Ok. So, this is half rant half advise. I was actually talking to RJP about this (buddy of mine on another forum). We were discussing taxes and car mods and I went into my rant. For those of you who are young and considering financial investments (start early and trust me you’ll be happy in the long run) read this and read it well.
SO I started my 401k when I was 18, I’m now 20, almost 21, i’m still considered “young” but since I was working at my previous job I had a 4% contribution to my 401k.
Here’s the good thing about 401k:
It’s pre-tax, so if you are doing that, and you contribute $20 a check (which is like or 2% contribution on a LOW payroll… most of us if you do 3 or 4% and if you can contribute at least $50 a paycheck, you only miss like $30 off of it or maybe a tad more), you really only see maybe a $10-15 missing chunk off of your paycheck. Who can’t afford that?
It’s considered a tax write-off, that’s right, you can claim it off your taxes as a tax write-off. HOW CAN YOU COMPLAIN ABOUT THAT!
Most employers MATCH your 401k or PARTIALLY match your 401k, this = free money. You put in 50, they put in 50, or maybe you put in 50, they put in 25. Either way that’s $100 at the end of your check or maybe $75, who cares, it’s MONEY!
You can’t technically safely touch it till you’re ready to retire. You get tempted to take it out, they slap your hand and fine you. Bad self control? They help you!
It gains INTEREST and RETURN. Most 401k if you do it right will yield and can yield 4% return or MORE in a year. Do the math. More free money. By the time you’ve retired most people have managed $200,000 or more, that’s on a small amount of pay if you did 401k from the time you started and thats on a low payroll.
Ok so I’m about to hand you some very handy advice here and I’m doing this because I don’t want to see anyone else get burned like I did.
At my old job as I said i was contributing around 4% each paycheck.
Long story short I QUIT that job like a white guy wearing pink running through the ghetto being shot at.
I called Trowe Price and talked to a rep about my 401k. I simply asked them “Ok, well what can I do at this point?” the rep told me that they would recommend probably moving it to my new 401k at my new job if we had it. But that if I wanted to and I’m quoting literally from what I was told “You can keep it with us as long as you want, but you will not be able to modify your stock options like you have been this past year, you are not employed with that company anymore, but we’ll keep it for you and it still grows interest.” i said “Ok sounds great, are there any fees?” and the rep said “Nope, you just won’t have any options.” I reply with “Do I have to roll over my 401k in a certain time frame?” they once again said “No, you do not have to worry.”
I shrug it off, I mean, the rep told me, assured me and assured me again despite the rumors of my hearing “You usually have like 4 months to roll it over or 6 months or something” but I figured “Meh, I’m talking to a co-worker who hasn’t started their 401k, and just talked to a rep who handles them for a living? I’ll do the math, oh wait i just did, NOPE!”.
Well, this year I got burned on my taxes which can be expected when your income at your old job + taxes withheld at new job vs your new income puts you in a new bracket, you expect one amount and are disappointed to find out you only got another amount back with a big face when you get the numbers back.
Ok so here’s my advice. If you have questions about your 401k, ASK A PRO, I did not speak to my financial advisor, and I SHOULD HAVE because I wouldn’t have gotten burned like this.
2 weeks ago I get a call from my parents saying “Derek, we just got something from your trowe, looks like a check to me… and ummmm is this a loan or something?” they thought I applied for some loan in the mail and was taking out some odd amount for a new car or something, kind of made me laugh, anyway… turns out it was a check, FOR ME! I was excited for a minute but then thought “Wait… why would trowe price send me a check for that much unless… wait… thats how much my 401k is, wait, no… it was more than that, there is like 25% missing from that figure.”
Ok well get this. The rep LIED TO ME, imagine that. In this day and age someone lied, OH WELL! Well guess what… This year in my 401k I got a 25% RETURN in my stocks, that’s nearly a quarter of my ENTIRE 401k being slapped on that, FREE MONEY YAY! STOCKS! MONEY! YAY!
Well guess what, because the rep at trowe lied to me, I ended up not rolling over my 401k like they said I didn’t have to do. At the end of this year they send it back to me, that’s right, the ENTIRE 401k in the form of a PERSONAL CHECK, but that’s not all, because it’s taxed and claimed as income they tax it like a paycheck, well that’s more than 25% MISSING FROM MY 401k, nearly as much missing from it that I made from it. I talk to my human resources manager at work absolutely FURIOUS, not at her, but just over the whole ordeal. She tells me after talking to a manager at our 401k institute that YES indeed I can put my 401k back into my NEW 401k but here’s the catch, THE TAXES HAVE TO BE MADE UP. I’d have to pull all that 25% of my 401k out of my ASS and into the accumlated SUM that trowe sent me.
SO, the only thing I CAN do is to slap this SOB into an IRA (Individual Retirement Account) So I don’t have to claim it as income and can write it off at the end of the year.
But i still got 25% of my entire 401k BURNED up in thin air. Thats a lot of money missing that was mine. MINE MINE MINE!
So for those of you NEW to investing, speak to your financial advisor get SECOND OPINIONS on EVERYTHING and treat it like it’s your retirement because IT IS. I’m only 20, nearly 21 and a young guy so it only set me back a little, but had I been 30 or 40, this would be a huge huge huge deal and would majorly HARM my retirement.
Hope this helps someone else.
Moral of the story:
Investments and future financial planning are GOOD.
Not getting a second opinion and sluffing off something you just don’t feel right about that is dealing with your financial future is BAD.
Remember, talk to the freaking financial advisor if you have one, if you don’t have one GET ONE. Otherwise you end up having a rep lie to you, your 401k rolls into a personal check, you get screwed and the US Government goes “HAHA Derek FU :twisted: MONEY FO ME!”