I’m in a quandry and I’m looking for opinions. Tax time is just around the corner. I usually drop a few grand into my 401K rollover account to offset my taxes. With the economy in the crapper, I’m wondering…
Is it better to put the money into the account or should I just pay the taxes?
The best time to invest is when the economy is in the crapper. Even if things continue to suck for a few years (likely), generally speaking you will get a better return on your investment now than you would have by investing the same money in 2006, when the economy was much stronger.
How soon do you expect to start drawing money out of the 401k? If that’s more than a few years distant, I’d say invest it. Unless, you are concerned that the bad economy will cause you to lose your job. In that case, you probably want emergency money sitting in something more liquid than a 401k.
I won’t begin drawing for at least 10 years. However, my account lost 29% last year. If I just pay the taxes outright, at least I’m not losing it, right?
I do have liquid funds, as well.
The amount you lost on the money you put in last year is still less than (or nearly equal to) the amount you would have paid in taxes had you decided to not put it in the 401k, so you are ahead or breaking even. If you are convinced the investments you have available in your 401k will lose a similar amount this year, then yes, I agree it would make sense to pay the taxes, hold the money in something safe until you believe the market has finally hit bottom, then invest it. I am nowhere near that good at figuring out what will happen in the future, so I’m just putting in a little at a time and telling myself that I’m getting these stocks at bargain prices.
That’s pretty much how I see it. I can put the remaining amount into a CD.
But if you have more secure options in your 401(k), such as money market funds, you could have your financial cake and eat it too.
What’s a 401(k) rollover account anyway? (I know what a 401(k) is, just never heard of “rollover”).
I’m guessing he means an IRA account. He may have rolled over an old 401(k) into an IRA at some point in the past.
Correct. It’s an old one that no longer has payroll deduction contributions. The only money it gets is what I feed it at the end of the year. I have an active 401K that I feed bi-weekly.
I moved this from the account manager the ex-employer used to :eek:Merrill Lynch:eek: based on the positively AWESOME results my dad got in a particular fund. Now the fund is suckin’. Hard. So I’m talking to my dude today to move it out of there. I will probably go with something very conservative for now. It’s not a lot of money, but every little bit helps keep me from taking up residence in a refrigerator crate in my old age.
Equity markets have historically returned around 8% per year (experts disagree on the exact percentage, but they do agree the average return is positive). So, investing in equities (i.e. stocks and stock mutual funds) is like gambling in a casino where you have the edge. Sometimes you win, sometimes you lose, but if you keep playing you will eventually leave with more money than you walked in with (unlike a real casino). Given that you have 10 more years before you need the money, I recommend you keep playing.