A 401K question, when to stop contributing.

[RSKY]

At what age should one quit putting money into a 401K.

My oldest has two daughters and one starts college next year and the other starts high school at the same time. The expenses go way up with girls that age. I know that from experience. I realize that the past year or so has been exceptional with all in my immediate family that have 401Ks making well over 25% return on investment. That will not continue for very many years. She and her husband both have 401Ks and Fidelity IRAs or investment accounts. That is my influence on her and him.

I am close to telling my oldest to stop putting money into her 401K and instead put it in a Fidelity IRA or maybe her Fidelity Investment Account in one of the higher yielding mutual funds because it is easier to get the money out if needed. And if taxes hit her too hard she could put money into an IRA next year. I cannot see the advantage of continuing a non-employer matching 401K over other investments especially if they are going to need the cash for college and other things.

Looking to the tractor/investment experts on TBN for advice!

RSKY

 

[CH4Ohio]

So there's no employer-match at all? Isn't that pretty unusual?

I would think that putting their money into a ROTH IRA would beat most other options. There's no "private" fund they can drop monthly contributions into that will let their earnings grow tax-free.

I read your post, but still don't understand why you'd suggest they quit contributing.

 

[KennyG]

The tax advantage is real, especially for Roth 401ks. If a real emergency arises I think most plans allow you to borrow from your account.

 

[dodge man]

You should stop putting money in when you retire and can’t any longer. A Roth can be a good mix along with 401k. I retired a couple of months before I turned 58 and my wife was 55. Most of this was do to 401k we both took advantage of and my wife also had a pension.

 

[RSKY]

So there's no employer-match at all? Isn't that pretty unusual?

I would think that putting their money into a ROTH IRA would beat most other options. There's no "private" fund they can drop monthly contributions into that will let their earnings grow tax-free.

I read your post, but still don't understand why you'd suggest they quit contributing.

She has an excellent pension. As a KY school teacher my wife lost $40 take home pay when she retired. Daughter is a teacher in the same retirement classification. Places with good pensions usually don't match.

As to why she might consider stopping contributing, her IRA has many more choices of funds to invest in. It returned over 5% better than her 401K. And finally I think she is going to need the cash this year and it takes about twice as long to get it out of the teachers retirement system than it does out of Fidelity. At least it did fifteen years ago.

Her husband has a 401K with his employer and I believe they match some amount but I'm not sure.

RSKY

 

[workinonit]

In SC the retirement system is contributory bit it is separate from the Deferred Comp or 401K which was also a matched program. Retirement contributions are not optional. 401K is. If stopping the 401K contributions does not affect the retirement amount I would say it is worth doing if you can get into higher yielding funds. But if there is a negative effect on retirement do not touch it. My state retirement is not much but man is it a big help for us.

 

[oosik]

I started socking away money when I got a permanent job and - fortunately - can continue on into retirement. I don't think 401K's were available that long ago. The government made a small match.

But the amazing thing - they provide a unbelievable good retirement package. Full medical insurance coverage at no cost upon retirement.

2025 would have been a disaster - for me - without this program.

 

[Carl_NH]

Not knowing her/their exact financial situation or liquidity, would determine how much to put in a IRA. Second, with the first one going to college - 16 months from now, that's not a lot of time for compounding interest. Reducing the % going into the 401K and put more into the IRA, how much in each is dependent on their financial situation.

But for the younger daughter, I can see the IRA makes sense, as she has 3-5 years of runway for growth.

Then look at the options for borrowing against the 401K for educational purposes - and paying yourself the interest if that's an option? Then FAFSA, loans, grants, scholarships, etc. and which school, in state, out of state are all part of the equation.

 

[CloverKnollFarms]

At what age should one quit putting money into a 401K.

My oldest has two daughters and one starts college next year and the other starts high school at the same time. The expenses go way up with girls that age. I know that from experience. I realize that the past year or so has been exceptional with all in my immediate family that have 401Ks making well over 25% return on investment. That will not continue for very many years. She and her husband both have 401Ks and Fidelity IRAs or investment accounts. That is my influence on her and him.

I am close to telling my oldest to stop putting money into her 401K and instead put it in a Fidelity IRA or maybe her Fidelity Investment Account in one of the higher yielding mutual funds because it is easier to get the money out if needed. And if taxes hit her too hard she could put money into an IRA next year. I cannot see the advantage of continuing a non-employer matching 401K over other investments especially if they are going to need the cash for college and other things.

Looking to the tractor/investment experts on TBN for advice!

RSKY

I stopped when I retired at 47.

Basically because I had enough in there to last through retirement and enough in cash to get me to retirement.

College funding IMHO should not threaten your ability to retire. Your child isnt supporting you after retirement, so your support of them shouldn't threaten your ability to survive.

Its probably not a binary choice. You can likely still contribute to a retirement account and raise your kids. Maybe you can't. I would look at my budget, a written budget, and decide what I have to spend on them and invest. But I would not put college funding above my ability to retire.

