patrick.net

Depends on income. High earning W-2 workers it just makes sense generally IMHO. Plus company matching. Sure tax rates could be higher in the future, but I'll be retired with little to no taxable income besides the 401k. I might pay no taxes if I don't need the money. Standard deduction I could easily live off $24k or whatever it is in todays dollars and then anything after that is taxed progressively. House will be paid off. No kids. Social security. Possible pension. I don't know, I think it's a good investment vehicle. Fees blow, but my returns over a decade plus compounded have been amazing.

I'd agree that yes, I'd rather have untaxable income in retirement. That's what Roths are for, but I can't convert because we'll be probably in the highest tax bracket this year and take a beating on that. I'm also a set and forget guy. I've actively bought stocks and funds and have done well. It's a job. I don't want that. I'll physically work, but I'm done with desk work or looking at screens all day.

I might be biased though. With match we get close to $25k/yr in each account. For lower income earners it might make some sense to get them to not pay federal taxes with the deduction which is most of the country. Most won't.

Anything that exists on this planet is to extract money from you. Dollars, Euros, whatever. You can fight the game, but you ain't gonna win it. Play your best hand so to speak.

WookieMan says

Depends on income. High earning W-2 workers it just makes sense generally IMHO. Plus company matching.

I'm not against using a company 401k if there is matching, matching makes sense and will make up for the penalty easily.If there is no matching, I would not pay in at all. Otherwise pay in as much as they match (obviously). But when you leave, it's probably better to rollover and then cash out periodically IMO, esp. if you don't work for a period of time and relax/travel or do other stuff, then the imposed taxes will be lower and the money will be yours. Or if you need it to invest/buy something that is on a steep discount, e.g. due to recession or other circumstances. Once it corrects back to its intrinsic value and grows, you quickly make up for the 10% hit.

mell says

Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options.

For IRAs you can reinvest without a hit at all. For example, you can take a CD when it comes due and move that money to buy stock while keeping the money in the IRA.

HeadSet says

mell says

Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options.

For IRAs you can reinvest without a hit at all. For example, you can take a CD when it comes due and move that money to buy stock while keeping the money in the IRA.

You are very limited in your choices, e.g. US stocks only, and you can only do cash accounts, no margin, so cash has to be positive and settled. If you violate the rule of using settled cash only, they will freeze trading for 3 months or entirely. Way too many limitations.

You forgot the compounding while the money is tax free until withdrawal. That counts for something. After you cash out and pay penalties, taxes etc., you still have to pay tax on the earnings unless it is in some low yield, tax free bond or something.

Also, if timing sucks in the markets, you can cash out, pay penalties, taxes etc., then watch while the remainders plunge in value even more. I do not rely on the presumption that I am a statistically better gambler than the psychopaths who manipulate the markets with split second 24 hour a day computers, political bribery, perfect timing, proximity to the emperor node of fiat fake money printing, knowledge aforethought and insider trading.

The entire premise is wrong, if I weren't lazy I'd explain fully.

I have had to learn that when it comes to their money, people vary greatly in their approach, and do things that are illogical.

You can have investment in both tax-deferred, and taxable accounts.

As a retired investor, my biggest annoyance is taxation; which investment grows and can be spent later tax-free?

Ceffer says

You forgot the compounding while the money is tax free until withdrawal. That counts for something. After you cash out and pay penalties, taxes etc., you still have to pay tax on the earnings unless it is in some low yield, tax free bond or something.

Also, if timing sucks in the markets, you can cash out, pay penalties, taxes etc., then watch while the remainders plunge in value even more. I do not rely on the presumption that I am a statistically better gambler than the psychopaths who manipulate the markets with split second 24 hour a day computers, political bribery, perfect timing, proximity to the emperor node of fiat fake money printing, knowledge aforethought and insider trading.

You can keep some money in IRAs and funds if you're lazy and don't need it, but if you have a business (idea) to grow or are an active investor (be it stocks, RE or something else), you are better of using it in your hot years imo.

clambo says

The entire premise is wrong, if I weren't lazy I'd explain fully.

I have had to learn that when it comes to their money, people vary greatly in their approach, and do things that are illogical.

You can have investment in both tax-deferred, and taxable accounts.

As a retired investor, my biggest annoyance is taxation; which investment grows and can be spent later tax-free?

What's wrong is that people are told they can't handle money and then it becomes a self fulfilling prophecy. If you can't handle it, keep it tax deferred, also it's not wrong to have some as security/safety net, but if you are an active investor/entrepreneur it's a waste to have it locked up by the govt all these years and you better use it during your peak years.

