401k For Dummies

Frequently Asked Questions

1. QUESTION:
   401k Question and summary for dummies?
   I did research for the past hour on 401k…and my head hurts…lol.

   To be honest, I signed up for 401k at my job when I started 15 months ago. I saw that I was getting approximatly 50 bucks each month for my 401k and thought nothing of it. Now I’ve gained an interest in knowing all about my benefits, from my health, dental, life insurance and my 401k.

   Can someone explain 401k briefly….in layman’s terms? From what I understand, I get money taken out of each paycheck pre-tax, and my employer puts up a certain amount too each paycheck. That money is put into an “account” that is supposed to be for my retirement?

   Now, concerning me personally, I’m worried. It looks like they put me in stocks…or bonds…Idk…It’s a plan called LifePath. All I want is a plan that has guaranteed money or interest. I don’t want to risk losing it. Basically I want the best interest GUARANTEED…not a chance at getting higher interest with the risk of losing it…even if it’s 99% guaranteed…is that possible, or is it only stocks and bondS?
   I’m turning 21 next month, so I have a lot of years till retirement. The only thing that worries me is that my retirement money gets put into a stock that ends up crashing, and I’ll have to owe money in the end or have no retirement money left had i retired. I know that now (Long-term) is probably the best time to invest, because the stock market is really really low. But eh…just worried

   • ANSWER:
     401K refers to the tax code that the plan’s developed from. A 401k is a retirement saving vehicle that employers provide as a benefit to their employees. Any contributions you make to the plan are subject to tax penalities if they are removed prior to your retirement. You can contribute up to a certain % of your income pretax into the account for your retirement, and often times your employer may provide a match benefit to your contribution, it often is something like match up to 5% which means if you contribute 5% of your paycheck they will match that, but if you do 6% they will only match up to 5% and if you do 1% they will only match your 1%. The plan is somewhat self direct, they provide you with a bunch of different investment options that you can choose from, the default option is often a target date fund, like the Life Path fund you described, that is a bucket of mutual funds that are diversified among stocks and bonds, and is allocated based on the target date you would likely retire depending on your age. Its often the best choice for the unsavy investor but by no means is it your only option. There is no guarantee in 401k plans, you can always chose the money market or stable value fund option, but the interest rate of those options will fluctuate with the prevailing market interest rates. Depending on your age you really should consider having some exposure to the stock market, if you don’t you will likely never reach your stated goals for retirement income. Keep in mind if you began investing in a 401k fund in 1981 and invested only in the “safe” money market fund, you would have gained a compounded return of 2.1% which equated to ,813 on a ,000 investment, if you had invested that same sum in the S&P 500 over the same period your compounded return would have been ~8% and your balance would be ~,000, and that’s even after the big down turn last year. My point, yes stocks experience short term volatility, often times violently so, but if you have many years until retirement they really do serve a valuable purpose for investors who hope to be able to maintain their lifestyle in retirement.

     Edit: Even if a stock crash, it almost never has no value, and you would not owe money. The vehicle you were put in is a relatively conservative option with a diversified mix of stocks so the likelihood that any one stock would go to zero is overshadowed by the fact that the fund probably owns hundreds of stocks, and if all stocks go to zero then we all have a much bigger problem then retirement assets. At 21 you really do need that exposure. For more information ask your HR department about educational seminars they provide on investing which is mandated as part of their fiduciary responsibility. Like I said before the stock market has “crashed” at least 2 times since 1981, and you’d still be way better off even with that. Also keep in mind these LifePath funds are managed so that they become more and more conservative (i.e. have less exposure to stocks more exposure to bonds and money markets) as you get closer to your retirement date, so your stock market risk will decline as you get older.

2. QUESTION:
   What is the difference between a 401K and a 403B?
   Is there a difference? Please explain in Taxes for dummy form. I have no clue what this all means. All I know, is that I get money taken out, and build a savings. lol

   Oh, and when I leave my current employer which I have the 401k, and then go to the new employer which has the 403B, can I take out money before I put it in the new plan? Will I be taxed?

   • ANSWER:
     401k and 403b are essentially the same thing, and are named for the section of the tax code that discusses them. 401k is for for-profit corporations and businessess
     403b is for non-profit organizations and schools.

     There are both retirement accounts, and you can invest in retirement account separate from your company. These include traditional IRAs and Roth IRAs which are open to everybody, and SIMPLE and Keogh accounts if you’re self-employed.

     If you roll the money directly from one 401k to another 401k or 403b account, the money isn’t taxed, but you have to be explicit that the money is paid directly to the account and not to your personal pocket.

