Kiss your 401k GOODBYE, hard working workers

[markabilly]

Whining about taxes will soon be over, because:

Seems Uncle bama has a new plan to finance all the bailouts and crashing government pension plans, et all, ---

your 401k is going to be buying government bonds to fiance an annuity, that pays whatever meager sums when u retire, assuming you live long enough, to keep you yahoos from throwing your money away in the stock market or making other choices with your cash, like making yourself a loan or giving it to your kids when you die, or just taking it out and blowing it on some wine, women and song....

now one might think Uncle Bama would want to tax those fat cats making billions off bonuses that they STILL get, thanks to the bailout vii your money, but NOOOOOOO.....Hey, Wall Street did not contribute massive amounts of money to Bama for nothing, :rolleyes:

Indeed, what they gave McCain was a drop in the bucket, because they figured McCain would not bend over and sell out easy (since he did not do that as a prisoner in Hanoi), unlike Barack Hussein, "yes sir massa, I remembers who gave me all that money, don't you worry none" Bama.

What a sick joke--well read it and weep:

http://moneymorning.com/2010/01/27/retirement-plans/


As the good reverned Jimmie Jones would say, "Say it altogether, we love bama, and now drink the Kool-aide.... :rotflmao:

[Hondo]

I never, ever trusted the IRAs or the 401ks. Plus I didn't like not having access to the money without penalty. I was able and lucky enough to have done quite well for myself with self-directed brokerage accounts trading in stocks only. Never owned a single share of Enron.

[GridGirl]

Forgive me if I'm ingnorant but what on earth is this 401K that has been mentioned in a few threads now. I would google it but I don't think putting 401k in a search engine would yield too many useful results.

[GridGirl]

Actually no, its suprisingly easy to google. So after after a quick look am I right in thinking that its a defined contributions personal pension plan?

[Mark]

Sounded more like a tax code!

[Hondo]

a 401k is an individual retirement account to which you can contribute various percentages of your income. Up to x number of dollars, your employer will match each dollar you contribute with a certain percentage of that dollar. The amount the company throws in varies among companies. 25-50% would be the norm I think. The company hires a fund manager to handle the fund and make investments. As the value of the investsments grow, and the amount of shares you own grow, you can amass quite a bit of wealth.
OPINION
Good points: You are not charged any income taxes on money diverted into a 401k until you begin to withdrawl it. You are, in theory, guaranteed at least the return of the company matching funds. Example-If you put $2000.00 in your 401k and the company matched you at 25%, you would have made a minimum of 25% or $500.00 on your investment that year. Thats a damn good return. Go figure what you'd make on a savings account on $2000.00 for one year.

Bad points:If you need to withdrawl any of that money prior to reaching a certain age, there will be severe tax penalties. As your years with the company grow, the amount you can contribute shrinks. The types and variety of investment fund choices are limited. Pulling money out of your fund for an emergency (damn the taxes) is not a quick procedure and may take 30 days or longer. Most 401k plans limit the amount of changes you can make in the calender year i.e., you can't jump from a risk fund to a growth fund once a week. Your 401k is a personal asset so the IRS could attach it for any money you owed them as could someone with a private judgement. In both cases, each would be considered a withdrawl from your 401k and the IRS will hit you with severe tax penalties. 401ks can also be company assets that can be lost or severely discounted through bankruptcy.

401ks like all investments are used to grow wealth. Unfortunately growing wealth doesn't mean you have wealth. If you have $50,000 in a 401k now worth $200,000 on paper, you haven't made any money and won't until you cash in that investment and then reinvest it.

Many people figured 401ks were a for sure thing , the markets were good, they didn't have to pay attention to any of it, and the values went up every year. They have since learned otherwise.

[GridGirl]

This 401k thing is still a little confusing to me and 60% of my clients are pension scheme's. :p So this 401K is basically just like a bank account where you put x amount in and your employer might on average put 25% in as well? Its not invested in any other type of investment during that point in time? I dont quite understand how you make a guaranted 25% profit each year compared to to your example of investing the money in a bank account. Your basically saying that you are only making a profit because your employer gives you that extra 25%.

In the UK, an employer will give you the opportunity to join their own person Schemes if they have them. You make contributions, so does you employer and it either gets put into the Scheme's bank account or into its investments. By investments I mean pooled investment vehicles, equities, gilts etc so the value of your investment will fluctuate on an annual basis due to the changes in market value of those investments. I've seen millions wiped of the value of pension Schemes in the last couple of years due to this. This sounds somewhat different to you 401k accounts where you can only make money and not loose it.

