advice needed from all you financial guru's...

Discussion in 'Countryside Families' started by tinetine'sgoat, Dec 18, 2006.

  1. tinetine'sgoat

    tinetine'sgoat Luvin' my family in MO

    Messages:
    2,165
    Joined:
    Aug 4, 2005
    Location:
    Missouri
    Ok, dh and I have been giving alot of thought to our 401k accounts lately. Sometimes I feel as though they are a necessary part of life nowadays and other times I am seriously considering them a money sink where we could be doing more with the money keeping it in our own hands. It almost takes an act of congress to withdrawal money out of it, and that bothers me. What is the real risk involved with these? I remember my dad's getting nearly wiped out with black friday several years ago, and was wondering what they likely hood of that happening again is. We presently have about 35,000 in them and am curious if that amount of money invested through other avenues would be much more profitable, and accessible if needed. Any thoughts would be appreciated.
     
  2. morrowsmowers

    morrowsmowers Well-Known Member

    Messages:
    1,096
    Joined:
    Jun 14, 2004
    Location:
    NJ
    The real value in a 401k account is in the employers matching funds. I contribute 5% of my money into my account and the employer matches the first 3% at 100%, and the next 2% are matched at 50% so I make 3% more every two weeks in my account than if I just contributed on my own.

    Also, the contributions are made pre-tax. You have to be dilligent with how you invest your money within the funds -- I currently have mine divided over 3 funds.

    Getting your money out depends on the individual plan rules. Several times we have taken a loan against our own money eventually paying it back with interest. We also once took a hardship withdrawal which is controlled under IRS rules -- you have to prove certain conditions exist and you must already have taken a loan to try to alleviate the situation.

    Ken in Glassboro, NJ :)
     

  3. manygoatsnmore

    manygoatsnmore Well-Known Member Supporter

    Messages:
    10,357
    Joined:
    Feb 12, 2005
    Location:
    SW WA
    Yes, like Ken said, you need to take into account that it's tax-free money and is matched to a certain amount by the employer. That adds up. Then look at what fund you're in. Right now, I've been researching which fund I want to put my money in. The one it is in now has not made much more than the cost of inflation over the last couple years, and some of the other funds available are doing much better. I'm looking at transferring much of my account to an international fund. A little more risk, but a much better payoff. The rest I'll probably leave in a mixed fund (stocks and bonds, both). Doesn't grow as fast, but is less risky.

    No matter what kind of investment vehicle you use, there is risk. Buy real estate and the market could make a downturn, or you turn out to have something that prevents you from developing the land for re-sale. Stocks do go up and down, but over time, even with Black Fridays/Mondays/whatever, stocks do perform well. You just need to be sure that what you invest is invested for the long haul so you can pick when to pull money out of the market.

    Personally, I'd keep the 401K, and not take any money out of it. You have to repay money that you borrow from your fund, and you repay with post-tax dollars, so you lose twice, first by paying taxes and penalties on the withdrawal, and then by repaying them with post-taxed money. You don't have to put more in than what your employer matches. Then you could look at a Roth IRA, which uses post-taxed dollars to invest, but grows tax-free. You could look at buying a run-down house and flipping it, if you have the know-how to do this. There are lots of options out there for growing your money. It's a pretty individual choice and what works for me may be totally wrong for you.

    One more thing - paying off all your outstanding debt, including your home will save you more money over the long-haul than just about anything else. Some folks say not to do this because you get a tax break on the mortgage interest, but you are only getting 10%-33% of the mortgage interest deducted off your taxes....you are still losing money by paying interest on your loan. Also, there is more security in knowing that your home is paid for, and that you only need enpugh money to pay the taxes and upkeep, than in keeping the mortgage and investing the extra mortgage pmts in other ways. If that investment goes south, you still have the mortgage payment to make. If the mortgage is paid off, then you will have a lot more money each month to invest as you wish, and if your life takes a downturn, you can survive on a lot less income.

    Just my .02, of course. :)