Hello all. Well, I am finally eliagable for my IRA with my job and can I just say this is like talking chinese to me. I want to ensure that when I retire I am very well provided for as well as taking care of my loved ones when I am gone. I know that my company matches what I would into the one that they offer but, some fellow employees have told me that my best bet is to go independently outside of the company. I just don't think it's wise to listen to them. They are matching what I contribute so if I put one hundred grand in it then they will match that and I have two hundred grand earning interest and whatever else an IRA does. Can someone please help?
I would say in general that it's wise for people to take advantage of work plans that are tax-deferred (or tax free with after tax dollars in Roth plans) and especially those that are matched like in your company's plan. I'm not sure why your fellow employees are saying to not go that route. Unless your company has a history or likelihood of fraud or theft or is otherwise unstable, I don't see why you wouldn't take advantage of it. If the only thing they offer is shares of their own stock (profit sharing), and they are a private company that is not willing to provide their financial info or are a poorly run public company, I might understand why some might be reluctant. If they are a private company that is transparent, in good shape, and well-managed, it still might not be a bad idea to throw a little. But since you mentioned the "matching", it sounds like it's a traditional 401k "defined contribution" type of plan. If it's a traditional 401k type of plan where they match, you have the tax advantage, and as long as you can diversify and have a decent selection of investments, I don't see why you shouldn't take advantage of it. Feel free to pm me with any other details if you don't want to put more info on the board here about your company. Have you asked your coworkers WHY they don't invest in the work plan? If they tell you it's simply because they claim they can make more money outside the plan with their own "expert" stock picking or following "hot tips", or because "mutual funds are lame" or whatever, you should probably ignore them.
Nothing does it better than being tax-free I mean you could have a 401k. I do not know too much about retirement plans but, I think since you have a business maybe the 401k could work. What company do you work for? That is good that you are eligible for retirement, which I myself have got to that point in my life.
Your work plan is more likely to be a 401k or something similar than an IRA. Either your employer or the plan provider (or both) will probably provide free advice and consulting and I suggest you take it up. A short one-on-one will probably tell you 90% of what you need to know. If they offer any matching be sure to take advantage of that--free money, only a sucker doesn't grab it if they can.
It is good to save for retirement. I recommend you do some reading. It sounds like your employer has a 401K which is a tax qualified salary deferral program and they match up to 50% of what you elect to defer from your eligible compensation. You self administer the investments.You are the only one at risk for gains or losses.Get the rules, read and decide. It sounds like (based on your employer match of 50%) that you should want to get in. However there are important considerations. You can't simply drop 100K in and get 200K. The 401k sponsor(employer) determines the percentages that apply. Typically they may be 2,4,6,8%. You decide the percent deffered. That percent comes out pretax (you save the Federal, State, FICA, SS tax on the deferred amount). Since you are not paying taxes on this money currently you will be taxed when you take the money out and use it. Since these are retirement funds the IRS will tax the funds you withdraw at ordinary income rates (BIG RISK THAT THESE WILL INCREASE) PLUS IF YOU TAKE THE WITHDRAWAL BEFORE YOU ARE 59 1/2 THERE IS AN EARLY WITHDRAWAL PENALTY OF 10%). So there are three big downsides:Risk of loss (stock and bond markets subject to your selection performance);Investment fees and administrative expenses including TPA fees. These fees range from 2-6% Those fees at the high end of the range are considered toxic because over time (if your gross performance (before fees) is say 5-10% your net performance is 3-4%. In this example the brokers are happy because they got 40 to 60% of your money over time. After all that uncle Sam is your partner for life on all qualified accounts that are not Roth IRA's. He takes a significant piece of your savings as they are withdrawn. Read all you can. the irs is a good source: irs.gov
