The concept of a 401(k) is weird to me. The government has declared it is a way to invest for your retirement, but you only get to use this federal tax break it if your company decides to offer it to you. If your company doesn’t feel like offering it, TOO BAD, you’re out of luck. To make it even weirder, company’s give you a SHORT LIST of mutual funds you’re allowed to invest in inside of your 401(k). They all suck? TOO BAD.
So if you happen to have a 401(k) through your workplace and you need to pick how to invest, here’s the post for you!
I often get asked “if my job only offers high fee investments is it even worth investing in my 401k?”. Generally the answer is “yes” because getting money into that “tax-advantaged” status is the big money saver. You can (should) roll your money out of your 401k when you leave your company.
Another 401k question we get asked is “Roth or Traditional?” More and more companies are offering both now. Generally if you’re very high income and near retirement, I’d probably go Traditional. In most other circumstances, I’d go Roth. 3/3 PFC employees do 100% Roth for their 401ks.
As a reminder, don’t get too stressed about any of these decisions. Perfectly picking investment choices isn’t what is going to make you rich. That’s more of a fine tuning issue. Plowing more money into your investments across all account over time is what will make you rich. Spend a little time picking investments and a lot of time putting more money in.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
– Jeremy
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