401K and Stock Questions

[aReformedPatriot]

My fellow Baptists, UPS is the first job that I will hold to have a 401K plan. They also allow me to buy "Class A" UPS stocks at a 10% discount without fees (whatever "class A" means, I have no idea).

My mom says I shouldn't be an idiot and to start investing 10% of my paychecks now. Do any of you have a 401K who can explain it to me, how much you make (or lose) annually from it, and the benefits. I dont want to be left out in the rain when Social Security crumbles but I want to know the best option I should take.

I also want to get into a mutual fund sooner or later, but isnt a 401K the same thing? What happens if I quit UPS, do I lose the money (I dont think I do)? And what's the difference between a 401K and a Roth IRA for instance?

If you guys can help with some of these questions, I'd be obliged.

:D

[arunma]

I'll be sure to ask my dad about this, since he often talks about 401(k) and other related issues.

I do have a general idea of what a roth IRA is, though. Apparently the money you invest into a roth IRA can be invested into the stock market without incurring any capital gains tax. Normally when you invest money into stock, your profits (if any) are taxed at a rate of about 20%. By investing with money from your roth IRA, you avoid the tax.

But someone please correct me if I'm wrong.

[aReformedPatriot]

I'll be sure to ask my dad about this, since he often talks about 401(k) and other related issues.

I do have a general idea of what a roth IRA is, though. Apparently the money you invest into a roth IRA can be invested into the stock market without incurring any capital gains tax. Normally when you invest money into stock, your profits (if any) are taxed at a rate of about 20%. By investing with money from your roth IRA, you avoid the tax.

But someone please correct me if I'm wrong.

Don't you avoid the taxation simply for the fact that money going into a Roth IRA has already been taxed to begin with? But I agree, ask your dad and get back to us. Nothing like words from Dad to educate the young and foolish.

[arunma]

Don't you avoid the taxation simply for the fact that money going into a Roth IRA has already been taxed to begin with?

Heh, you'd think so, wouldn't you? Actually, in politics this is the primary argument against capital gains tax. It appears to be a sort of "double taxation." You pay an income tax when you earn your money, and then you pay a capital gains tax when you use that money to make more money. Is it fair? Possibly not. But alas, that's the essence of the capital gains tax.

[Robinsegg]

Does UPS match any funds you put into these? If so, put in the max they'll match. This is the best use of your money. No, you don't lose any money, you can even "roll over" the funds you have into another retirement account w/o penalty, as long as it goes from one directly to another.

Rachel

[MrJim]

Does UPS match any funds you put into these? If so, put in the max they'll match. This is the best use of your money. No, you don't lose any money, you can even "roll over" the funds you have into another retirement account w/o penalty, as long as it goes from one directly to another.

Rachel

This is good advice-usually employers have matching funds.

OTOH instead of laying up treasure where moth and rust doth corrupt you could use that money to invest in a missionary somewhere...just tossin' it out there...

btw I have a 401k...one of the issues with them is that you don't always know where your money is going. It is very possible money could be invested into companies that are opposite to your beliefs. Nothing like finding out later your 401k money has been invested in Budweiser or Philip Morris or some Planned Parenthood thing...there are 401k plans out there that avoid these kinds of investment routes.

[Robinsegg]

Some companies will let you choose what companies your 401(k) invests in, too.

Rachel

[aReformedPatriot]

OTOH instead of laying up treasure where moth and rust doth corrupt you could use that money to invest in a missionary somewhere...just tossin' it out there...

Now accepting donations :P

btw I have a 401k...one of the issues with them is that you don't always know where your money is going. It is very possible money could be invested into companies that are opposite to your beliefs. Nothing like finding out later your 401k money has been invested in Budweiser or Philip Morris or some Planned Parenthood thing...there are 401k plans out there that avoid these kinds of investment routes.

Preposterous! I would never invest in American Beer! :sick:

[aReformedPatriot]

Some companies will let you choose what companies your 401(k) invests in, too.

Rachel

UPS allows that. With regard to them matching, I have heard 2 different things. Their website says they match the first 3% or whatever, but at the class they said they don't match. Whom do I bleieve, I just dont know.

