401k question

:baby04:That's one heck of a performer... If you bought it in 2007 you'd be down 30%.
If you bought in 2000 you'd be up what 50%.... Sounds real good till you figure in taxes and inflation. The dividend has averaged 25 cents or so even if you held a share for 50 years it isn't much.


In reality stocks over the long haul lose value. Been that way for ever. Look at the 1925 DOW....

Well sorta,

Where does the cash for you come from if not from a sucker buying the stock at a fixed but higher price? He is buying it at a cost he thought was lower. What if he decides to not exercise his option.... Or worse doesn't have the cash.

It doesn't matter. That guy might be dead. The stocks, futures, options, etc are fungible. Its the same thing as going to the store with a $20 bill. It's not up to the last guy that bought something to cash your $20 bill. The clerk takes your money and gives you your change.
Also, in the Exxon example. Since July 23, 1976, Exxon stock has split 2:1 five times. That means that for every share you had previous to then, you now have 32. And you get the dividend on those 32 shares. Split adjusted, you would have paid 69 cents for each share you have today, and get $1.76 a year in dividends. So, every year, you get 255% profit in dividends alone. If you sold your stock right now, you would get an 8800% return. After having gotten that dividend for all those years.

Your comments remind me of those who are trying to sell to one of the many stock trading systems to traders. The difference is 'system sellers' cherry pick numbers, dates and times to paint a glowing picture, you cherry pick numbers to present the opposite view. Neither attempt to randomly choose points in time reflect the reality of a stock. Perhaps you have never been able to work out a method for buying stocks and making money. Knowing when to scale out of a position or tighten up a stop or admit you made a mistake is something few can consistently do when money is on the line.

Huh?

So a 50% increase (in 10 years) on a PRE-INCOME TAX investment, doesn't "cut it"?

What would the rate or return be on AFTER-TAX investment be in a bank account, or even better, stuffed in a mattress, since it too, is subject to both inflation and taxes.

FWIW, over the past 10 years, not even counting the stock price, EXXON has averaged 8% dividend return to it's shareholders.
http://www.dividendgrowthinvestor.co...-analysis.html

Please do share your tips on investments that do better.

Ok compare that to stuffing the cash in a safe... Just saving money in a coffee can it loses value in the long run.

You aren't figuring in splits and dividend reinvestment either..

Sure, I'll present the glass "half full".

If you are not near, or at, retirement age and are participating in a 401K, you should be quite optimistic.

The pre-tax money you you are investing (to live off of maybe 30 or 40 years away), is buying stocks AT ROCK BOTTOM PRICES!

If you were purchasing one share of $50 stock each month, two years ago,you may now be purchasing five shares of the same stock at $10/share.

The best way to come out ahead on investing, is to wake up, start educating youself and not rely on what other's (including me), TELL YOU is the right thing to do.

So the argument your making is rather than just burying it. You can save a tiny bit by using stocks? That's not the best argument. No?


The price in total on the charts take into account the splits... So they are figured in.

[QUOTE=arabian knight;4638175]The only reason the stock market is up in the 10K range, is because of the boomers 401K.
Just wait till those same boomers HAVE to take their 401's out of the market at the age of 70-1/2~!
The stock market will be at Half of what it is today~!
Yuppers when the baby boomers start pulling out of the market at 70-1/2 and that is law btw. The market will sink like a rock.
/QUOTE]

Okay, I'll bite.

Based on "Boomers" being born 1946 - 1964, that means that next year the early Boomers will be turning 65. If they haven't retired yet, they soon will be. Say the last Boomers born in 1964 have done well and will financially retire at age 50 in 2014.

Once they start cashing in those 401(k)'s (because they have to), just where do you think they are going to put that money? Under their mattress? Hidden in a jar out in the yard? Any one with any sense is going to keep some of that money invested. (Some of them are going to live into their 100's.)

According to your theory, when someone retires, they immediately pull EVERYTHING out of stocks and bonds and puts it into CD's or money market funds. Just because you retire, doesn't mean you abandon all stocks and bonds. (True, as you get up in age, you should scale back, but you should always have SOME in stocks and bonds for growth.)