     All these retirement accounts are great because they reduce your taxable income, and the money grows tax-free. With IRAs, you have a choice between paying tax on the money you put in (Roth IRA), or the money you take out at retirement (traditional IRA). It’s important to note that you shouldn’t depend on Social Security for your retirement; it’s unlikely the program will fail or run out of money by then, but even in the best case it will still pay only a fraction of your current income.

3. QUESTION:
   If I only have 0-00, what’s the best way to grow my money? I hope to add 0/month.?
   I believe I will be able to add -50/week to the account. My job does not offer a 401K plan, or any other benefit.

   I am not interested in reading books about investing for dummies and I know I’ll never be a day trader. I just want to take a small amount of money and see what I can do with it. Just looking for ideas. Thanks.

   • ANSWER:
     you really have to consider opening a an IRA account that gives you the opportunity to save for retirement if your current employer does not offer a 401k plan. Depending on your income and tax bracket you will determine wether to invest in a Roth-IRA or Traditional-IRA, I recommend that you talk to your tax advisor then discuss this with a Financial Advisor. Important that you establish cash reserves before you began saving for the future, just so you have emergency money on side. Good Luck

4. QUESTION:
   pension for dummies ?
   i am currently employed and may choose to leave my company by the end of this year. i am knew at 401k plans and pensions and how they work..anyways my co uses fidelity and i was able to see how much pension benefits i would get if i retired at 51 or 65 . its aid that i am 100 % vested and it had an amount for monthly payments then a diffrnt amount for a lump sum
   i am 35 and not close to retirement age of course but does anyone know if i chose to takke it lump sum that i would be eligible to do so or not. and will i get taxed on it ?

   • ANSWER:
     If you take a lump sum you will lose 25% to taxes and another 20% to penalties. Roll it over into an IRA and let it grow for your retirement.

     Think about that – you will lose almost 50% of the money if you take it as a lump sum.

     Roll it over to an IRA for god’s sake.

5. QUESTION:
   Laid off, what are my options with my 401k?
   I am a 27/F and have been contributing to my 401k since I was 23. I do not understand investment lingo very well so PLEASE feel free to dummy down the vocabulary as much as possible.

   I was laid off four months ago due to the thriving economy and have to make a choice on what to do with my 401k (approx value of K). I like the company that has been handling my 401k while I was working. However since I have been laid off, I have been paying a higher maintenance fee because my account has not been moved into an individual account.

   What are my choices? I do not want to cash it out (take the money and not reinvest it). I would like to keep the investments I have made (knowing the market will rebound before I retire). I know that the money I have invested is pretaxed. I guess I like this option because I know I won’t loose anything I have invested.

   I have heard that I can cash out my stocks & mutual funds then buy again with some sort of other investment. (I feel if I cash out I’m somehow loosing something I have invested). This is where I get confused. I’m not sure I know what that means. Is that considered a roll over? What’s a traditional IRA and a Roth IRA and what are their similarities and differences? (It should be obvious by now that I really don’t have a clue here.)

   No one close to me has a clue about this sort of thing. I would like advice from people who have nothing to financially gain from me. The only advice I was offered was to find out the maintenance fees for an individual account at the current place my 401k is at, at my bank (nationally known), and at my financial group. Choose the one who will somehow keep the most of my money (depending on my options) and the lowest maintenance fee. Was that good advice?

   PLEASE HELP!

   • ANSWER:
     Since you don’t want to cash out (wise if your situation is sufficienty comfortable, if for nothing else but the shock to your system when you figure your taxes next year), you might not need to do anything. Otherwise, if you must, it is called a “rollover”. The customer service people at whichever bank or mutual fund will help you. It isn’t hard, but they will be throwing the terms at you anyway, they are required to. Listen calmly, and then simply ask when they stop for air (they will be in as much a hurry to get through it as you will be), “Does this mean that my old account is now in the new account approximately like it was at the other company?” If they say yes, then you made it.

     There is so much competition that if you stay at a big name, and your account isn’t huge (if you had the kinds of jobs that would make your account large, you probably would have also learned the lingo along the way) then you will probably do okay. Look for the important words “no load”. This means there will be no sales fee, coming or going.

     Also the difference between a traditional IRA and a Roth IRA is whether you want to pay taxes on the money now (Roth) or in the future (traditional). Here is one possibility: http://www.scottrade.com/ira/compare-IRA-roth-traditional-rollover-sep.asp. Read what they have and if you are comfortable, see if there is a branch near you http://www.scottrade.com/online_brokerage_firm_locator/ or call the 800 number on that page. They have an excellent list of mutual funds to roll your money into and the helpful brokers are good and not greedy.