Anyone know what a Class A share is?

[MrJim]

Now accepting donations :P



Preposterous! I would never invest in American Beer! :sick:

:D yeah, Beck's or Corona would make more sense:D

[Joykins]

401(k) is a deal where it's pretty much impossible to lose money. You may not *earn* any (unlikely) but if your company matches you pretty much cannot lose. You can often choose what funds you have your investment in (money market, bonds, real estate, mix, stock index, etc.). Anyway, it's pre-tax money which means that if you put in a low amount like 3% of your salary your paycheck goes down really really *minimally*, like maybe a few dollars. You can roll the 401(k) over into an IRA when you leave the company. You can also usually borrow *against* it with no hassle if necessary (like to buy a house or something).

Really you can't lose with a 401(k) that has a company match. If you decide to cash it out when you leave the company you will take a tax hit though.

[MrJim]

401(k) is a deal where it's pretty much impossible to lose money. You may not *earn* any (unlikely) but if your company matches you pretty much cannot lose. You can often choose what funds you have your investment in (money market, bonds, real estate, mix, stock index, etc.). Anyway, it's pre-tax money which means that if you put in a low amount like 3% of your salary your paycheck goes down really really *minimally*, like maybe a few dollars. You can roll the 401(k) over into an IRA when you leave the company. You can also usually borrow *against* it with no hassle if necessary (like to buy a house or something).

Really you can't lose with a 401(k) that has a company match. If you decide to cash it out when you leave the company you will take a tax hit though.

Any idea how much fo a tax hit on the cashout?

[Joykins]

Any idea how much fo a tax hit on the cashout?

You pay your current income tax rate plus a 10% penalty. The cashout may push you into a higher tax bracket depending on its size as well.

[edb19]

My fellow Baptists, UPS is the first job that I will hold to have a 401K plan. They also allow me to buy "Class A" UPS stocks at a 10% discount without fees (whatever "class A" means, I have no idea).

My mom says I shouldn't be an idiot and to start investing 10% of my paychecks now. Do any of you have a 401K who can explain it to me, how much you make (or lose) annually from it, and the benefits. I dont want to be left out in the rain when Social Security crumbles but I want to know the best option I should take.

I also want to get into a mutual fund sooner or later, but isnt a 401K the same thing? What happens if I quit UPS, do I lose the money (I dont think I do)? And what's the difference between a 401K and a Roth IRA for instance?

If you guys can help with some of these questions, I'd be obliged.

:D

First of all - your retirement is your responsibility, not the government's (my Libertarian leanings here) so I'd leave social security out of the picture altogether.

Secondly - your mom's right. You want to withhold at least as much as the company will match (otherwise you're throwing away money) and more if you can afford it. I believe that one can have between $10,000 and $15,000 withheld in a 401K annually - although the company doesn't match the full amount of course. Generally they'll match 3 or 4%.

I wish I had saved this - but over the years I'm sure it got tossed. When I was your age my dad gave me an article with tables attached. It was something to the effect of if you save $100/month from age 20 - 35 years and don't make any additional deposits after that time - when you retire you'll still have more money than if you start at age 35 and save the same amount/month for 30 years. Bless his heart, he's 80 and I'm 50 and he's still giving me articles on planning for retirement (just gave me 2 last week:thumbsup:).

There are 2 major IRA's - the "basic" IRA allows you to deposit up to a set amount of money every year and that money is pre-tax dollars. You can take a deduction on your income tax for that. When yyou start withdrawing from the basic IRA you'll pay taxes on the earnings. With a Roth IRA you don't get the deduction at the time of deposit - but the earnings are tax free.

As far as a 401K - many employers don't have a "pension plan" anymore. They've become too costly. Instead they offer a 401K. Most plans offer multiple options for investing your money - and you should take advantage of the various options. Pick some higher yield (but also higher risk) investments as well as some more conservative (but steadier) investments. Again, 401K contributions are pre-tax dollars. When choosing your investment plans - look at the past 5-10 year history on the choices, not just the past 3-12 months. Many of these funds flucuate a lot in the short term, but long term show pretty good growth. Once you make your choices - leave the money be. Unless something totally bombs (which shouldn't happen if the funds are managed well) you're better off letting the account be rather than changing your options every few months.

