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My company won't match our 401k contributions in 2010 - 2/28/2010 5:13:29 PM
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Galilee
Posts: 52
Joined: 4/22/2005
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It's part of the agreement that we signed, and part of the way we were allowed to keep our medical benifits at the same price as the last contract, so I'm okay with it.
My question is this: Should I contribute more, the same, or less (even nothing), during this year?
As a side note, there are 2 more years left on the contract after this, and they WILL be matching for those 2 year, just not 2010.
Part of me says that if (when) interest rates go up, the value of the 401k will go down. May or may not be right, but that is a concern. Makes me wonder if I am sending good money after bad, as it were.
Also, I did take out a loan recently, which will be $51 a week in payments. My amount that was matched was $66 a week.
So, I figure I could either:
a) Keep putting in the $66, and pay the $51 weekly as well. With the payment we are saving on what we paid off with the loan, it is almost a wash ($60 a month more), but we could swing it.
b) Contribute $15 plus the loan repayment, so it is just like it always was ($66 a week), and put a little more into the 401k than just the loan payment, and then next year going back to $66/51.
c) Just pay the loan for 2010, and actually "gain" $15 a week in my paychecks, going back to $66 and $51 in 2011.
Thoughts?
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RE: My company won't match our 401k contributions in 2010 - 2/28/2010 6:17:01 PM
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Galilee
Posts: 52
Joined: 4/22/2005
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quote:
ORIGINAL: Mollymouser
Have you considered contributing to a Roth instead?
No, I hadn't thought of that. I do have a Retirement Account already set up separate from the 401K that has a substantial amount in it. I could always put into that. You have a good point that I didn't even consider. Thanks!
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Change is inevitable, growth is optional.
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RE: My company won't match our 401k contributions in 2010 - 2/28/2010 8:22:36 PM
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clydewolf
Posts: 117
Joined: 8/6/2009
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quote:
ORIGINAL: Galilee
c) Just pay the loan for 2010, and actually "gain" $15 a week in my paychecks, going back to $66 and $51 in 2011.
Thoughts?
That is not quite true.
The $66 that goes to the 401k plan is tax deferred. When you stop contributiong to the 401k plan, that $66 becomes taxable income. You will gain less than $15/week.
Also your $51 going to the loan is an after tax loan payment. When you begin taking distributions from you 401k plan (or if you transfer this to an IRA and take distributions) you will pay tax again on those $51 payments again.
The best reason for contributing to the 401k plan is qualify for the employer matching contribution. Saving for your retirement is always a good idea and if your employer wants to help, let them.
The ROTH IRA is a good idea! If you had a ROTH IRA, you can take your annual contributions from the ROTH IRA at any time for any reason free from tax and penalty.
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RE: My company won't match our 401k contributions in 2010 - 2/28/2010 8:33:05 PM
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Galilee
Posts: 52
Joined: 4/22/2005
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quote:
ORIGINAL: clydewolf
quote:
ORIGINAL: Galilee
c) Just pay the loan for 2010, and actually "gain" $15 a week in my paychecks, going back to $66 and $51 in 2011.
Thoughts?
That is not quite true.
The $66 that goes to the 401k plan is tax deferred. When you stop contributiong to the 401k plan, that $66 becomes taxable income. You will gain less than $15/week.
Also your $51 going to the loan is an after tax loan payment. When you begin taking distributions from you 401k plan (or if you transfer this to an IRA and take distributions) you will pay tax again on those $51 payments again.
The best reason for contributing to the 401k plan is qualify for the employer matching contribution. Saving for your retirement is always a good idea and if your employer wants to help, let them.
The ROTH IRA is a good idea! If you had a ROTH IRA, you can take your annual contributions from the ROTH IRA at any time for any reason free from tax and penalty.
On point 1 - The $15 a week. I hadn't considered that, but, of course, you are correct. The $66 at 28% taxes is about $18 a week roughly. Not a huge difference, but I certainly won't be "gaining" anything.
Point 2 - I don't understand. If I read it right, regular contributions (like my $66) are pre-tax and thus don't get taxed anything if I take them out when I am eligible, but the loan payments are after tax, so when I do withdraw, even if I am eligible, I have to pay taxes on that? I can't quite comprehend that, (and I'm not sure how that would work when it happens). Cna you explain that a bit more, please?
Point 3 - A I said, since my employer is not matching for all of 2010, should I then NOT put into my 401k? Perhaps use my IRA that I have, or take the money as income and pay down debt?
I will call on Tuesday to see how my other account is set up. I don't know much about the Roth IRA. You can take contributions out without penalty? I guess I have a lot to learn about that.
_____________________________
Change is inevitable, growth is optional.
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RE: My company won't match our 401k contributions in 2010 - 2/28/2010 11:01:10 PM
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peace77
Posts: 484
Joined: 4/18/2005
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I'd like to suggest plan "d."
d) Pay $51 per week on the loan.
and pay the additional $10-$15 (if it still exists after figuring for taxes) towards the credit card bill with the highest interest rate.
Peace,
Anne
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RE: My company won't match our 401k contributions in 2010 - 3/1/2010 9:19:05 AM
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Galilee
Posts: 52
Joined: 4/22/2005
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quote:
ORIGINAL: peace77
I'd like to suggest plan "d."
d) Pay $51 per week on the loan.
and pay the additional $10-$15 (if it still exists after figuring for taxes) towards the credit card bill with the highest interest rate.
Peace,
Anne
Hi, Anne!
Actually, your plan D and my plan C are basicly the same plan. If I did have extra money left over, that is exactly what I was going to do with it.
_____________________________
Change is inevitable, growth is optional.
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RE: My company won't match our 401k contributions in 2010 - 3/1/2010 5:06:21 PM
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clydewolf
Posts: 117
Joined: 8/6/2009
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quote:
ORIGINAL: Galilee
Point 2 - I don't understand. If I read it right, regular contributions (like my $66) are pre-tax and thus don't get taxed anything if I take them out when I am eligible, but the loan payments are after tax, so when I do withdraw, even if I am eligible, I have to pay taxes on that? I can't quite comprehend that, (and I'm not sure how that would work when it happens). Cna you explain that a bit more, please?[/quote
I'll try.
You have chosen to borrow from your 401k plan, effectively investing your 401k in whatever it is that caused you to need this loan. Your 401k loan is paid back to the plan with your after tax money. Once these loan payments are back into your 401k plan and you take a distribution, that distribution will be taxed again as ordinary income. Some of that distribution will be the loan payments you made earlier to pay off your loan.
The only money distributed from tax free from a 401k plan is contributions that have been taxed at the time of the contribution. Some 401k plans do have this feature.
quote:
Point 3 - A I said, since my employer is not matching for all of 2010, should I then NOT put into my 401k? Perhaps use my IRA that I have, or take the money as income and pay down debt?
In an IRA, you have virtually infinite investment choices.
In a 401k plan your investment choices are limited to those choices the 401k plan offers.
In an IRA, your beneficiaries have more options for taking distributions after your death.
The ROTH IRA has these advantages over a Traditional IRA:
- There is No RMD.
- Qualified distributions are tax and penalty free.
- You can take a distribution of your annual contributions (not gains) out at any time for any reason free from tax and penalty.
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