Tell you what. I'm 43 right now and I'll probably retire around age 60 - 67. In 17 - 24 years, I'll contact you and let you know how my investments did. And if I'm as destitute as you seem to think I'll be, you should be able to help me out then!

__________________
Michael W. Smith in North-West Pennsylvania

"Everything happens for a reason."

The best way to make money in the stock market is to Diversify your portfolio, and STAY IN long term~! People have made money if they stay the course over a long period of time and then also check on stocks how they are doing and switch if necessary, to keep up the upward trend. And don't just pick out American Companies either.
Look how many people got pretty dern rich back in 2000 before the Doc Come bubble went boom.
Boy I bet millions of people are kicking themselves in the butt for not getting in on the ground floor of Microsoft, or how about Google?. Many people turned rich nearly over night in those stocks. And they are many stocks out there that were just as good also.
I am getting back into some stock like the company I used to work for, it is at a give away price now, and sure to go up in the next few years, as it can't get much lower lol.
Buy LOW Sell High. I got in to that stock at under 8 bucks a share when I was working for them, and sold at 38, now that was a good investment WAY more then any bank can give you.
Now back under 6 it is time to get back in. It dropped because of the economy just like many stocks have, but won't stay low, as they still have around 70% of the world market in the parts they make.,

__________________
Oh my, dishes yet to wash and dry

See My Pictures at
http://smg.photobucket.com/albums/0903/arabianknight/

I was trying to make it look the best it could. It did in fact go up 50% in the last 10 years. Your 8% .... Hmmm, Not so much. Seems more like 3%



So say you invested 100 in Exxon. You now would have 150 bucks in your account. After ten years the .GOV Found here http://data.bls.gov/cgi-bin/cpicalc.pl Says you need 126.60 to break even in regard to inflation. (this is predicated on the fact that you also believe Ground beef = Ny strip Steak) So YMMV.

If your tax rate is 15% (your as poor as me. ) we take 15% of the now 50 bucks. that's about 7.50 bucks. So you have 142.50 in todays dollars.


So it's 142.50 - 126.6 = 15.90 for 10 years. In a simple equation this works out to 1.5% per year in gains. Given the compound nature your less than 1% and this is with a 50% increase in stock price. Imagine the horror of the simple folks that had only a 25% rise. They get the luxury of paying tax on money lost to inflation.

Back to the 401 Questions. If you are over 59 1/2, you can take money out but have to count it as taxable income for the year you take it out? My Mom is going to call Fidelity and go over her options but she thought this was the gist of it? She should also probably call her accountant? She also has a HR department that I think could help her? She's trying to figure out exactly who she should call. I am trying to help her with her options.

__________________
Idleness is leisure gone to seed

It's not that simple, for those who understand how a 401K works.

First off, you are investing $100 of your pay - that you did not pay income tax on. The income tax is deferred, until you are older and therefore likey at a lower income tax rate. A worker could easily be in a 35-40% tax bracket when the money was invested and 15% bracket, when the tax is finally due.

You dispute the Exxon dividend reported at 8%. How do you figure 3%?

Since you figure that after 10 years, the rate of return on a $100 Exxon investment, is only $126, what would (after 10 years) the return be on after-tax $100 (after adjusted for inflation)doing nothing?

A "worker" (actually funny just writing it this way it starts at 350,000) in the 35% tax bracket.... WHO? Fact is most people in this country pay little or no taxes. Only the top 5% of wage earners would have the purported effect at all. And what like the top .005% would have the effect you report.

The five year average is 1.9%. see here. Your misinformed. The dividend rose 8%. It isn't 8%
http://finance.yahoo.com/q/ks?s=xom The chart is on the bottom to the right.


Who suggests putting it in a mattress? A good yield on a shopped for Tax free Muni or similar structured state bond will easily rival these returns and are insured with the blood sweat and tears of those investing in the market. Paying off their mortgage early, paying off all debt, etc. Would be far more advantageous. Imagine the idiocy of the average fellow. Making 50,000 a year and putting 10% into a 401K and paying high payments of 20% on the $2000 he owes on his sears card.

So you think risking principle is worth the paltry 3.5% rate of real return?

One more question on the 401K. My mom has a loan against her 401 and is almost 60 years old. If she pays herself back now, would she still pay taxes as earned income, since she technically is only paying herself back?