I guess I have done D: all of the above.
In 1992 I became self-employed.
I was an investor since 1982.
The proceeds from my little miniscule business were plowed into a SEP-IRA, IRA, later Roth IRA, Variable Annuity, Vanguard funds including Tax Managed Capital Appreciation (behaves like an IRA), and a Fidelity HSA funded with a capital appreciation mutual fund.

Most people I know cannot handle money, and worse, do everything they can to have no money. They spend it all.

I tell everyone for $600/month you can be a millionaire; nobody wants to do it although I know it's true because I did it.

I read stuff on financial websites for entertainment and some guys know what they're doing and other guys are full of shit; some of the dummies are actually earning a living in the industry which is scary.

I have known gamblers over the years, including friends. One had a father who was a compulsive gambler, a doctor, who would bring his money home on Fridays, trundle the family in a car, and go up to Tahoe or Reno and gamble it away. They sometimes didn't have grocery money until he collected at work again, and the mother became one of those who embezzle cash in tins to have something out of his reach.

My friend decided he would be a 'market wizard' and a 'day trader', has a genius IQ, had investment groups who exchanged 'hot tips'. Like all gamblers, he would only talk about his winnings, and some his hunches, in spite of his high intelligence, sounded delusional and wishful thinking. He lost an awful amount of money trading on these hunches, at the few times he was honest about it, and was never able to retire, even though he had a successful business. I have run across this time and again with guys. He also did not pay his payroll taxes, saying that the money could be used for his market adventures and he could beat the penalties. The penalties were 10 percent, so somehow, I doubt he made out that way.

Gamblers will gamble. A few will 'win', most will not. Retirement accounts, given time and compounding, just riding the market passively, are one of the few things that will reliably increase given the Monte Carlo calculators OVER LONG PERIODS OF TIME. Call that laziness, I say it is the least risky way of challenging the financial fates. My wife and I have done very well that way, and we don't ponder whether it could have been 'more' or 'less', it's multiples now of what we spend or require.

The best investment strategy is to marry a rich widow, who inherited it all from her pirate dead husband(s). But then, you gotta cater and carry her luggage around ten steps behind her.

You can withdraw an IRA for the purposes of a downpayment on real estate.

I was surprised to find that out a few years ago, but it's not something Big Finance wants the common clay to know about.

AmericanKulak says

You can withdraw an IRA for the purposes of a downpayment on real estate.

I was surprised to find that out a few years ago, but it's not something Big Finance wants the common clay to know about.

Every Realtor will tell you that.

mell says

As the title says, we start with 401ks and IRAs. You cannot find a single article arguing in favor of cashing them out, but - unless you're a financial moron or a compulsive spender - it's almost always better IMO. Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options. You also pay taxes, but then the money is yours, out of government reach. This alone is worth a million bucks imo. The flexibility of spending / investing it in years where you are still kicking in high gear is great.
This is not investment advice :)

Please explain this in more detail so other folks not familiar with this strategy understand

There is of course pervasive corruption in 401k plans, the main problem being that your investment options are limited to high-fee mutual funds that paid a bribe to the employer trap employees in them.

So sure, as soon as you leave an employer you should roll over that 401k into a self-directed IRA at Schwab or similar. Then you have full access to all individual stocks and bonds and without any tax hit.

Off the subject slightly, I was chatting with a Canadian female who lives in La Paz, BCS, Mexico.
The waiting room in HSS has a sign "Gabelli Family Foundation"; that evidently gave $ to the beautiful hospital.
I mentioned this to the female and her reply was "Mutual Funds, run by banksters."

This provided me some information; she has no fuckin money.

Banks and mutual funds are so different it's not even worth explaining.

I have no personal experience with 401K, but the Fidelity funds expense ratios are not excessive, although higher than my Vanguard funds.

I remember telling my buddy not to invest on margin. So, of course, I found out he was investing on margin, and wound up losing more than his original stake on one great hunch. He fucked himself every which way from Sunday with his investment gambling obsession.

I think investing in hard assets with limited leverage might work. Good serial investments in carefully selected real estate in good rental markets would qualify. I think that's the old saw about homes about 900 to 1200 sq. ft., if you don't mind the management headaches.

I don't like listening to people bragging about their successes, because you never know 1. whether they are telling the truth 2. how leveraged they are 3. how liquid they are 4. what their true net worth is.