Edit: Reading your post again I think I now understand it but your explanation is rather confusing to me and I actually know a little about pensions. :s

[chuck34]

This 401k thing is still a little confusing to me and 60% of my clients are pension scheme's. :p So this 401K is basically just like a bank account where you put x amount in and your employer might on average put 25% in as well? Its not invested in any other type of investment during that point in time? I dont quite understand how you make a guaranted 25% profit each year compared to to your example of investing the money in a bank account. Your basically saying that you are only making a profit because your employer gives you that extra 25%.

In the UK, an employer will give you the opportunity to join their own person Schemes if they have them. You make contributions, so does you employer and it either gets put into the Scheme's bank account or into its investments. By investments I mean pooled investment vehicles, equities, gilts etc so the value of your investment will fluctuate on an annual basis due to the changes in market value of those investments. I've seen millions wiped of the value of pension Schemes in the last couple of years due to this. This sounds somewhat different to you 401k accounts where you can only make money and not loose it.

Edit: Reading your post again I think I now understand it but your explanation is rather confusing to me and I actually know a little about pensions. :s

I'm by no means an expert, but I'll give it a shot. The 401k is an investment, it sounds a bit like your pension scheme you describe. You put X amount of your paycheck into "fund" that your employer sets up. This "fund" is sort of like an IRA. The amount you put into the fund is taken out of your paycheck pre-tax. And your employer will also contribute some percentage of what you invest, adding to your account.

Maybe that helps?

[markabilly]

It was intended to be your account, through a company, where you had choices of how to invest your money. if you withdraw before hitting age 60 (or 59.5), the money withdrawn is treated like ordinary income for tax purposes, plus a ten percent tax. One could make loans against the amount, invest in extremely safe ivestments to relatively risky investments, and when you left the comapny, the money remains yours that you contributed. If you were with the company long enough, the money contributed by the employer, also became yours.

Your contribution was tax free, another words whatever you contributed was not counted as income for tax purposes.

Upon leaving, all one needed to do was roll the money over into an IRA account, and the money remains in its tax free status as your individual savings account.



What appears to be the Bama plan, is that due to large debt, a fear that the Chinese will not keep buying bonds and so forth plus the massive new deficit, is to take that money and turn it into a purchase of government bonds, so that the government gets the money and you get the bonds, but only as form of an annuity, so when you die, there is not any more money left. And you are no longer free to withdraw the money and so forth.

Plus what you receve for your hard earned cash, is a government bond rate of return. When you stop to think about it, it is really nothing other than another form of social security, but per the article, it means the government can immediately finance several more trillions in debt, instead of taxing the fat cat bonuses, esp those of the wall street bailout.

In another words, this new plan is nothing MORE THAN A TAX, a combination between an inheritance tax and income tax, on something that was promised to not be taxed except upon withdrawl of money when you choose to withdraw it.

Like I said, there was a reason why Wall Street paid off Bama with campaign money, instead of McCain. They know he liked to talk some trash, but behind the scenes, they knew he would take care of the really fat cats, while the middle and upper middle class would be the ones really taxed.

mind you during the election, I supported neither, because neither really understood the economy and what really needs to be done.

Both had the same Wall Street advisors, and the only difference was that they had different names, but Wall Street did not trust McCain to do their bidding, and Johnnie might have made them actually pay from their own pockets to get bailed out.....whereas they knew their boy would not bite the hand that feeds him.... :rolleyes:

[GridGirl]

Chuck, that was about the only bit I understood and is pretty much the same with UK employer pension schemes. The bit I was confused about is what happens to the money later as Fiero basically said your making a good return compared to what you could individually invest mainly due to your employer making its own contribution to the fund. I've re-read Fiero's post and I now understand he means you can make good returns in theory. This wasnt particularly clear to me, especially as there was no mention of your 401k loosing money in the bad points.

[anthonyvop]

now one might think Uncle Bama would want to tax those fat cats making billions off bonuses that they STILL get, thanks to the bailout vii your money, but NOOOOOOO.....Hey, Wall Street did not contribute massive amounts of money to Bama for nothing, :rolleyes:

I:

Those "fat Cats" as you call them already pay one of the Highest Tax rates on the Planet.

