Comments on: 5 Reasons to Throw Away Your 401K

By: Jason

Jason — Sun, 26 Oct 2008 06:24:34 +0000

Looks good on paper. You’re missing one aspect though. You are not taking in to consideration that most people are not putting a (1) time, lump deposit into there account. Most people are contributing to there 401.k on a monthly or even weekly basis. Therefore, every deposit made after year (2) will not have enough time to overcome the initial tax burden. In addition, your senerio only works for people in a 15% tax bracket. Many americans are in the 28% tax bracket.

By: NewSunSEO Inc

NewSunSEO Inc — Tue, 17 Jun 2008 20:23:47 +0000

I have to somewhat agree with what you are saying. With the economy the way it is now investing money by itself maybe the safest way to go about investing. Also I believe that you shouldn’t put all your eggs in one basket and still invest into your 401K for your own personal investing safety. This is a really nicely written blog and I look forward to reading more of your great work.

By: Robert

Robert — Sun, 11 May 2008 13:48:08 +0000

My reason for steering clear of 401ks is the ponzi scheme they get invested in, the US stock market. My employer’s investment options are a$$ and then some. I might as well invest in apples and leave them out in the sun and hope they are good to eat when I 75 (I am 33 now), which ain’t happening.

The reality is most Gen X and Gen Y people that have been shoved into this ownership society scam by the republicans will be living a life of work and misery unless they hit a lottery or have some rich uncle they do not know about with a large inheritance.

I have already accepted I will die at some job when I am in my 70s or 80s when I praying for some dignified death. Maybe I’ll save something in a CD so I can go part time and sleep in late a couple days a week.

What will really happen is millions of Gen X and Y people are going to be wandering around broke and homeless in their 70s and I hope the government has some plan to take care of all those people (I’ll likely be there with them with age discrimination the way it is in the US). Only then will they see the failure of this ownership society ponzi scheme.

By: How Not To Become a Millionaire · Money Millionaire

How Not To Become a Millionaire · Money Millionaire — Thu, 08 May 2008 22:23:36 +0000

[...] by never asking for a raise, doing crappy work, and staying in the same job. You might as well throw away your 401k as well. Muttering about your red stapler can’t hurt [...]

By: Stix

Stix — Mon, 07 Apr 2008 07:18:10 +0000

http://money.howstuffworks.com/401k2.htm

By: Stix

Stix — Mon, 07 Apr 2008 07:16:33 +0000

Obviously a Traditional IRA and a lot of assumptions about loads and fees.

You could easily invest in a ROTH IRA and for go the Tax problem. Also you can invest where you do not have those fees for maintaining and loads. especially at 15K initial – many firms offer 10K free servicing. As for the funds – buy stocks that pay dividends.

By: Weekend Links - Things Aren’t Always What They Seem Edition

Weekend Links - Things Aren’t Always What They Seem Edition — Sun, 09 Mar 2008 19:03:34 +0000

[...] Finance asks if 401Ks are a bad deal. This is a discussion of a CNN Money article that mirrors my 5 reasons to throw away your 401k article. The Money magazine article doesn’t seem to factor in freedom of investments. I still [...]

By: How to Get More of YOUR Money from Your Employer

How to Get More of YOUR Money from Your Employer — Mon, 04 Feb 2008 13:03:58 +0000

[...] next change you can make is to lower the proportion going to your 401(k). You might be asking yourself why a finance guy would be telling you to lower your contribution rate. [...]

By: Brian

Brian — Tue, 15 Jan 2008 03:46:13 +0000

Here is another reason to forget about the 401K. I work for a Fortune 500 company off the bat. Not liking their current track record on their investments in the 401K optional funds I decided to take an early withdrawal (even with the 10% hit). They are trying to say I cannot touch my own money unless I retire or quit the company!

By: Investment Guru

Investment Guru — Wed, 28 Feb 2007 10:45:48 +0000

I struggle with this all the time. I have the ability to consistently generate 25%-40% returns with my investments, and I sit there watching these fund managers get me a paltry 6%-10% and take huge fees for it. I really don’t want to leave my company just to roll over the 401K to an IRA. I wish there were some law that allowed sophisticated investors to manage their own 401K funds. It is very frustrating to watch my other accounts grow and 3x to 4x the rate of the large lump sum in my 401K and I can’t do anything to change it. I’ve even considered borrowing from my 401K to invest it, but even then I can only get out $50K and have to start paying it back right away. Does anyone know a a movement to force employers to allow people to choose their own investments in a 401K?

By: mbhunter

mbhunter — Wed, 28 Feb 2007 05:11:15 +0000

I’m leery of tax-advantaged accounts, mainly for reason #1. I get up to 4% of my salary matched so that offsets the risk a little, but I don’t contribute beyond that.

