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Would it make sense to take a 10k loan out of my 401k to start an account with an brokerage?
I'm 30. My 401k is doing well but I have no outside investment besides commercial real estate and want to get the ball rolling.
You don't have to take money out and deposit it separately with a brokerage account in order to make your own investment decisions with some of the 401K providers. Fidelity, for example, has a situation where instead of (or in addition to) taking part in their "funds" for the 401Ks, you can put a minimum of $3K in the equivalent of a brokerage account which is held in Fidelity and trade however you wish. See if your 401k provider has a similar arrangement and then you don't have to take a loan and move the money around.
Not now, not tomorrow, never take money out of your 401k. Only put in eventhough this is the first time you've had a little money saved. Again, leave it alone and put in 15% a year until you are 62 and it will happen. That is the only way to make money, trust me, just do it.
the upside is that with a ROTH you are actually avoiding a tax. the 401k or IRA you arent avoiding any taxes, you are just deferring them.
your not avoiding a tax your just prepaying it. the only thing your doing with a roth is betting on higher income taxes vs a tax defered plan betting on lower taxes.
if rates stay the same the returns are identical.
its no different than if i do a roth conversion. i pay the tax now, say goodbye to 1/3 my investment money and if im in a lower bracket which i think i will be regardless than i hurt my return.
the only thing a roth offers for sure that i like is its wealth passing ability that can go on forever even with the mandatory withdrawls your heirs make. i find the ease of tapping the money before retirement a big negative .
a roth is a free ride as well against a taxable account and thats nice.. that same after tax money can grow tax free in a roth vs sitting in your taxable account and being taxed every which way.
anyone who holds long term money invested money in a taxable account should fund a roth before letting that money sit in the taxable.
Last edited by mathjak107; 04-12-2011 at 01:54 AM..
it was my understanding that you avoid capital gains taxes with a ROTH.
you see the budget from the congressional progressive caucus? the people's budget? that caucus has 83 declared members, its the legit platform of democrats as far as im concerned. i was hoping they would mention 401k's but i didnt see it. i believe they did mention a 90% social security tax on income. what do you think these people will do with your 401k?
a roth is taxed in advance going in , a traditional ira or 401k is taxed going out.
there is no free lunch because your not paying taxes on the gains in the roth. you also gave up as much as 1/3 of the money that is growing for you from which you could pay the taxes with so it balances out.
the only wild card is tax rates . if taxes are lower when you retire then you loose. if taxes are higher then you win.
if taxes stay the same then its the same net in both.
i have said that people who are closer to retirement are in a less risky position. however, with the current state of the economy things can be changing within a couple of years or faster.
i understand roth is better than a regular 401k or IRA but that isnt an option for me. there are still risks involved but there is actual upside unlike traditional deferred tax accounts. its not really an option for me though. i have heard that roth 401k and higher limits on IRA's have happened but i havent looked into it. i dont like the government telling me when i can and cant access my own money. but like i said, at least with a ROTH there is actual upside.
interesting study one of the top business schools completed . carnegie mellon found that by using a mix of taxable accounts,roths and traditionals and putting the right investment in the right vehicle the end result was a difference of as much as 20% in the balance compared to using anyone of them alone or mis-matching assets to vehicles.
putting high yielding assets and interest producing things in roths or tax deferred vehicles was the way to go. since you pay regular income tax rates anyway on interest you want those in a retirement vehicle.
that would be bonds, income reits,cd's and anything else spilling out interest.
you want equities in a taxable account where you can benefit from low capital gain rates, write off losses ,and pass to heirs at a stepped up basis.
as carnegie demonstrated its not about choosing one or the other, its using the strengths of them all to possibly walk away with 20% more dough with no more effort than taking advantage of having the right investment in the right vehicle.
there are soooooo few i met that actually do this and its a shame because they are dribbling away their own money by bad planning or thinking one vehicle is better than the other .
this is why we screw up when we believe our own bull-sh*t.
again ill say it: its not what we dont know that gets us in trouble, its what we think we know that aint so.
Last edited by mathjak107; 04-13-2011 at 02:50 AM..
a roth is taxed in advance going in , a traditional ira or 401k is taxed going out.
there is no free lunch because your not paying taxes on the gains in the roth. you also gave up as much as 1/3 of the money that is growing for you from which you could pay the taxes with so it balances out.
the only wild card is tax rates . if taxes are lower when you retire then you loose. if taxes are higher then you win.
if taxes stay the same then its the same net in both.
one thing i forgot to add is that if tax rates are the same when you retire actually the traditional or 401k wins because tax brackets are allowing more and more income through at lower tax rates each and every year.
you would have deducted through the years more than you will pay at the end.
there is no free lunch because your not paying taxes on the gains in the roth. you also gave up as much as 1/3 of the money that is growing for you from which you could pay the taxes with so it balances out.
i dont see how you benefit from this notion of keeping the money to grow for you. you pay that back to the government later plus the gains on it. so it seems that money is just the governments that you are working hard to grow purely for the benefit of the government.
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