How would punishing those who are successful in business going to help the economy?

[edv]

I have never had any faith in any government pension/retirement scheme.
In Canada, we have a decent capital gains exemption, unlike the USA (my wife and I are exempt from taxation on $1.5 Million).
But we cannot claim interest on mortgages as a deduction, as can be done in the USA.
This makes for some different credit dynamics between our countries.
But as a fiscal conservative, with no faith in gov't, I've invested in local brick and mortar and doubled my worth during this recession.

IMO you cannot go wrong if your attitude is: 'I will not rely on anyone other than myself'

[markabilly]

Those "fat Cats" as you call them already pay one of the Highest Tax rates on the Planet.

How would punishing those who are successful in business going to help the economy?
yeah, a whole 16% or less.......when real people lose their jobs and are forced to withdraw their 401k to pay for basis necessities, they pay the regular rate plus 10%.....and fat cats do not depend on 401k, as the contributions are capped :rolleyes:

[schmenke]

...
But we cannot claim interest on mortgages as a deduction, as can be done in the USA....

Which is a fundamental reason why Canada will likely never see a housing foreclosure crisis similar to what the U.S. recently experienced.

[anthonyvop]

yeah, a whole 16% or less.......when real people lose their jobs and are forced to withdraw their 401k to pay for basis necessities, they pay the regular rate plus 10%.....and fat cats do not depend on 401k, as the contributions are capped :rolleyes:

16%?


The highest rate is 35%
Add to that the Success Tax(Capital Gains)
Add to that State Tax(Income or property or both)

I can go on and on.
The highest Tax bracket in the US pays close to 50%

If you are a single person making between $34,000 – $82,400(in the range of the average "worker") you only pay 25%

The rich man uses the same roads, have the same police and fire service. Same garbage pickup.

SO HOW IS THAT FAIR?

[Jag_Warrior]

Bad points:If you need to withdrawl any of that money prior to reaching a certain age, there will be severe tax penalties.

That could be seen as a negative. But it keeps 30-somethings from pulling their money and buying a Corvette every ten years... which is why there is a penalty. I think there should be a penalty free category which would include life changing events like deaths, births or medical expenses.



As your years with the company grow, the amount you can contribute shrinks.

I'm not aware of this being common to 401k's. Perhaps some companies do that on their own. But the IRS code, as I understand it, only states that the total of both employee and employer contributions is limited to the lesser of 100% of your compensation or $49,000. It's not so much about the years with the company, but your level of compensation. There are also special rules and provisions that allow older workers to catch up.



The types and variety of investment fund choices are limited.

Again, this depends on the plan. I've had plans with Putnam, Fidelity and Vanguard. The fees charged and choices offered by each was quite different. Some companies offer their company stock as part of the plan, others do not. Depending on your employer and the plan administrator, the options may vary from the mild to the wild.



Pulling money out of your fund for an emergency (damn the taxes) is not a quick procedure and may take 30 days or longer.

True. But again, as far as how long it takes to get the money, it depends on the plan.



Most 401k plans limit the amount of changes you can make in the calender year i.e., you can't jump from a risk fund to a growth fund once a week.

At the point that one would be jumping back & forth between funds on a weekly or daily basis, you'd be classified as a trader, not an investor. If someone believes they need to be trading that frequently, a mutual fund is not for them in the first place (in a 401k or not). That's what stocks, options and exchange traded funds (ETF's) are for. Frequent trading (without penalty) would inflate fund expenses and would cause other investors to suffer.



Your 401k is a personal asset so the IRS could attach it for any money you owed them as could someone with a private judgement. In both cases, each would be considered a withdrawl from your 401k and the IRS will hit you with severe tax penalties.

There are very, very few assets that the IRS cannot attach. As for private party (civil) judgments, as you said, the 401k is a personal (private) asset. It, like any other personal asset that you hold, would be subject to liens or attachments.



401ks can also be company assets that can be lost or severely discounted through bankruptcy.

Not really. 401k's are typically held in trust. While they may become "orphaned" if the employer goes bankrupt or goes out of business, the assets are not subject to creditors, if they are under the control of a reputable third-party administrator. An orphaned 401k may be hard to access. But the assets do not go down the tubes with the dead company, unless something hinky (or illegal) has taken place. However, if you hold stock in the bankrupt company as part of your 401k, of course that is going to suffer the same fate as the shares held outside the plan. A friend of mine worked for Wachovia when it caught fire, and the company stock took a massive hit, so her 401k took a massive hit. Lesson: don't over invest in any one particular asset class or instrument.