     This link to Ishares.com may be helpful. I like them because they are minimally managed funds that buy or sell just like stocks, so you have no extra or substantial fees. For instance, if you had a simple stock fund at your 401, you might look at IWW, the Russell 3000 Value Index fund (http://us.ishares.com/product_info/fund/overview/IWW.htm) or if your current holdings were in bonds, you might look at AGG, the Aggregate Bond fund, http://us.ishares.com/product_info/fund/overview/AGG.htm. Look around and see what makes sense to you.

     The trick is that in the long run, investing in a range of solid companies will do wonders for your investment value. How to determine what among choices is almost like dating. Some are gems and some are dogs and you will get a feel pretty quick as to which one might likely be when you spend some time watching and asking questions. You’ll do fine.

     Added:
     I work at a nonprofit and we recently changed 403k administrators. We used TIAA-Cref. I rolled over most of the funds to a couple of available funds doing like things with the new company and kept one of my TIAA accounts as is. The only thing I had extra to do was answer the questions from the paperwork reviewers — since everyone else was losing 50-60% and upwards, how did I only lose 12% last year? (I saw it coming and rearranged my holdings).

6. QUESTION:
   QUESTION ABOUT POSSIBLE BANKRUPTCY?
   Please don’t send links, etc. I just need a little food for thought. (I’ll not get into dollar amounts, the question is to let me think about options).

   * Income – my retirement pay. I’m 62 yrs old and applied for Soc. Sec. after which my retirement supplement drops out.

   * Outgo – House Pymt, utilities , wife, daughter and 3 grandkids.

   I also have a 401K which I can withdraw from.

   Since I retired a year ago, I’ve found that I have to withdraw money from my 401k each month to supplement my retirement/SocSec to pay the bills, etc.

   I also have a ton of bills from my wife’s medical condition, some already in collection agencies. I can’t afford a lawyer; what are my options.

   For the moment, forget the medical liabilities. At the present rate, (Income plus 401k withdrawals = expenses) I figure we can last about 2 years before losing our house. Questions:

   1) Can or will I have to declare bankruptcy?
   2) What does that really mean?
   3) Will I lose the house (even if I can keep up pymts)?
   4) What about the med bills, collection agencies?

   As I said, I can’t afford a lawyer and subject web sites are advertising. I just want to know, in general, what does bankruptcy.

   I’m reluctant to put dollar figures down but, as a base, my mortgage pymt is 1,000/month. You can project the other figures. We’re obviously not rich, wife still ailing and I’m not running the marathon this year either.

   Is the a book “Bankruptcy For Dummies”? Let me know. Thanks for any general guidance. Live in Illinois. GL to all.

   • ANSWER:
     In virtually all cases in which the client wants to keep the house and is able to afford the mortgage payments, a good bankruptcy attorney can construct a bankruptcy case that will allow you to keep the house.

     If your wife has ongoing medical expenses, it may make more sense to wait until her treatment is completed before filing bankruptcy. Any expenses you incur after the bankruptcy is filed will not be discharged in bankruptcy.

     Make an appointment with a local bankruptcy attorney (most offer one free appointment to assess your financial situation and advise you of your options). You are not obligated to file bankruptcy or (if you do) to use the attorney who has given you the free appointment.

     Get your legal advice in person from somebody who is licensed to practice law in your state, and who is an experienced bankruptcy attorney. The internet is full of extremely bad “advice” and inaccurate myths regarding bankruptcy

7. QUESTION:
   I think it’s so irritating..?
   to keep track of my money…
   I have a savings and checking account, a cd, a debit card, a 401K, a little money in stocks, and one credit card. I’m 19 years old. I hate keeping track of my money though. I’ve tried everything from making my own little sheets to fill out after every purchase, hanging onto every receipt… but I can’t get myself to do it. I’ve read books like “On my own two feet: a girls guide to personal finance” and “Personal Finance for Dummies”.
   Any tips?
   I just discovered GoogleDocs… it’s like excel but a little easier

   • ANSWER:
     The easiest way to keep track of your money is by note everything you do i meant like buy a dollar note book and make different section for your saving, checking accounts, cd, debit card and your stocks. Example, then every time you use your credit card put the amount in the book how much you used it for and at the end of the month when the bill come or the statement then check if they match and this way you will know how much money you have spended and how much is left. I seen lot of people do that believe me i will grunted it will work for you also.