Another reason to be leery is that the rules governing the accounts can change. How about a 20% penalty for early withdrawal? No reason it can’t happen.

By: Free Money Finance

Free Money Finance — Fri, 23 Feb 2007 11:21:34 +0000

Star Money Articles for the Week of Feb. 19…

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: AllFinancialMatters wonders if anyone should use a credit counseling service. MightyBargainHunter got a great deal on wings. Five Cent Nickel details how to get…

By: So Why Aren’t You Opening A 401K? » Silicon Valley Blog About Money

So Why Aren’t You Opening A 401K? » Silicon Valley Blog About Money — Thu, 22 Feb 2007 18:24:42 +0000

[...] as I mentioned earlier, there are other reasons for arguing against a 401K, particularly those touching on taxes. Let me tell you now that this won’t apply to our [...]

By: Posts I Enjoyed Last Week - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time

Sun, 18 Feb 2007 21:02:51 +0000

[...] how to invest in a 401(k) plan. On the other end, Lazy man stirs quite some debates when he says he may want to dump his 401(k) plan. I know I won’t, for the reasons of 1) getting tax-deferred growth of distributions and 2) [...]

By: The Sunday Review #8 » Money, Matter, and More Musings

The Sunday Review #8 » Money, Matter, and More Musings — Sun, 18 Feb 2007 15:34:00 +0000

[...] 5 Reasons to Throw Away Your 401K by Lazy Man @ Lazy Man and Money: An interesting numerical take on whether 401K is the only answer to retirement savings. Before you conclude anything from this article, you must read all the comments. On similar lines, read about what Jim @ Blueprint for Financial Prosperity has to say about Roth IRAs in his post Why Roth IRAs Are Bad. [...]

By: Money Blog Articles Sick Week Edition, Carnival Of Money Stories » Silicon Valley Blog About Money

Fri, 16 Feb 2007 15:38:51 +0000

[...] tossing out your IRA for several reasons. And what do you know, Lazy Man @ Lazy Man And Money has also given reasons to toss that 401K! What, could our retirement accounts be [...]

By: Lazy Man

Lazy Man — Thu, 15 Feb 2007 05:51:03 +0000

MossySF hit the biggest reason right there. I had mentioned it in a private e-mail to Miller. I’ve been with more than a few different companies and the ability to roll it over into my own investment choices makes it worthwhile.

As for the turnover, I wouldn’t hold bonds or REITs in taxable accounts. While my math may be simplistic, I don’t see that as being a major issue. Along the same lines, I wouldn’t sign up for the emerging markets fund in my 401k at 2.14%.

By: MossySF

MossySF — Thu, 15 Feb 2007 05:28:30 +0000

One other good reason for going with a poor 401k plan — you won’t be working forever at the same company so you will get the opportunity to rollover into an IRA. That can end up being a big lumpsum you can use to go put into high dividend/high turnover investments without all the hassle of paying and reporting taxes every year. In the beginning, the contributions are a far larger part of the growth so it’s not a big deal to take a little hit then. Money you don’t contribute to a 401K (for future rollover to an IRA) is money that will never be available again to put into a flexible tax-deferred plan.

By: The Digerati Life

The Digerati Life — Thu, 15 Feb 2007 00:40:03 +0000

I’ve never been able to qualify for a roth IRA. However, even with my 401k, I’ve had serious matching done by employers. Given a historically high taxable income, it’s indeed helped me lower AGI. I’d rather take my chances with deferral now and grow my account this way without bothering with the taxes involved. I’m at the point when any tax benefit helps. I pay a lot of tax today and adding more to it is just too much for me to subscribe to. Laws can change either way in our “golden years” down the road but I’ll face the music then. I also agree 100% with Sun’s points on this.

By: Foobarista

Foobarista — Wed, 14 Feb 2007 19:14:01 +0000

One other thing: 401Ks lower your modified adjusted gross income. This can help as you make more money – especially after you get married – and want to fund Roth IRAs or do other things that are MAGI-limited. For the past three years, we were able to get under the “Roth MAGI limit” by fully funding 401Ks. We won’t be able to do this for the 2006 tax year, but it is a consideration.

The best “number” consideration in your example is cap gains and dividends, which are taxed higher in a 401K (or T-IRA and other tax-deferred things). My guess is at some point we’ll abolish corporate taxes (like many other countries are doing) and make dividends ordinary income, which would make 401Ks more attractive.

The best investment point you make is that many 401Ks, especially in small companies, have awful investment choices. I personally believe that the company-managed 401K should be replaced with an employee-managed one, especially for smaller companies that can’t afford good 401K plans.