I just crunched some numbers, and thought you'd find this interesting.
You read about this from time to time, but now that it's actually happening to me I thought I'd repost it.

I worked in a job for a while, maxed out my 401k the entire time, call this account A.

I've now switched to another job. Didn't roll over the 401k for various reasons, but started a new 401K account B, and now I just add money to B and let Account just 'sit there'.

It's now a year later.
Account B started from Zero dollars and is now at X dollars.
Account A quietly grew from Y to Z dollars.

What's interesting thugh, is that Z - Y > X, which means Account A is growing faster than account B. Quite a bit faster, actually. Unless the market takes a dump, in fact, There's almost no chance that Account B's balance will be bigger than account A, even though I'm not sticking another dime into A.

So the moral of the story: Start your 401k/Roth accounts early, and it'll really pay off.

These are toy numbers, but it's food for thought:
If you assume 10% return, and you start work when you are 20:
The first two years, max out your 401k (13K each)
Never stick another dime in there.
By the time you retire, you'll have over a million bucks.

 

That never happens.





Or much more!

 

This year (2006) the max pre-tax is $15k. I believe it goes up by $500/yr. from now on. There's really no 'max' to pumping money into a 401k except the pre-tax contribution limit of course, and whatever your company allows; you -could- always put money in after-tax. At my place we have a limit of 25% or 30% total pre paycheck. I have been maxing out (pre-tax) my 401k for 6.5 years and it has paid off really well. I encourage all to do the same, if you can.

 

I hope that million dollars buys us something when we retire.

 

I was just going to say what's a mil gonna do for me in 40 years?

 

With a 10% return, your money will double every 7 years... Google for Rule 72 for more info...

So if start saving for retirement at say 30 and you end up with $1M at 65, you could have had $2M if you started at age 23...

It's all about getting as many doubling cycles as you can...

I didn't start planning for retirement till my early 30's If I knew then what I know now...

 

You don't want the nursing home getting it.

 

started at 23.

Thanks for the info Greeny

 

I knew at a certain rate of return it doubles every so often, but didn't know it was this good. Started at 21.

 

I just upped mine to 10%. It's already sitting at about 85K

 

Yeah, the Rule 72 is pretty cool...

If you've got 10K in a savings account @ 5% it'll take 14 years to turn it into 20K (72/5=14.4)...

It's a nice easy way to work around compounding interest...

 

Just don't forget about other savings vehicles after you take care of your 401K.... Traditional and Roth IRAs... Do it people. You're gonna need it.

 

I was told I make to much for a Roth IRA

 

Welcome to the club.

 

The income limits (modified adjusted gross income) on a Roth IRA are <$95k for single and <$150k for married. There is NO income limit for a traditional IRA. Good info here:
http://www1.evergreeninvestments.com...RA_Eligibility

 

I have A & B accounts that fall into that exact same scenario. Its weird, but its working.

 

It is good info, but not exactly practical for most people when they start their first job. Definitely sock away as much as you can reasonably can, but you don't want to live in a cardboard box and eat Ramen noodles your whole life to max it out. Of course, if you're living at home, then it's much easier to do

 

There's always the traditional IRA route.

 

Want a cookie?

 

Also, no one ever mention paying down credit card debt. If you are making a 10% return but still paying a 19.99% debt... Pay debt down first! Then 401K, IRA, etc.

 

Thanks for the info. So I take it an IRA is just an investment savings account?

Also, can I set one up online or do I have to go through a traditional finance advisor?

 

It's not just an investment account - it is a tax-deferred way of saving. In a Roth, your contributing after tax dollars and it will grow tax exempt and your withdrawals will be tax free. With a traditional IRA, depending on your income, you can put in pre-tax or after tax contributions and it will grow tax-exempt, but it will be taxable income when you take distributions.

And yes, you can open an IRA account online with a whole host of Investment firms. Good luck and get going!

 

^^^^^^^^^^

What he said.

 

what do u do for a living?

 

Why wouldn't you guys roll over the A account and reinvest in a wider array of options vs the limitation of the original K plan. The company is not contributing any more and you are more bound by the companies plan selections.

No detriment to a rollover IRA.

 

He looks up the definitions of financial accounts on the internet

just messing Fib

 

Thanks!

Any suggestions on a good company to go with for a Traditional IRA?

 

that and keeps an eye on the sky, looking for signs that it's falling.

 

I'd suggest you take a look at T Rowe Price or Vanguard. They both offer no-load mutual fund options and have low expense ratios.

If you do a search in M&I, NSXNEXT and Scrib have given much good advice on this subject here on this forum.

I work in Capital Markets for a top ten US bank - dealing primarily with Institutional Clients.

And contrary to conventional opinion, I am bullish on America and bullish on our future (but firmly believe we can't be complacent!).

 

^^^What's your opinion on the dollar for the long run?

 

I'm not an F/X trader. But our gurus say to expect more near term weakness. Uncle Ben is not budging on FedFunds because he's gotta protect the dollar despite all signs pointing to a weakening US economy. With China yapping about diversification of foreign reserves, and with a new Democratic congress which has trade protectionist tendencies - this could be the main story of 2007.

In the long run - your guess is as good as mine.

 

Some plans, including the one at my current employer remains available after you leave the job. I have access to all the Fideilty funds in the plan after I leave.

I may keep mine where it is or move... Not sure.

 

Is anyone aware of what happens if you open a Roth then pass the limit, or what the partial contribution limits are?

Are you allowed to keep going once it is opened...

Or do you have to just ride on whatever you got through in time...

I think I am in a similar situation to scrib and have no idea what to do (as in it seems 50/50 to me) Do I roll over and put in 401k then take the huge tax penatly later or try to lower my shown income when I am old, or suck it up now before I cross the next tax line and get it in to an IRA...

I have another 30 days to decide

 

Is this what you are asking about:
http://www.bankrate.com/brm/news/dol.../20020221a.asp

 

Different fund selections between old & new accounts

 

You dont need to roll over into your current 401(k) account. You can just open another IRA account with Vanguard (or any one else you prefer who carry the kind of funds you need) and roll over into that. As long as you roll over the distributed money within a period of time, there shouldn't be any problem.

There is one advantage of staying in a 401(k) vs an IRA: if you ever go bankrupt, some states allow your creditors to come after your IRA money, but no state allows them to come after the 401(k) money.