Had neighbors in Santa Cruz who established a small empire of homes in SoCal with liar loans who busted back down to one, which they managed to keep up here, when the 2008 2009 thing hit. I remember the same thing happening to people, often leveraged realtors, in earlier real estate cycles. As far as tax advantaged group investments, the tax laws change every year, and they change significantly every five years, which can make any tax advantaged group grope a null overnight. They can also subject you to IRS litigation and even charges of tax evasion. Never rely on the future of taxation in an investment. The guys that sell those aren't around when you take the fall.

Unless your family owns a bank and owns a few politicians, I think everybody around here is more or less reliant on the kindness of markets controlled by others. It's investment peonage, but that's the way it is. Invest conservatively and grow old. It's about the best you can do. Successful businesses can work, but the emphasis is on successful, because they can become alligators on the downside.

I'll repeat this one. You and your investments are also 'here'.

Ceffer says

I don't like listening to people bragging about their successes, because you never know 1. whether they are telling the truth 2. how leveraged they are 3. how liquid they are 4. what their true net worth is.

AND - how much funding they got from parents.

For anyone who does the 401k, please explain to me why you trust someone you've never met with your money? That's a deal-breaker right out of the gate. For all tax apologists, have you thought about investments outside of the system, that you don't report..?

gabbar says

mell says

As the title says, we start with 401ks and IRAs. You cannot find a single article arguing in favor of cashing them out, but - unless you're a financial moron or a compulsive spender - it's almost always better IMO. Sure you take a penalty hit, but you can make up those 10% with investing in no time, with access to a much wider array of investment options. You also pay taxes, but then the money is yours, out of government reach. This alone is worth a million bucks imo. The flexibility of spending / investing it in years where you are still kicking in high gear is great.
This is not investment advice :)

Please explain this in more detail so other folks not familiar with this strategy understand

Just an example. You have 500k in your IRA, you have all invested, one of your favorite stocks goes onto discount or you have another great investment opportunity. If you had paid 10% penalty say you would have only 450k now but free and clear in a margin account. Your additional leverage (buying power) is anywhere between 150K and 800K depending on the stock price of the stocks you are holding. You can use the money to buy stocks on margin or invest elsewhere. If you have the money in an IRA government forbids any leverage, and moreso money from stocks sold isn't available until "settled", usually 3 business days, which is ridiculous. You have to wait that long to buy something else. Lots of wasted opportunity IMO.

mell says

Just an example. You have 500k in your IRA, you have all invested, one of your favorite stocks goes onto discount or you have another great investment opportunity. If you had paid 10% penalty say you would have only 450k now but free and clear in a margin account. Your additional leverage (buying power) is anywhere between 150K and 800K depending on the stock price of the stocks you are holding. You can use the money to buy stocks on margin or invest elsewhere. If you have the money in an IRA government forbids any leverage, and moreso money from stocks sold isn't available until "settled", usually 3 business days, which is ridiculous. You have to wait that long to buy something else. Lots of wasted opportunity IMO.

Good point. On the other hand, as Wookiman once noted, IRA is a protected asset, so it has that advantage

gabbar says

mell says

Just an example. You have 500k in your IRA, you have all invested, one of your favorite stocks goes onto discount or you have another great investment opportunity. If you had paid 10% penalty say you would have only 450k now but free and clear in a margin account. Your additional leverage (buying power) is anywhere between 150K and 800K depending on the stock price of the stocks you are holding. You can use the money to buy stocks on margin or invest elsewhere. If you have the money in an IRA government forbids any leverage, and moreso money from stocks sold isn't available until "settled", usually 3 business days, which is ridiculous. You have to wait that long to buy something else. Lots of wasted opportunity IMO.

On the other hand, as Wookiman once noted, IRA is a protected asset, so it has that advantage

Brokerage accounts are usually insured by SIPC up to 500k, then you need to split into multiple accounts/brokerages. There's no doubt the 10% penalty and income tax sucks and is a major drawback, but as @nuttboxer mentioned, until you're 55/59 (and technically even after that) any govt backed account belongs to the govt and they can change the rules on you any day. It's always a good idea also to have some of the money in real estate(e.g. your own property) and/or in foreign markets/currencies.

mell says

It's always a good idea also to have some of the money in real estate(e.g. your own property) and/or in foreign markets/currencies.

