Help, need 401(k) advice!

[MDesigner]

I just got my 401(k) packet in the mail, from my company's HR dept. I get to invest a percentage of my paycheck into whichever funds I want. Here are the funds:

ABN AMRO Income Plus Fund
ABN AMRO Bond Fund
ABN AMRO/Montag & Caldwell Balanced Fund
Vanguard Institutional Index Fund
ABN AMRO/Montag & Caldwell Growth Fund
ABN AMRO Aggressive Growth Fund
American EuroPacific Growth Fund

Which of these are good? I suppose that depends on my goal. My goal is to put a bit of money away (not so much that I'm lowering my paycheck significantly), to save for retirement. I do NOT plan on touching the money... but it would be nice to be able to withdraw money from the 401(k), though I'm not sure if the plan my company has allows for it or not.

So any advice? Thanks a ton.

 

[Pixelated]

I haven't looked into any of the funds, but you can do the research and find out the history of the fund and how it's being managed. You'll need to determine what kind of risk you want to take. Usually, the more aggresive the fund the riskier. Also, it won't be that easy to withdraw from your 401k without accruing some kind of penalty unless you meet certain conditions. Take a look at his site for more information.

Having said all that, put away as much as you can afford to. It's always a good idea to save and a 401k is one of the best ways to do it. Tax savings and you're forced into not touching it.

Good luck.

 

[FeathersMcGraw]

If you withdraw money from a 401(k) early, you will likely have to pay both taxes and a penalty on the amount withdrawn.

As for the funds, ask your HR representative for prospectus information on each. The prospectus will have information on fund goals and previous performance (note: past performance is not indicative of future results). Diversify your holdings. My current 401(k) has a mix of small-cap and large-cap U.S. stocks, as well as international holdings. Currently, I'm very stock-heavy, but that's because stocks typically beat bonds over the long-term, and I'm not afraid to shoulder some additional risk while I'm young(ish).

 

[vi edit]

If you withdraw money from a 401(k) early, you will likely have to pay both taxes and a penalty on the amount withdrawn.

Some plans allow you to take a loan against your 401k. You can take up to 50% of your value out and repay yourself over a period of time of your choice. You pay interest, but it's back to yourself.

 

[CPA]

Do not get into the 401K if you want to be able to pull money out, take a loan from, ok, but not withdraw.

As far as what funds to invest in: If you are young, go with the most aggressive/high risk funds available. choose the 2 or 3 most aggressive of the bunch. That would be the last two you listed, plus go with either the Growth or Index fund. You are young, so fluctuations will smooth out over time, and most research shows that aggressive/high risk funds have a better return over 30+ years than bond or income funds.

Oh, and, at least, contibute as much as needed to get the full company match, if your company offers it.

 

[FeathersMcGraw]

Originally posted by: vi_edit

Some plans allow you to take a loan against your 401k. You can take up to 50% of your value out and repay yourself over a period of time of your choice. You pay interest, but it's back to yourself.

Right, but I think those exceptions are limited to hardship (however that's defined) and first home purchase.

In any case, I wouldn't consider that option unless it really is a last resort because you're reducing your retirement basis, and all the real benefit of the 401(k) is from tax-free compounding. Reduce your account balance, geometrically reduce your growth potential.

 

[CPA]

Originally posted by: FeathersMcGraw

Originally posted by: vi_edit

Some plans allow you to take a loan against your 401k. You can take up to 50% of your value out and repay yourself over a period of time of your choice. You pay interest, but it's back to yourself.

Right, but I think those exceptions are limited to hardship (however that's defined) and first home purchase.

In any case, I wouldn't consider that option unless it really is a last resort because you're reducing your retirement basis, and all the real benefit of the 401(k) is from tax-free compounding. Reduce your account balance, geometrically reduce your growth potential.

Actually most plans allow loans for any reason, it's the withdrawals that you may need the hardship or home purchase excuse for. And there is also one good time to take a loan. That's when interest rates are low (like they are now), investment returns are low (have come on lately) and you have debt with high interest. As long as the rate of interest you pay is lower than your rate of return on your investments, then it may be a good time to borrow.

 

[oog]

Of the funds that you listed, the one that jumped out at me was the Vanguard Index fund. That cannot be the full name of it. Vanguard has hundreds of index funds that mimic the performance of various indices that are out there. It very likely mimics either the S&P 500 or the Wilshire 5000. I think that at least 50% of your investment should be in that kind of a broad-based stock index fund. Beyond that, you just need to decide on your allocation. I would recommend at least some amount in bonds, and I would only bother with any amount in overseas after you've built up some amount of money.

How far are you from retirement? If it's > 30 years, I would be considering something like 80% stock, 20% bonds, and after some time, maybe switch some of that 80% to be overseas.

Also, I agree with previous posters. Don't put money in your 401(k) if you don't think you can live without it. I would not plan on taking a loan from the 401(k), because if you were to be laid off while your loan is still outstanding, you have very very little time to pay it back without suffering a penalty. It also takes away from the early-years growing that that money should be doing.

 

[DaveSimmons]

Oh, and, at least, contibute as much as needed to get the full company match, if your company offers it.

Listen to that, it's free money.

Also, remember your 401(k) reduces the highest part of your tax bill. If you are even barely into the 28% bracket then if you put $100 into a 401(k) you make an instant $28 profit by not paying taxes on it.

 

[MDesigner]

Thanks for the tips.

The booklet HR sent me has prospecti for each of the funds, which I'm going over now.

PS: I'm 29 years old, would LIKE to retire tomorrow--kidding... I'd realistically like to retire around age 50-55. I'm content leaving all my money in there until then.. no borrowing, nothing.

 

[jw791]

At 29 I would say 65% stock funds 35% bonds/income. 80% is way too risky IMO. I would never go over 70% stock.