technolog

I've just started work (my first job in the US - I'm currently undergoing AOS to CPR) and my employer (small - about 40 employees) offers an unmatched 401k pension savings plan, i.e. they don't contribute to it though they say they are hoping to in the future (I'm guessing this was just interview-speak and it'll likely never happen).

Is it a 'no-brainer' to join it or can I get similar or better provision myself from a third party? Are there any things I should be aware of whilst perusing the policy booklet?

Hotscot

It's certainly a good idea to set something up.
At the very least it could reduce your taxes.

There are a few caveats though.
You should research the investments, vesting etc.
And depending on how much you want to save at the moment you could also research Traditional and Roth IRA's.

Have a read of this....

http://lifehacker.com/should-i-put-m...t-o-1665628446

Pulaski

Employer-based 401Ks often have a limited range of investments, but much lower charges. Given that fees and charges can turn a top performing fund into a so-so one, and most average funds into very poorly performing ones, I would take an employer's 401K if it has low charges, every time over a stand-alone scheme with more investment choices. .... So first find out what the charges are for your employer's 401K.

markonline1

My employer will add a maximum of $200 a year to any 401K payments. Coming from a great pension in the UK ( I know they are different), I actually find that quite offensive. Sod paying into that. Instead, I'm using Roth IRA's, not that I know anything about them LOL. Luckily, the wife works for Fidelity.

Pulaski

The $200 is "free money". I agree it is an insult, but unless there are onerous conditions attached, you'd be a mug not to take it.

Hotscot

It seems weird though...setting up a system for a company contribution of less than $20.00 a month...very strange..

Michael

The only alternate private option available that has the same tax benefits of a 401K is a traditional IRA but the maximum contribution is limited to $5,500 per year and that amount decreases or is eliminated as your income increases beyond a certain amount. A 401K has a higher contribution limit and your income doesn't affect the contribution limit.

IRA Contribution Limits

If you quit your job, you can then rollover your 401K to a traditional IRA account without penalties or taxes. Often people, who understand, rollover a 401K to low expense ratio Vanguard mutual funds or ETFs directly to a Vanguard IRA account or to an IRA brokerage account such as TD Ameritrade that offer commission free ETFs that include low expense ratio Vanguard ETFs.

TD Ameritrade Commission-Free ETFs

Michael

My son's employer offers T. Rowe Price funds which are actively managed mutual funds which charge a high expense ratio plus hidden charges. Next year luckily the company is switching to Vanguard funds which have a very low expense ratio, little to no hidden charges, and are not actively managed.

Also Vanguard funds overall outperform T. Rowe Price funds after expenses.

In my opinion, actively managed usually means that the fund manager actively takes your money.

Michael

Roth IRAs are 'after tax' contributions (taxes paid on your income) but have the advantage that at retirement, distributions are tax free and you can withdraw contributions at any time tax free. A traditional IRA or a 401K are 'before tax' contributions (contributions are deducted from income before taxes are calculated) but has the disadvantage that distributions at retirement are taxed as normal income but for many, income at retirement will be lower so the tax rate will be lower or possibly even tax free.

Fidelity also has some low expense ratio funds (the Spartan funds).

If you're looking to build a portfolio of low-cost index funds, you'll find a wide array of choices at Fidelity. We now offer 16 index funds that attempt to track the performance of a range of the most widely followed equity and fixed income indexes.

Fidelity Index Funds

SanDiegogirl

Look at Vanguard funds - lowest charges in the business and a good history for returns.

petitefrancaise

Tony Robbins' new book mastering the money game is an excellent resource.

I'm reading through it and looking at our financial plans, starting to shake my head at what we've been offered through the company 401k.

Best advice I can give based on my reading of the book so far (bear in mind that I know a lot about teeth but next to nothing about investments in the USA) is to find a registered fiduciary = An independent financial advisor who receives no commission but to whom you pay a fee.

Our company 401k is invested in a target date plan which according to Mr Robbins' book is about the worst thing going, so we will definitely be off somewhere for advice. Thank God it's only been just over a year.

Michael

With a 401K, you can't invest in anything except what is offered by the employer. My last job, the 401K was for Fidelity funds but Fidelity eventually also offered plan participants a brokerage account for their 401K with the Fidelity brokerage allowing participants to invest in any security offered by the brokerage for a $50 per year fee (they'll always figure out a way to get more fees than a IRA account since you are a trapped customer) plus the normal commissions.

Owen778

That sounded like an interesting book to me, so I went to find out more information. The review on amazon that shows up as "Most helpful" is eye-opening. It seems that the book generally gives out very good advice, but there is a lot of fluff and non-financial discussion, and much of the advice contradicts itself. In particular, recommending index funds yet also recommending high-fee active investment managers.

petitefrancaise

hi Owen,
well I've got to page200 or so and I can categorically say that he does not recommend high fee active management.

What is great about this book is that it gives a very detailed look into retirement planning/saving and for people like us who are new to the system, I have found it invaluable. I will definitely be visiting an independant advisor so for that alone, the book has been worth the price and time taken to read it.

Hotscot

But he does have a book to sell.

Independent advisers can cost, and cannot guarantee returns.
In many cases a low cost index fund will readily beat an active account.

Regarding retirement accounts the steps to maximize savings and reduce taxes are fairly straightforward depending what savings structures you have access to. There's no magic or epiphanies in it. 200 pages is about 190 pages too much already.

Vanguard has an excellent site with tools to compare funds.
Also Morningstar.