401ks like all investments are used to grow wealth. Unfortunately growing wealth doesn't mean you have wealth. If you have $50,000 in a 401k now worth $200,000 on paper, you haven't made any money and won't until you cash in that investment and then reinvest it.

Which is no different from any other asset, whether it be real estate, a bar of gold or a share of stock held outside a 401k or IRA. The fair market value of any asset is determined by the market, at a time when a ready, wiling and able buyer comes to terms with a ready, willing and able seller.



Many people figured 401ks were a for sure thing , the markets were good, they didn't have to pay attention to any of it, and the values went up every year. They have since learned otherwise.

Yes, but again, this was true of most assets over the past year and a half.

And backing up, I haven't read anything about this alleged proposal any place other than this article. I detect some hyperbole in it (akin to grandma getting unplugged in the dead of night by Nobama and his secret army of Muslim death doctors), so I'll reserve my opinion until I see what the real deal is. :)

[Hondo]

I never got into a 401k. All of mine came from self-directed accounts trading in stocks only and converting wealth into reinvestment cash regularly. It still does.

[markabilly]

16%?


The highest rate is 35%
Add to that the Success Tax(Capital Gains)
Add to that State Tax(Income or property or both)

I can go on and on.
The highest Tax bracket in the US pays close to 50%

If you are a single person making between $34,000 – $82,400(in the range of the average "worker") you only pay 25%

The rich man uses the same roads, have the same police and fire service. Same garbage pickup.

SO HOW IS THAT FAIR?
:laugh: :crazy:

Funny
FUNNY YOU SHOULD ASK, mind you they are only making $$945k per day....


----

http://www.politicsdaily.com/2010/02...a-tax-haircut/ (http://www.politicsdaily.com/2010/02/20/the-fortunate-400-and-why-they-need-a-tax-haircut/)
read the studies cited in the article, and the rich get richer and the poor get poorer as in 2007 compared to 2006, they got $1.5 million more a week compared to $75 a week more for the average working guy, yet pay a tax rate of about 16%, compared to that greedy Capitalist Hazell


According to tax authorities (http://www.irs.gov/pub/irs-soi/07intop400.pdf), the richest 400 taxpayers each received the equivalent of an $82 million bonus in 2007. These households had an average $345 million income, a 30 percent increase from the previous year, when they made $263 million.the richest 400 taxpayers received an extra $1.5 million each week in 2007, compared with 2006. By contrast, the median full-time worker earned an additional $75 more each week over the same period.

[markabilly]

I'm not sure if you are descibing me as either right-wing or as angry. I can live with being called right-wing, but I am not angry.

That is until you try to confiscate any of my property. Then you'll see me get angry.

That was my point about the new regs....it is confiscation of something promised.....

[anthonyvop]

That was my point about the new regs....it is confiscation of something promised.....

There is an old Joke that is actually wise words to live by.

What are the 3 biggest lies?

1. The Check is in the mail.

2 I won't *** in your mouth.

3. I am from the Government. I am hear to help you.

[anthonyvop]

:laugh: :crazy:

Funny
FUNNY YOU SHOULD ASK, mind you they are only making $$945k per day....


Well? How is it fair?

[chuck34]

:laugh: :crazy:

Funny
FUNNY YOU SHOULD ASK, mind you they are only making $$945k per day....

You seem to think that $945,000 is too much, and that somehow that gives you the right to confiscate these people's wealth. So what is the limit to what one can make? Don't give me any himing or hawing, all I want is a number. $100, $300k, $1million. How much is one entitled to earn? And how much is the government entitled to take?

[Jag_Warrior]

I never got into a 401k. All of mine came from self-directed accounts trading in stocks only and converting wealth into reinvestment cash regularly. It still does.

I understand. I just wanted to point out that 401k's are not created (or administered) equally. The best one I was ever in was with a company that only matched contributions when purchasing company stock (they eventually removed that condition, and began matching ALL contributions in the late 90's). It was a GREAT deal. I mean, for every $1 that was put in, they gave you 50 cents... up to a max percentage of your annual earnings - 6% maybe... I can't recall just now. But anyway, once I'd built up a nice little amount, it seemed to me that the stock was overvalued. I didn't want to get mauled by the penalty and taxes, so I executed a loan. Tax free, but there was interest on the loan... which I paid to ME! So I pulled some money out, put it in my personal brokerage account and repaid the loan, which bought the company stock again... only this time, at a lower price than where I sold it when I did the loan. Maybe I was good, maybe I was lucky with my timing. But it worked out rather well.