[edb19]

Any idea how much fo a tax hit on the cashout?

It's more in line with a capital gains tax - at least 10% on top of your current rate. However, they are easy to roll over into other retirement accounts. When the company that I used to work for was bought out ~13 years ago it was easy to move my money into another retirement account.

[DeaconDean]

I have worked in city government for the last 9 years. What I have done is to invest about 5% of my yearly salary with the city matching 3%. Actually, this year I moved it up to 7% of my salary. You can buy UPS stock but it has one drawback, remember your betting on the stock market. If the market is up, you'll of course gain, but if it is down, you'll lose quicker. For example, in 2001 when the 9-11 incident happened, I had started buying this mutal fund in 1998 at $95/share. By 2001, it had soared to $139/share. When 9-11 happened, over the course of one week, my $139/share mutual fund stocks went from $139/share down to $78/share. I lost about $11,500 in my investments.
Now let me put it like this, whatever UPS matches, I would kick in the rest to get it up to 10% of my yearly salary. They allow you to invest your money any way you want as long as it adds up to 100%. By that I mean, I have my money invested in such a way that 25% of my money goes to "high risk" investments like small businesses. 25% goes to med-high risk, 25% to med-low risk, and 25% goes into low risk investments like CD's. (Certificates of Deposit) I'm not counting on social security either, but if it does happen to make it another 20 years, then with social security, I'll be able to draw on four different retirements. 1) Social Security. 2) City Retirement. 3) State Retirement. 4) 401K. All total, I'm looking at a six figure retirement in the next 20 years and if I can keep from borrowing from it, maybe a seven figure retirement. The Roth IRA plan, is not that good. I have several co-workers who have left it for the 401k we have here. Get in it as fast as you can, it is a good plan for the future. That is if Jesus tarries.

If you have yearly raises, a good rule of thumb also is to take half of that and stick it back in the 401k plan also. Example: if you get lets say a 4% raise, take 2% and stick it in the 401k plan and live on the other 2%. You'll be suprised how fast the money will accumulate over time. Sit down and talk with the 401k advisor when you enrole, and check out the options available. And if you happen to lose your job at UPS, you can keep your 401k, but you'll have to invest(deposit) the money into your account or you can role it over into an IRA. The bad thing about both Roth and the 401k is right now they are pre-tax deductable, in other words, before taxes are taken out of your paycheck, your 401k investment money comes out first, then they take taxes out your check based on what is left over. The bad part of this all is that when you finally reach retirement, when your elligable to draw (usually at 59.5 years old) they start taking taxes out like they would a paycheck.

Take it from me, get in it, and stay in it until your retire. It has its perks also. You can borrow money from yourself, just like a bank loan, except that when you repay the loan, instead of paying the bank interest, you pay yourself that interest. If you borrow $5000 at 7.25% interest, your paying yourself back the $5000 plus whatever 7.25% of that is. In other words, you may pay yourself back $5700 off that $5000 loan. You make money off of yourself. If you can understan that. Last year I borrowed $17,500 out of mine and by the time I pay it back, I will have paid in $19,000. I'll make $2500 off of myself.

Get in it early, invest as much as is practical, and stay in it. It is good finanical advice. Pardon me, but you sound like a young person, and as such, it would be very possible for you to have a healthy seven figure account by the time you are 65.

God Bless

[edb19]

