I'm 22 (about to turn 23 in 6 weeks) My company offers a 401(k) program which I have been participating in since March. I currently put in 5% of my pre-tax income in, which my company maches 5% of. Is this enough, should I be putting more in? I make about $35,000 a year and am currently living at home. Between my car payment and other payments, I am paying about $650 a month in bills.
2007-11-14 06:24:58 · 10 answers · asked by Joe 2 in Business & Finance ➔ Investing
Put in as much as you can...that is a great deal when they match..you're sitting on an oil well that's making money for you while you are sleeping....put in all you can afford...is your name lucky?
2007-11-14 06:33:48 · answer #1 · answered by gvh 3 · 0⤊ 1⤋
I am going to give you a little different advice than the previous responders. One of the problems with many 401k plans is the poor choices the company offers participants. Some verge on negligent. It is fine to get the company match and smart. But there are two other options available to you which in my opinion are better options. They are both IRA accounts. One is the Roth IRA account. The other the traditional IRA account. At one time if your were enrolled in a 401k you could not also contribute to an IRA. That has changed. In your tax bracket you are currently not effected. You can contribute up to $4000 a year. Under current law when your income reaches $50,000 then there are limits.
The difference between a Roth and traditional is significant. With the tradtional the contribitions are non-taxed. With a Roth they are taxed. But and this is a big but. When you withdraw the money from a traditional it is taxed. When you withdraw the money from a Roth it is not taxed. So a Roth earns money tax free. A traditional like a 401k is only tax deferred. Without going into all the math I can tell you that if you were to contribute $4000 annually into a Roth IRA, in 40 years at 10% annual growth you will have $1,770,000 earning $177,000 annually tax free. Think about that. Of course the way the government is currently run, in 40 years that may only buy you a loaf of bread.
The big advantage of the IRA accounts is that they are managed by you and not the company. You can invest in what you wish without too many limits. You can set your account up with one of the large mutual fund companies and invest in a wide selection of their offerings or you can set your account up with a brokerage company and buy stocks, bonds, mutual funds, cds, t-bills, and I do not know what all else. Also you can have more than one IRA account and you can transfer the account from one custodian to another.
2007-11-14 07:55:28 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Definitely! Put as much as you can. Some companies will allow up to 15%. Even though your company will only match 5% the other 10% is pre tax money that you're putting into your retirement fund. Since you're starting young you may even have enough to retire early! I say YES! Go for the max allowable. You have a small dollar amount of bills which gives you a lot of "play" money. If you plan on putting that money into a savings account anyway why not do it when it will be pre tax? It's a concept of paying yourself first. :)
2007-11-14 06:30:48 · answer #3 · answered by ZUBULUBU 2 · 1⤊ 0⤋
The Diehards believe in the general guideline. Up to the max you can afford.
1. 401K to company match.
2. Roth IRA to max
3. 401K to Max
4. Taxable investments.
You can check into how good your mutual fund is bychecking it against its peers and against its index.
Peer index review at www.fundalarm.com You can get a feel for the quality of the funds.
www.yahoo.com - Financial - put in ticker symbol and profile gives you costs.as well as some other niice stuff.
When you get a company match it covers for some fund issues. The point is to save Tax -Protected. You have some information the Company has to comply with Federal Gov't stuff that should tell you everything.
401K/IRA is a good thing - You should be congratulated for saving so early in life. Please checkout Diehards.org has some great info on investing. Free.
Good Luck Gerry
2007-11-14 09:37:53 · answer #4 · answered by tndiehard 2 · 0⤊ 0⤋
I would contribute up to what your company will match and any extra disposable income invest into a roth IRA (up to the milit of 4K per year). This way you would have 2 pots of money in retirement, one taxable and one tax free (Roth). You make 35K a year and only have 650/Month expenses, that is fantastic, take advantage of that now because your expenses will surely rise in the future.
2007-11-14 07:30:59 · answer #5 · answered by scott s 2 · 0⤊ 0⤋
Save what you can Joe.
Pensions and other investments carry risks,
This is something a lot of people over look. So my advice would be to continue with the scheme and try to save as much money as you can into a savings account.
If you do wish to gamble, ie take out additional pensions or invest in stocks/ shares etc , then may be think about only using 10 % of your savings.
2007-11-14 06:32:50 · answer #6 · answered by JayEleven 3 · 0⤊ 0⤋
While you are living at home and have no children, you can easily put in a large amount of money. Letter, you will have to pay rent or a mortgage, and will have to feed and clothe children. Put in as much as you can now. In 40 years (when you retire), it will be worth more than many years of contributions later.
2007-11-14 07:39:42 · answer #7 · answered by StephenWeinstein 7 · 0⤊ 0⤋
As long as you can change it later, if need be......but as much in as the company will match. Pay your bills and put the balance of money in savings or investments.
2007-11-14 06:29:04 · answer #8 · answered by tone 6 · 1⤊ 0⤋
Invest as much as you can, up to the IRS max, there will probably come a time when you can't invest as much. But the sooner you start the better.
2007-11-14 06:32:55 · answer #9 · answered by Anonymous · 1⤊ 0⤋
Enough!
You need to have a life too!!
It is not al about retirement!!
2007-11-14 06:30:24 · answer #10 · answered by professortvz 3 · 0⤊ 1⤋