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Idleness is leisure gone to seed

I'm in a rush, so I haven't read all the other replies, but we just did this. Slightly different as it was a Davis-Bacon retirement account, not strictly a 401k and VERY tight rules. Husband got laid off and we knew in advance that we wanted it out. No question of us keeping it in one second longer than we had to. We used TurboTax and figured out roughly what we will owe in taxes, and it wasn't as bad as some told us. We had about $35k in there, sent $7500 straight to the IRS (bless their little hearts), and after figuring taxes, we set another $1000 aside to cover our rears. We paid off everything with the rest (including an old IRS and state tax liability) so that we would have no monthly payments while my husband was unemployed. We were left with less than $5k, but we got some silver with it (hubby is good and bought under spot price, plus silver has already gone up like $3/oz since he got it) and we had enough left that when a GREAT offer to buy a place came up, we were ready. $3k down and no monthly debt means we are now homeowners.

From what we read, there are loopholes for the penalties. There is the possibility if you haven't owned a home in 3 or 5 years (don't remember which) you qualify again as a 1st time homebuyer and up to I think it's $20k can be used for the purchase of your primary home without penalty. I believe that paying off obligations to the IRS is also not subject to the penalty. THere's a whole IRS pamphlet on it that lays the possibilities out. As I recall, there were a few more options if you could roll it over into an IRA and then start moving it around, too. Get that IRS pamphlet and go over it carefully!

We are 100% happy with our decision. Stock market may go up, may go down, but we now have land and can grow and raise food to feed our family. That's the bottom line for us. Good luck with your plans!!

Mouse Bandit

Mousebandit, it's good to see this thread getting back to my original post. Here is a little more details about my plans. I am only 43. My income will be about 50% higher next year because of the large buy out money from my employer. I do plan on offsetting the tax burden that year with the solar power system I plan to put on the home I am going to build. The second year after I quit work, is the year I plan to pull the money out of the 401k, or IRA if I have rolled it. My income at that point will be about as low as it has ever been. I only have about $66,000 in the 401k. This money would then be used to put a second vacation rental cabin on my property. My income over the next two years will be very minimal because my time will be invested in building these two cabins.

One more thing, I plan to have no mortgage on the property by doing these things as I have stated.

[QUOTE=stanb999;4638789]Fact is most people in this country pay little or no taxes.

Imagine the idiocy of the average fellow. Making 50,000 a year and putting 10% into a 401K and paying high payments of 20% on the $2000 he owes on his sears card./QUOTE]


"Most people in this country pay little or no taxes." REALLY?!? That's funny, each April I have to fill out LOCAL, STATE, & FEDERAL tax forms and if enough wasn't taken out of my paycheck, I have to pay MORE in. How is that that I'm paying "little or no taxes"?

Oh, I assure you, many average fellows put money into their 401(k) AND pay interest on credit cards. Good idea? ABSOLUTELY NOT!!! Many would be wise to get their debt paid down and then invest - but the problem is too many people want toys and NEWER toys. And even if they get a raise in their pay, that just seems to give them "approval" to go out and buy bigger and newer toys! Many want a new car and after a few years they trade that off to get another new car. They have a car payment for the rest of their life. Many go out and buy 4 wheelers, motorcycles, go on big vacations and just charge it on their credit card. Not wise, but many Americans want everything at once!

As for the 401(k), in addition to NOT paying income tax on that money right now (because it is taken out of my paycheck and goes straight into the 401(k) many companies MATCH an employees contribution. My employer puts in $.25 for every $1.00 I put in - no limit! So I make 25% immediately on my money! Not all, but many companys do have a matching congtribution. Don't forget that in the equation.

__________________
Michael W. Smith in North-West Pennsylvania

"Everything happens for a reason."

Yes, ALL money withdrawn from a 401(k) or IRA is counted as income for the year in which the withdrawal was made. And yes, even with her paying the loan money back - EVERYTHING will be counted as income when it's withdrawn. Her contributions plus whatever she gained in stock price increases, interest, or dividends ALL of it will be counted as income.

__________________
Michael W. Smith in North-West Pennsylvania

"Everything happens for a reason."