8. QUESTION:
   Are U.S. treasuries a good investment right now?
   It’s part of our 401k plan,I’m afraid the stock market is going to run out of steam before long,but US treasuries are still down for this year.

   From a dummy investor.

   • ANSWER:
     Why would you want to invest in those during record LOW interest rates???

9. QUESTION:
   Child Support and Judges Passing the Buck?
   What kind oh horse shit is this system we have here? Can someone please explain this. I’m ordered a credit of 3600.00 by the court. The decision took 6 months long, waiting and I retained all my legal rights to my children. The credit was requested and not even addresed after 6 months my lawyer had to motion a clerical error saying wheres the child support issue? The judge didn’t even address that after 6 months. Then I ask support for my credit and they tell me to go back to court to address getting it. Its been credited to my support account already -3600.00 Period. Now I ask how to get it do they not garnish to the tune of do they reduce to the tune of or pay me a check and he tells me to go back to court AGAIN? Maine Sucks I’m sorry but this is the worst thing I have ever seen. Never mind not seeing my children for a year. I run 401k plans for top executives for Major Defense companies world wide 5 million dollar accounts and I’m no dummy but I am fed up NOW! Read Below if interested…

   Child Support Credit Agency tells me to go back to Court Ping Pong Ball Bullshit?
   I am a parent in Maine, Androscoggin County with joint shared custody who has been paying support for over 10 years 600 per month. I have not seen my daughters in over a year. The court system has been going against the rules of procedures, not enforcing contempt of visitations , and not paying me support money I overpaid last year. I have a court order giving me a credit for 3600.00 . I called the child suport enforcement person and asked for my credited amount. This is a court order already decided already made and already credited to my child support account. I was told that I had to address this with the court this amount since I am going back to court anyways. I am shocked, I am only going back to court to see my children I HAVE NOT SEEN IN OVER ONE YEAR DOES ANYONE UNDERSTAND HOW THIS AFFECT ME AND MY CHILDREN? MY EX IS NOT SENDING MY CHILDREN! I want my credited amount sent to me and I want to see my children.

   I requested my money and have notified attorney general the governor and my legislatures. I am so hurt emotionally and financially. Please advise
   1 day ago – 2 days left to answer.
   Additional Details

   23 hours ago
   The reason I said is me me me is because the extreme parental alienation is making the kids hate ME so they dont even want to visit anymore

   • ANSWER:

10. QUESTION:
    Child support Enforcement and Family Court Majistrates Passing the Buck?
    What kind oh horse **** is this system we have here? Can someone please explain this. I’m ordered a credit of 3600.00 by the court. The decision took 6 months long, waiting and I retained all my legal rights to my children. The credit was requested and not even addresed after 6 months my lawyer had to motion a clerical error saying wheres the child support issue? The judge didn’t even address that after 6 months. Then I ask support for my credit and they tell me to go back to court to address getting it. Its been credited to my support account already -3600.00 Period. Now I ask how to get it do they not garnish to the tune of do they reduce to the tune of or pay me a check and he tells me to go back to court AGAIN? Maine Sucks I’m sorry but this is the worst thing I have ever seen. Never mind not seeing my children for a year. I run 401k plans for top executives for Major Defense companies world wide 5 million dollar accounts and I’m no dummy but I am fed up NOW! Read Below if interested…

    Child Support Credit Agency tells me to go back to Court Ping Pong Ball Bullshit?
    I am a parent in Maine, Androscoggin County with joint shared custody who has been paying support for over 10 years 600 per month. I have not seen my daughters in over a year. The court system has been going against the rules of procedures, not enforcing contempt of visitations , and not paying me support money I overpaid last year. I have a court order giving me a credit for 3600.00 . I called the child suport enforcement person and asked for my credited amount. This is a court order already decided already made and already credited to my child support account. I was told that I had to address this with the court this amount since I am going back to court anyways. I am shocked, I am only going back to court to see my children I HAVE NOT SEEN IN OVER ONE YEAR DOES ANYONE UNDERSTAND HOW THIS AFFECT ME AND MY CHILDREN? MY EX IS NOT SENDING MY CHILDREN! I want my credited amount sent to me and I want to see my children.

    I requested my money and have notified attorney general the governor and my legislatures. I am so hurt emotionally and financially. Please advise
    1 day ago – 2 days left to answer.
    Additional Details

    23 hours ago
    The reason I said is me me me is because the extreme parental alienation is making the kids hate ME so they dont even want to visit anymore Someone asked why I think of myself I’m not I’ve borrowed and spent all i have just to try and see my children and enforce my parental rights Its a crying Shame.

    • ANSWER:
      HMMM.