I have worked in city government for the last 9 years. What I have done is to invest about 5% of my yearly salary with the city matching 3%. Actually, this year I moved it up to 7% of my salary. You can buy UPS stock but it has one drawback, remember your betting on the stock market. If the market is up, you'll of course gain, but if it is down, you'll lose quicker. For example, in 2001 when the 9-11 incident happened, I had started buying this mutal fund in 1998 at $95/share. By 2001, it had soared to $139/share. When 9-11 happened, over the course of one week, my $139/share mutual fund stocks went from $139/share down to $78/share. I lost about $11,500 in my investments.
Now let me put it like this, whatever UPS matches, I would kick in the rest to get it up to 10% of my yearly salary. They allow you to invest your money any way you want as long as it adds up to 100%. By that I mean, I have my money invested in such a way that 25% of my money goes to "high risk" investments like small businesses. 25% goes to med-high risk, 25% to med-low risk, and 25% goes into low risk investments like CD's. (Certificates of Deposit) I'm not counting on social security either, but if it does happen to make it another 20 years, then with social security, I'll be able to draw on four different retirements. 1) Social Security. 2) City Retirement. 3) State Retirement. 4) 401K. All total, I'm looking at a six figure retirement in the next 20 years and if I can keep from borrowing from it, maybe a seven figure retirement. The Roth IRA plan, is not that good. I have several co-workers who have left it for the 401k we have here. Get in it as fast as you can, it is a good plan for the future. That is if Jesus tarries.

If you have yearly raises, a good rule of thumb also is to take half of that and stick it back in the 401k plan also. Example: if you get lets say a 4% raise, take 2% and stick it in the 401k plan and live on the other 2%. You'll be suprised how fast the money will accumulate over time. Sit down and talk with the 401k advisor when you enrole, and check out the options available. And if you happen to lose your job at UPS, you can keep your 401k, but you'll have to invest(deposit) the money into your account or you can role it over into an IRA. The bad thing about both Roth and the 401k is right now they are pre-tax deductable, in other words, before taxes are taken out of your paycheck, your 401k investment money comes out first, then they take taxes out your check based on what is left over. The bad part of this all is that when you finally reach retirement, when your elligable to draw (usually at 59.5 years old) they start taking taxes out like they would a paycheck.

Take it from me, get in it, and stay in it until your retire. It has its perks also. You can borrow money from yourself, just like a bank loan, except that when you repay the loan, instead of paying the bank interest, you pay yourself that interest. If you borrow $5000 at 7.25% interest, your paying yourself back the $5000 plus whatever 7.25% of that is. In other words, you may pay yourself back $5700 off that $5000 loan. You make money off of yourself. If you can understan that. Last year I borrowed $17,500 out of mine and by the time I pay it back, I will have paid in $19,000. I'll make $2500 off of myself.

Get in it early, invest as much as is practical, and stay in it. It is good finanical advice. Pardon me, but you sound like a young person, and as such, it would be very possible for you to have a healthy seven figure account by the time you are 65.

God Bless
an excellent post DeaconDean - except Roth IRA's are not pre-tax dollars. That's what sets them apart from a regular IRA. Their earnings are non-taxable however. So, if you invest in Roth IRA's and earn say $100,000 income on them - you won't have to pay tax on the $100,000. You do have to pay tax on the income from regular IRA's though - same as you have to on dividends from stocks and bonds or savings account interest.

[aReformedPatriot]

an excellent post DeaconDean - except Roth IRA's are not pre-tax dollars. That's what sets them apart from a regular IRA. Their earnings are non-taxable however. So, if you invest in Roth IRA's and earn say $100,000 income on them - you won't have to pay tax on the $100,000. You do have to pay tax on the income from regular IRA's though - same as you have to on dividends from stocks and bonds or savings account interest.

How come you have dont have to pay taxes on the Roth IRA?

It would seem that the Roth has an advantage over a regular IRA then, no?

[aReformedPatriot]

Also, I have been reading about the UPS 401K option and they give me 13 Options of investment:
Government Short-Term Investment Fund (GSTIF)
Stable Value Fund
Bond Market Index Fund
Balanced Fund
S&P 500 Equity Index Fund
S&P 400 Midcap Index Fund
Russell 2000 Index Fund
EAFE International Index Fund
Bright Horizon Income Fund
Bright Horizon 2015 Fund
Bright Horizon 2025 Fund
Bright Horizon 2035 Fund
Bright Horizon 2045 FundNow, since Im 22 would you think it best to invest in mostly higher risk stocks at first or just stay balanced all around. I only work part time so my first year investment would only be around $700 which isnt that much @ 10% of my paycheck each week.

