cash in CDs making 5-10%. Just my uninformed opinions. Take them with a grain of salt.
