Retirement Planning/410k


QUESTION: Hello Sir,
I first thank you for your time answering my question. I am also lucky to use allexperts who have done a great work to help the common people.
I do need some education about 401k .

I am 30 years old living in america. I am thinking of starting investing in 401k plan which I poorly understand. I think its a big rip off.
Well I work for this company who will match 3% of my salary. i understand money invested in 401k is not taxable atleast for now.
My queries are
1. At the time of retirement , lets say my 401K is worth 1 million dollars. How much would i get when i withdraw this?What would be the tax?In order to be able to earn around a million dollars at the age of 60, I should be putting 1500 dollars a month for next 30 years minimum. A million dollar appears a lot for now, but i honestly think it would not be much 30 years from now.
I would rather take some risk and invest the money in real estate properties in asia which appear to fetch more returns with no contracts or bondage involved.
If my company matched with the amount i put in 401k, then i think its certainly a great idea. But for 3%, i think it sucks.
2. Is it a wise idea to invest in 401k in the present uncertain market especially when your company matches only 3%?
3. Do people withdraw 401k money before retirement. I read that its 10% extra penalty with taxes involved. How big mistake would this be?
4. I also noticed that you could get home or study loans on 401k which appears to be great benefit. Are there drawbacks here too?

Do you think 401k is a great opportunity for common man or do you think its just another trick by the govt to rip off people?

ANSWER: Dear Raj,

I do not refer to 401(k)s as rip offs, but I do see them as not productive as tax-savings plans. According to many, the purpose of 401(k)s and IRAs is to encourage people to save for retirement so they don't have to rely on only Social Security. The implied incentive is the possibility of being in a lower tax bracket at retirement. This is a weak argument. The scenario you have described suggests that you would in the highest tax bracket.

1. Current tax would be about 40%. However, there is no guarantee that it will not be higher at that time. You are right to assume the likelihood of risk in Asian real estate. A big factor is the effect of political upsets.

2. It is worthwhile to match, do not exceed, the company contributions. You can do better with amounts beyond the company match.

3. The penalty is a big reason that I discourage tying up all your funds in 401(k)s. There is no good reason to put more than the company match, since this is not a tax-savings plan, but rather a tax deferral plan.

4. Depends. One should not put themselves in the position of having to use the 401(k) in this way. But if this is all that is available, the benefit is worth the disadvantages.

There is a way to save for retirement that is much better. If I knew more about your situation, I would be able to demonstrate it.

Willard R. Brumbaugh, LUTCF
TX License 1720073
#888) 792-2379

---------- FOLLOW-UP ----------

QUESTION: Thanks for the great answer.
Actually i found out that my company does not match at all. And now that we agree its a tax deferral plan than saving, I see no point of investing in 401k.
What would be one big reason for me to be motivated to invest in 401k or IRA then?

There is no big reason, only a small one, the structured monthly withholding of part of your income.

If you have the motivation to save without this employer sponsored structure, you should be able to do better on your own.

Willard R. Brumbaugh, LUTCF
CA License 0374776
(888) 792-2379

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Willard R. Brumbaugh, LUTCF


I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance. I have been counselling against most Qualified Plans since 1994.


Ranked in the top 5 in retirement catagories at most of its last 2 1/2 years. Organizations I belong to: National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council

Life Underwriters Training Council Fellow

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