We paid for both of our children to go to college with 529 plans. Half of the money they used was growth from investing. We only funded those accounts to the level we could afford while still securing our retirement. That $$ amount came from our written budget. So, basically from our overflow.

We also chose not to have car payments, house payments or any sort of debt to make that happen.

Maybe they find areas in their lifestyle that can be sacrificed to help afford all of these goals.

 

[Torvy]

She has an excellent pension. As a KY school teacher my wife lost $40 take home pay when she retired. Daughter is a teacher in the same retirement classification. Places with good pensions usually don't match.

As to why she might consider stopping contributing, her IRA has many more choices of funds to invest in. It returned over 5% better than her 401K. And finally I think she is going to need the cash this year and it takes about twice as long to get it out of the teachers retirement system than it does out of Fidelity. At least it did fifteen years ago.

Her husband has a 401K with his employer and I believe they match some amount but I'm not sure.

RSKY

Technically, the teacher system isn't a 401k. It's a 403B. They are a bigger PITA to work with than a 401K. My thinking is that it is more because of incompetent administration staff than anything inherent to a 403B.

Most of my retirement was in 401K, but I had a 403B for the years I was teaching. When I talked to my investment guy about rolling my various funds into his management umbrella, he groaned about the 403B. They make it unnecessarily difficult to roll them, too. Apparently, I have to take a 3-hour drive back to the Admin office and do it in person. If they just let the industry manage those (Fidelity, Vanguard, TRowe, etc) I think the process would be better.

I don't recall if the ISD had any matching. It is allowed under the rules. Teacher pensions are nice, but they are in lieu of SocSec, not in addition to it. (It is possible in narrow circumstances to have both, but they don't stack).

The tax deferred nature of the income is another advantage. Also, you can put considerably more money into a 403B annually than an IRA (like 3-4X).

For 95% of people, I would never recommend not contributing the max to your 401K/403B.

 

[Oaktree]

So there's no employer-match at all? Isn't that pretty unusual?

Not really. Any place I ever worked that offered one either didn't do a match, or discontinued it after a while.

 

[dieselscout80]

As long as someone is working why NOT contribute to a 401k and especially if getting matching dollars.

If getting matching money and you don’t it’s like throwing a way free chicken ($$$).

 

[dodge man]

I would discourage anyone from borrowing against their 401k. If finical woes hit just stop contributing. Cut back on luxury items like cable tv, high priced cell phones etc before borrowing from 401k.

 

[Torvy]

Not really. Any place I ever worked that offered one either didn't do a match, or discontinued it after a while.

Be careful with anecdotal evidence.

According to this article, 98% of employers offer some type of matching.

How Much Do Companies Typically Match on 401(k)

www.myubiquity.com

 

[Torvy]

I would discourage anyone from borrowing against their 401k. If finical woes hit just stop contributing. Cut back on luxury items like cable tv, high priced cell phones etc before borrowing from 401k.

It is usually a better idea if you borrow from your 401k, than take out a loan from someone else. You are paying interest back to yourself.

I agree that for month-to-month problems, cutting spending is better.

Using that money to avoid paying mortgage insurance or to buy a house versus renting? Almost always a better idea.

 

[JRH02]

To the OP: I would absolutely suggest to ALWAYS continue to contribute to a 401K/Roth at least up to the employer match. You just gave yourself a raise in pay with no tax liability. But almost as important is to have three to six months of pay in a liquid account (NOT passbook savings) for emergencies like job loss or an accident.

Regarding adult children, without that emergency reserve, it's just too tempting to withdraw from a retirement sheltered 401k account and in addition to the tax liability and loss of compounding return is the 10%. It's a terrible thing to do. But I've seen it many times.

 

[Oaktree]

Be careful with anecdotal evidence.

According to this article, 98% of employers offer some type of matching.

How Much Do Companies Typically Match on 401(k)

www.myubiquity.com

Not sure how accurate that article is. I have a hard time believing I managed to choose 3 different employers who were part of that 2%. Granted all 3 were relatively small companies. Other than a supermarket chain I worked p/t at 30+ years ago, I haven't ever worked for a large firm.

As far as continuing to make contributions, even though I'm mostly retired, I still do some outside work and still put money into my IRA, and will as long as I'm allowed to.

 

[CloverKnollFarms]

401k loans may allow you to pay interest to yourself, but your opportunity cost is insane! If the market returns 20%, you effectively paid 20% interest there alone.

Might as well use a credit card at that point.

 

[airbiscuit]

Typically the employer plan has lower expenses/fees. Her plan doesn't have something like an S&P500 index plan?

 

[Torvy]

401k loans may allow you to pay interest to yourself, but your opportunity cost is insane! If the market returns 20%, you effectively paid 20% interest there alone.

Might as well use a credit card at that point.

Amen. The devil is in the details.

Paying PMI on your first house because you can't scrape 20% down payment...

Spreadsheets are your friend.