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Thread: Why a 401k/IRA

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    Why a 401k/IRA

    Why should i put money into a 401k/IRA
    if i were to put that money towards stonks instead
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    You can invest in stonks through your 401k/IRA can you not?

    Our equivalent here in Canada is called an RRSP and that’s where like 70% of my stonks live. But there are rules around holding stonks in registered accounts
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    Tax advantages.

    You can invest in stocks in 401k/IRA.

    Do both. Contribute like 10-20% to retirement and another 5-10% or whatever you can afford to a regular brokered account. You'll have your 401k/ira for retirement and maybe you'll make a bit with your other investing also that you can pull out whenever. Just be aware of short term vs long term gains.

    Or just buy high sell low so you don't pay taxes on it.
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    Investing in "stonks" doesn't get you an employer matching contribution or lower your AGI when you file your taxes. That's a pretty big deal.
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    Cause of employer match. My company matches 6% so it’s basically a free 6% raise.

    And pre tax money to lower the rate you’re taxed at.

    And to protect your money from divorce or lawsuits.

    Also my 401k has a self directed brokerage account. I can put money in. Lower my tax bracket/avoid taxes. And get the employer match. While managing my own investments.
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    Reason #1:
    - Employer match aka free money
    - You are using pretax $ (unless roth) opposed to post-tax $
    - Most plans have advisers you can use for free

    Just make sure you actually PICK the stocks so you don't get into the default which is usually dogpoop
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    I'm probably repeating what everyone else is saying ITT but...

    1) Employer match. Literally free money if your company / position offers it. My current gig provides a 100% match up to 6%, so I do exactly 6% to a Roth 401(k). Essentially free money on day 1 of deposit, let alone the growth it'll provide by age 59 1/2.

    2) Retirement investments remove temptation to withdraw/touch, due to penalties associated with age. Keeps you invested for longer despite hills and valleys.

    3) Retirement accounts aren't subject to capital gains tax.

    Retirement accounts still have access to mutual funds / stocks, depending on what the company's 401(k) plan offers. Also there's more flexibility than people think, since you can rollover your 401(k)'s to IRA's down the road, regardless of annual IRA limits.

    If none of the above appeals to you, then you can ignore it all but your retired version of yourself at age 59 1/2 and beyond will regret it.

    EDIT: personal advice is to do the 401(k) match from the employer. Most folks recommend maxing out IRA's every year on top of this, and maybe even going heavier into the 401(k) beyond the match. But I'd prefer to put that extra money into non-retirement investment accounts, at least in my twenties / early thirties. Maxing out IRAs and going beyond the match in a 401(k) is good for anyone trying to catch up on years they didn't spend contributing to retirement though. IE, they say your retirement account summation should be equivalent to your salary by age 30... double the salary at age 35... quadruple at 40... etc. So if you're behind those targets, then I'd agree putting more into the 401(k) beyond the match and adding to the IRA is a good idea.
    Last edited by Visel; 01-08-2021 at 07:10 AM.
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    i got a question here for you guys. i have an 401k which i dump 12% a biweekly into my employer match's at 3% 100% and 50 % another 2

    how can i open an IRA account , do i need to open thru my Bank ?


    thanks for your time guys...
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    Originally Posted by mr.left hook View Post
    i got a question here for you guys. i have an 401k which i dump 12% a biweekly into my employer match's at 3% 100% and 50 % another 2

    how can i open an IRA account , do i need to open thru my Bank ?


    thanks for your time guys...
    You can very well open an IRA through the same platform that your company's 401(k) is from if you wanted. IE if your company uses Fidelity, you can open an IRA account in Fidelity on that same parent account.

    But yes pretty much all banks and credit unions let you open an IRA with them.
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    Originally Posted by Visel View Post
    You can very well open an IRA through the same platform that your company's 401(k) is from if you wanted. IE if your company uses Fidelity, you can open an IRA account in Fidelity on that same parent account.

    But yes pretty much all banks and credit unions let you open an IRA with them.
    I'm at Van guard with my company also forgot to mention i can contribute up to 20%,so I still have some room till capped

    I also heard not to contribute past company match , does that sound right ?
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    Originally Posted by mr.left hook View Post
    I'm at Van guard with my company also forgot to mention i can contribute up to 20%,so I still have some room till capped

    I also heard not to contribute past company match , does that sound right ?
    There is a school of thought that does recommend contributing to 401k up to the ER match but deploying any further contributions into an IRA. Typically the reasoning is that you want to take advantage of the match but put any further contributions into an account that isn't subject to all the rules etc. of the sponsored plan and that has greater flexibility of investment options. I'm not sure this advice is as sensible as it was 20 years ago. As several people have mentioned above, more and more sponsored plans are adding brokerage windows through which you can invest in basically anything you want, not limited to the plan selection. And fees etc. are so far below what they were even a decade ago so that's not really much of an argument to avoid the sponsored plan. If you don't want to bother dealing with a separate IRA and you like the options in your employers' plan it's not the worst idea to contribute beyond the match. Additionally, it's important to remember that the contribution limits are higher with 401ks than IRAs-$19.5k vs. 6.5k as of 2021. So if you're a big earner that can matter.
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    Originally Posted by EasternHammer View Post
    There is a school of thought that does recommend contributing to 401k up to the ER match but deploying any further contributions into an IRA. Typically the reasoning is that you want to take advantage of the match but put any further contributions into an account that isn't subject to all the rules etc. of the sponsored plan and that has greater flexibility of investment options. I'm not sure this advice is as sensible as it was 20 years ago. As several people have mentioned above, more and more sponsored plans are adding brokerage windows through which you can invest in basically anything you want, not limited to the plan selection. And fees etc. are so far below what they were even a decade ago so that's not really much of an argument to avoid the sponsored plan. If you don't want to bother dealing with a separate IRA and you like the options in your employers' plan it's not the worst idea to contribute beyond the match. Additionally, it's important to remember that the contribution limits are higher with 401ks than IRAs-$19.5k vs. 6.5k as of 2021. So if you're a big earner that can matter.
    this was loud and clear brother, I appreciate your time - ty again
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    Originally Posted by EasternHammer View Post
    There is a school of thought that does recommend contributing to 401k up to the ER match but deploying any further contributions into an IRA. Typically the reasoning is that you want to take advantage of the match but put any further contributions into an account that isn't subject to all the rules etc. of the sponsored plan and that has greater flexibility of investment options. I'm not sure this advice is as sensible as it was 20 years ago. As several people have mentioned above, more and more sponsored plans are adding brokerage windows through which you can invest in basically anything you want, not limited to the plan selection. And fees etc. are so far below what they were even a decade ago so that's not really much of an argument to avoid the sponsored plan. If you don't want to bother dealing with a separate IRA and you like the options in your employers' plan it's not the worst idea to contribute beyond the match. Additionally, it's important to remember that the contribution limits are higher with 401ks than IRAs-$19.5k vs. 6.5k as of 2021. So if you're a big earner that can matter.
    This except IRA Max is still 6k, not 6.5k. I was really hoping they’d raise it this year. Hopefully next year.
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    because you probably wont be able to beat the market and there are tax incentives.
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    Go On... much respect Boyos...
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    Google Roth and Traditional IRA it will exaplin
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