But not all plans allow you to take out loans as easily as that company did. And if you're not disciplined, you can easily get yourself into trouble (the loan has to be paid back while you're still employed there, or you'll have to make a lump sum payment when you leave - or get hit with that nasty penalty).

But if you're going to offer me 50 cents for every dollar that I put into something relatively sound (you can buy company stock, if it's offered, a money market mutual fund or an index fund... your choice), I'm going to take your money before you change your mind.

Any younger person who doesn't take advantage of a 401k is probably making the biggest financial mistake of their lives. But with that said, again, some are better than others. I've since rolled my old 401k's into an IRA trading account. But I always sign up for the 401k if I figure I'm going to be with a company for at least three years. It's usually just too good a deal to pass up.

[Hondo]

I did good trading stocks and it was something I paid attention to every day. I started my brokerage account with $100.00 a week and 50% of overtime going in on direct deposit. That built up a neat little pile of money quickly. Once I started going, I would buy stocks in blocks of 1000 shares at a time. If that stock went up just $.25 in value in a day (not uncommon to go up and down by that much over the course of a day) that was $250.00 or about $192.00 after fees and max cap gains tax. Through the '90s a lot of wealth was created but not converted into cash. My wealth was converted.
401ks are good for some people but I always preferred to be liquid and have cash available without penalty and, as this thread has stated, you never know when the government is going to change the rules. I have no regrets.

[Jag_Warrior]

Well, that's the key, Fiero: once you find something that works for you, keep doing it over & over. So if that's worked for you, keep on truckin'. :up: But very few frequent traders (even professional money managers) actually beat the S&P 500 on an annualized basis for any length of time. So for the average person, as equity investments go, mutual funds usually deliver better results over time. But no different than real estate, it all depends on your level of knowledge and discipline. And one should be diversified. I wouldn't count on stocks to fund my retirement (100%) any more than I would real estate. In fact, to actually build wealth, real estate (done right) is very hard to beat.

For a young(er) person, buying a duplex and renting out half, while living in the other half, is typically a good move. Real estate is good because you can employ greater leverage than with stocks (for the smaller investor). Leverage can go against you too - as many have found out. Though if I'm in a deal that goes south, would I rather it be my money that catches fire... or the bank's? ;) But let's say someone buys a duplex using an owner occupied FHA 203b loan. I think those still allow 3% down +/-. Let's say the duplex can be bought for $250K. So for roughly $7500, one can control a quarter million piece of property. To control an equal amount of stock would require $125K (at 50% margin). You live in half and collect (let's assume) $1200/mo in rent. At today's rates, your P&I payment would be in the $1300 range... total payment probably in the $1600 range, exclusive of HOA fees (if there are any). So you can choose to live there and have a net payment of around $400/mo, or you can move out after a year or so and collect a positive cashflow of $800/mo. Assume that rents never go up and the property never appreciates... in 30 years time (minus the year that you lived there) you've collected over $275K in positive cashflow, you have a $250K property that is paid for and you've been able to depreciate that property on your taxes for that entire time. If the person in question is in their mid 20's when they do that first deal, they're in their mid 50's now. For their initial $7500 investment, they'd have that $250K asset and now, $2400/mo in free cashflow. I've been trading stocks since the mid 80's and I enjoy it. But I know what butters my bread.

So while I play up 401k's, or whatever type defined retirement plan a person has access to, the real wealth in America (for the middle class) tends to come from ownership of real property. But with that said, it's not for everybody. It takes a tremendous amount of discipline and it can be VERY stressful. But if I was talking to a young person with a good head on his shoulders and a spine of steel, I'd tell him to get a good job in a profession that he enjoys, contribute to that 401k no matter what the market is doing and make his first place a duplex, bought with maximum leverage. In 30 years, he can come by the Shady Acres Rest Home and thank me - and bring a pretty nurse by for the old man to stare at! :D

[dunes]

Lets see you're union stweards save you from this.
If you haven't invested smartly you could end up poorer than me.Now I find that funny.You paid all that money to be protected from your company on ly to have your company dumped on by our president.