[DeaconDean]

Since your young, yes I would. And as you get older and closer to retirement, cut it back to more conservative investments.

One way would be to invest 50% high, and 50% low. But the important thing is that your investing in your own future.

[aReformedPatriot]

Since your young, yes I would. And as you get older and closer to retirement, cut it back to more conservative investments.

One way would be to invest 50% high, and 50% low. But the important thing is that your investing in your own future.

Precisely what I was thinking! Though I think I am going to do 88% high, 12% low. I've got quite a few years till retirement so what the heck.
I do have a question though. Im sitting here with the enrollment form online. Its asking me this:

CONTRIBUTION RATES
Enter below your pre-tax 401(k) and/or after-tax contribution rates. If you are age 50 or older this year, you may choose to contribute pre-tax catch-up contributions. Enter increments of 1%

Employee Pre-tax Contribution [--%--]
Employee After-tax Contribution [--%--]
Option Week Pay [--%--]
Pre-tax Catch-up Contribution [--%--]

The maximum pre-tax contribution is 25%. The maximum after-tax contribution is 5%. The maximum bonus election is 100%. The maximum catch-up percent is 10%. Puerto Rico participants can contribute up to 10% pre-tax and are not allowed to contribute to catch-up.

I don't know what to do with that. I just thought I'd have 10% deducted from my paycheck each week but it appears as if I have 4 options. Which one do you think I should do? Im also assuming I can change this at anytime.

[MrJim]

Secondly - your mom's right.

Whoa one second--Robinsegg is LE's mommy?:confused::confused:

[Joykins]

I don't know what to do with that. I just thought I'd have 10% deducted from my paycheck each week but it appears as if I have 4 options. Which one do you think I should do? Im also assuming I can change this at anytime.

I don't know what the Option Week thingy is (maybe it's the percent of whatever bonuses you get??) but the after-tax contribution is something you'll pay tax on. I think the only advantage of that is that you can withdraw it without the tax penalty? Maybe? And saving more than the pre-tax limit of course.

The catch-up option is for those who are close to retirement. Put everything you can into the pre-tax contribution,.

[edb19]

Whoa one second--Robinsegg is LE's mommy?:confused::confused:

Doesn't matter who his mom is - since I'm a mom I always say that the mom is right!!;):thumbsup:

[MrJim]

Doesn't matter who his mom is - since I'm a mom I always say that the mom is right!!;):thumbsup:

I thought it was dad that was always right:P

[aReformedPatriot]

Whoa one second--Robinsegg is LE's mommy?:confused::confused:

She would have had me when she was 7 and thatd be just plain weird.

[DeaconDean]

I don't know what to do with that. I just thought I'd have 10% deducted from my paycheck each week but it appears as if I have 4 options. Which one do you think I should do? Im also assuming I can change this at anytime.

I'm not sure about your type of 401k system. I was enrolled in Fedelity Investments when I worked at another system, then when I changed cities, I had to roll it over into their retirement system. Might I suggest that you start out having withdrawn from your paycheck somewhere between $25 to $50/week. I have been putting in $50/week for the last 9 years. If that is too much, you can always cut it back. Remember that this money will come out "pre-tax," meaning that in most likehood, the 401k money will be taken out before Federal, State, and Social Security taxes are taken out. Thus lowering your yearly taxable income. For example: if you earn $30,000/year, with pre-tax 401k, your yearly income is still $30,000 but the government can only tax what you get after that money comes out, so if you have $50/week taken out, that equals roughly $2400/ going into your 401k, and the government can only tax $27,600 of your yearly income. ($30,000 minus $2,400 equals $27,500) You make the same money, but your taxable income is lowered. Another benefit!

[Lel]

I know I'm not Baptist, but are you familiar with the idea of compounding interest? (At least I think that's what I want to refer to. I could have a few concepts mixed up!) Basically, the younger you start investing, the more time each investment has to build upon other investments, and therefore you come out with more funds in the end. It's a very dramatic difference between starting a 401(k) at age 22 and at age 30, for example. I know there are some online calculators out there on this.

At your age, invest as much as you can, take as much risk as you can handle, and listen to your mom. :)