Have been thinking about buying real estate with the money I have in my LLC

The SIPC is not government backed. It is an insurance company backed by the brokerage firms, themselves. If there was an incident of malfeasance by a major firm, you can kiss the assets in your accounts good-bye. Even under best case situations, such as with Madoff (you see his accounts were also SIPC backed), you may have to wait a decade or two or three to get your assets back. - Basically not worth the paper the guarantees are written on.

Misc says

The SIPC is not government backed. It is an insurance company backed by the brokerage firms, themselves. If there was an incident of malfeasance by a major firm, you can kiss the assets in your accounts good-bye. Even under best case situations, such as with Madoff (you see his accounts were also SIPC backed), you may have to wait a decade or two or three to get your assets back. - Basically not worth the paper the guarantees are written on.

You can always take out gains and move them to an fdic insured account. Don't invest with esoteric funds. Stay with big brokerage forms and you're fine. The problem with madoff was that the sipc obviously refused to reimburse large non existent gains, but quickly paid out net investments. If you make money trading stocks the gains are real and yours and you have not much to worry about. If you put a fund "manager" in between, we'll you better stay with the tried and true. Rule of thumb is never let anyone else "manage" your money, incl. govt. Even automotive bondholders got screwed in 2008. Stay close to your money, move it frequently, use it!

mell says

Stay close to your money, move it frequently, use it!

I have some dough in 401k with a previous employer. Is it wise to move it? And where?

I trust the person I don't know to manage my money when he works for a place like Vanguard, T.Rowe Price, Fidelity.
You can read the bio of the manager; for example Will Danoff was the manager of Fidelity Contrafund.
The prospectus says what he plans to do with your money.
If you have an old 401K, simply go to Vanguard.com or T.Rowe Price.com and see how to "roll over" the 401K.
The form is not that complex and someone can even help you over the phone with it.
Then, you can direct which mutual funds, etc. you wish to own in that former 401K which is now a "rollover IRA".

I know computers, send me your network information so I can better secure it, and ensure your data is being properly backed up. If you don't want to, is it just because I don't work for Norton, or some other company? Fundamentally though, you do understand companies are compromised of people, with all the inherent risks that you would consider before hiring me. In fact, even more so as the CEO's of the companies you mentioned have all done things I would consider morally reprehensible.

This is the false dichotomy of business and morals being completely separated. You assume you can use those companies because they would never lie, cheat or steal. But they are full of people just like me, all capable of the same things. I might know of a few small companies who have better morals than I do, but they certainly aren't on your list.

Point being if one of your investment companies decided to defraud you tomorrow, you'd be shit out of luck, just like the minor shareholders/investors in so many, MANY companies that have gone under over the decades. I don't have that risk because I control my investments, physically.

Misc says

The SIPC is not government backed.

You mean the government that rigged the last election? That can't tell you who's cocaine was found in the White House? Who's about to let a multiple felon walk? Who told you there were weapons of mass destruction in Iraq? I'm failing to comprehend why you see that as a benefit.

NuttBoxer says

For anyone who does the 401k, please explain to me why you trust someone you've never met with your money? That's a deal-breaker right out of the gate. For all tax apologists, have you thought about investments outside of the system, that you don't report..?

Outside of a safe, where do you put your money??? I like having some decent amounts of cash on hand, but not too much. You have to put your money into something. A safe at home or a bank can be robbed. There is no "safe" place to put money at all really.

I'm doing well putting my money in a place were I don't do a lick of work for it and it doubles. I give someone money and on paper there's more there at the end of the day. We're sitting on $1M+ now and compound that and our additional contributions we'll easily be $3M-4M by 50. Likely more. My soon to come federal pension and my own 401k, well roll over at this point and we have a lot of fucking money for our age.

Everyone's path is different really. I hate the fees, but I'll pay people to manage it. I'm not. We can earn more in the time it takes to manage finances hourly. It doesn't make sense unless you're killing it on stock picks. Could the system crumble and someone takes all my money, sure. But that's what guns are for. Won't happen. Enron was a shit show but that was a private company. I wouldn't invest in a private company pension for retirement purposes, besides stocks. Even then I don't have time for that shit. Stock options would be the only thing. I still don't have to manage that.

Mell you can leverage IRA and 401k's. Just have to get company approval and make paycheck payments towards the debt. We borrowed $40k off the wife's 401k. Seasonal commissions, so we live poor for a few months and then get $70k checks. It's fucked up, but we've figure out how to make it work. So you can leverage them for sure. You just have to go ask the employer which of course is a pain. But I could get $100k overnight out of a 401k. Unless your employer is an ass hole. Which many/most are.