Any experience with a Complete K 401K plan?

Re: Any experience with a Complete K 401K plan?

• maple2 member

  

  May 2014

  I don't have experience with 401k plans from the employer perspective, so I can't really comment on whether those costs are reasonable.  I will say, that every place I have worked there have never been any fees that I have been required to pay directly to a benefits management company.  No plan establishment fees, no investment service fee, no conversion/termination fee.  If those fees existed, they were paid by my employer without any input from me.  I have never gotten a distribution or loan through my 401k, but I don't remember agreeing to pay fees for those services when I signed my benefits package.  I would be curious what the employer is expecting to cover and what the think employees should pay.
  
  I would be interested to know what types of funds would be available for DH to invest in and what the management fees would be for those, since, at least in my experience, that is point where I have had to consider the costs and benefits of my 401k options.  For example, would his company pay the extra fees for the age weighted plans?  If that is the same thing as a target retirement fund, a lot of people like them for simplicity sake.  Will there be index funds available?  Those usually have the lowest fees and are popular for that reason.  Do you care about socially responsible investing?  If so, will there be socially responsible fund available?
  

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• hoffse member

  

  May 2014

  I'm not familiar with this group, but that seems extremely expensive to me.

  
  

  Your husband would probably be better off just investing independently through an investment bank like Schwab or Fidelity (or Vanguard - I'm becoming a fan of their products).  Those are pretty straightforward, and they are much cheaper than what you've posted.  Typically the fund manager just pulls out a small percentage of your gains as the fee.  I only invest in funds with less than a 1% service fee.

  
  

  You don't have to limit yourself to retirement accounts to save for retirement, and if tax rates stay about the same, there's an argument that you're actually better off in investing in regular accounts that will allow you to pay capital gains rates in retirement (15% on gains only) vs. regular 401(k)s that will charge you ordinary income rates in retirement (25-28% on EVERYTHING you have saved, not just your gains).  Regular 401(k)s do give you a deduction in your contribution year, but the government gets that money back when you pull it out in retirement.  If you are starting late, and you think you might need every penny you can save in retirement, then structuring it to lower your tax liability in retirement is a good thing.  

  
  

  Really, the only problem with this strategy is there is no penalty for pulling money out of regular investment accounts early.  I imagine the early withdrawal penalties that are associated with retirement accounts prevent some people from cashing in before they should.  If your husband has good financial self-control, however, then this shouldn't be a problem for him.  

  
  

  At age 31, maxing out a Roth IRA is probably not enough.  That's only $5,500/year, and that means that he needs to be making less than $37,000 GROSS (not take-home) to be meeting annual contribution recommendations (15% of gross income per year).

  
  

  Also consider YOUR retirement.  Do you work?  Do you have retirement plans available to you?  Even if you don't work, your husband can fund a Roth account for you.  That's one of those perks of being married.  I have funded H's retirement for the last two years as a married couple, even though he has not earned enough on his own to fund it in full himself (he is a full-time student).  We actually got married right before Tax Day in 2013.  So I also funded his 2012 Roth 3 days after the wedding, once I was sure the marriage had happened...

  
  

  
  

  

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• bjlucas1 member

  

  May 2014

  Thank you both for your thoughtful responses. Without employer involvement, how does a 401k plan work directly through a company like vanguard or fidelity? I'm specifically wondering about how you contribute 'pre-taxed' money. 

  
  

  As for my own retirement, I work part-time and contribute 12% of my income to a 403b account (goal is to increase to 15% at some point). Since I only work 2-3 days a week though it isn't a huge amount of money. I am older too (34). I am behind in general with how much my retirement accounts have in total at about 55,000 (previous 403bs, roths, etc). 

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• hoffse member

  

  May 2014

  As far as I know, you can't use pre-tax dollars to contribute to regular investment accounts.  Those are done through employer-sponsored plans that conform to specific requirements of the tax code.**

  
  

  But honestly, the pre-tax thing isn't the greatest thing in the world.  I mean, if you really REALLY need that extra money in your pocket now (to avoid further debt, etc.) then sure. Go with the pre-tax plan.   But if you can find other ways to cut your budget so that you are investing post-tax dollars, odds are it will save you a packet in retirement.  We can't know for sure because nobody knows what future tax rates will actually be, but I'm in the camp who thinks that rates will only go up.  Taking a deduction now might save you roughly $0.25 of every $1 you contribute.  But you WILL have to pay taxes on it when you withdraw it - and you will have to pay taxes on your gains too.   If rates go up, then suddenly you are paying more (possibly significantly more) than you saved with your deduction.

  
  

  To me, the best employer-sponsored plans are Roth 401(k)s.  They have the same contribution limits as regular 401(k)s, but you contribute post-tax dollars so they grow tax free.  If your employer matches, they can also match against Roth 401(k)s.  H and I have actually not contributed pre-tax dollars to retirement at all.  We have all-Roth retirement accounts and external investing is done through regular investment accounts that would have us paying capital gains rates (15%) instead of ordinary income tax rates (25-28%).

  
  

  Don't get me wrong, we're gambling in a particular direction with our current framework, and as we get older we might shift toward pre-tax accounts (since our marginal tax rate will continue to rise as we advance in our careers).  But for now, we do things entirely post-tax.  H and I will probably not have a pension, and our retirement is going to be fully funded on our own.  So we are trying to reduce our tax liability as much as we can for our retirement, since we know we can afford to pay the taxes now.

  
  

  **This is not legal advice.  Employer-sponsored plans are not part of my primary practice, and anything I say to this respect is coming from general financial reading, not from any background in tax law.

  

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