401k
Hi Mechanical engineer new to the country, still learning a lot to settle down - tax, housing, etc. Recently my job handed out 401k form, since they have their own pension plan for the employees (once employed certain amount of time, anyone can receive after retirement), they don't match 401k. But my question is this. 401k from my job is managed by Fidelity. Since it's an investment company, they can absolutely lose the total amount of 401k I save, right? I understand some benefits for 401k - like my income tax and others will be deducted after the 401k deduction, and 401k won't get taxed until I withdraw, etc. So far, this is what i understood, my home country, South Korea has a bunch of deduction from your paycheck - National Pension, National Health Insurance, Employment Insurance, Income Tax (+ regional), and Retirement Pension. 1. On my paycheck here in America, FICA is Social Security which is about the national pension when I get retired, am I right? 2. So the Retirement Pension in Korea, it's 20 bucks every month (from my job) and managed / invested by a company like Fidelity. And this Retirement Pension is some sort of additional money I can get after I retire, which is 401k. Did I understand correct? Thanks in advance everyone. My crap English isn't really helpful at all for understanding entire stuff and now I'm asking some help to understand better. TC: 125k (I write TC only because once in awhile, a person from Delta told me "NO TC GTFO")
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you are getting a pension from your (US) company AND can contribute to a 401K too? didnt know that happened. company pensions are pretty rare here. usually its government employees and some legacy manfacturing firms. social security is a tax under the guise of a pension. in theory, you will get a benefit when you retire but there is no retirement account that you actually own that is managed by someone else. and yes, 401K value can drop. you can invest it in very safe investments if you want, you control it, but that might not be smart if you are a long way from retirement. oh, i think I misread your first part, you are saying the 401K is the pension. its not really a pension, its just a company sponsored retirement account. pension implies a set payout which 401Ks do not have.
I heard it's not common in the US, that the company has their own retirement pension that is activated once any employee works more than certain years. But they don't match 401k, if I'm not let go of I think it's a good deal. To be honest I don't trust any investment company - not that I am good at investing but at least that's something I can blame myself where I invest, and I can response fast enough - risk management. So 401k is a type of.. additional savings for retirement but whoever manages and invests my money can lose anyway.
again, are you saying the 401K IS the pension or are you saying the company has its own pension plan (which is a defined benefit plan) and you can ALSO contribute to a defined contribution plan, which is what a 401K is?
Social security deduction and 401(k) deduction from paycheck are different .. 1). Social security is paid by the Social security administration, and you have to be contributing to it for a minimum of 10 years to be eligible to get any contributions from it after retirement . You can check up more details on the social security site . You’ll be eligible to claim social security after you turn 70 years 2). 401(k) is contribution from you and sometimes your employer might match your contribution to a certain %, and in your case that is being handled by Fidelity investments. So what they do is they invest the money you contribute ( from your paycheck ), along with what your employer contributes and put it in the stocks or bonds ( fidelity also gives the contributor a chance to pick which funds you would like to invest this money or I think they do it automatically as well.. you would need to check it )… and the IRS allows you to take money from 401(k) after you turned 70 ( you can take early , but you might have to pay a penalty and tax on this amount )… all these details are available online
I deeply appreciate your comment. Fidelity does give me where to invest out of.. like 10 objects or something that I can control the portion. I will go check their website, especially the penalty part - I did not know there may be a penalty. Thank you again.
You invest the money in 401k. They’ll give you a list of funds you can invest in. Some are high risk some are low risk. You can invest in bonds and likelihood of you losing the money is low. You don’t grow it much but won’t lose it either
Stupid enough, I invested US bonds in 2021 and last year and lost 1k for this right before I left Korea like SVB - Federal Reserve has increased the rate. I mean it was a good lesson and letting me think about what to do more... But if I can fully access when choosing the funds, especially it'd give some tax credit (like deduction when I do the tax report).. I remember HR said it's every 6 months, which means if I don't submit until the end of this month, it will give me 6 months to study more...
Not sure what tax credit you’re talking about. Are you talking about traditional vs Roth IRA? Traditional deducts whatever you invested out of your taxable income, Roth does not. Btw you can’t access 401k till you’re 65. You can take a loan out from it and pay it back with interest but generally speaking you can’t rly access it till you’re 65. Also I wouldn’t worry too much about short term gains and loses. Over time, you’ll end up making money or not losing any. I would recommend if you’re under 50-55 to invest in the S&P500 index fund or mutual fund that follow S&P500. This gives you an annual return of 5-8% usually. When you hit 50-55, you can invest more in bonds. Listen to this podcast called InvestED. It talks about warren buffet investment style but also cover all basics of investing. It’s a hedge fund manager teaching his daughter how to invest. I think the first season focuses a lot on teaching you what investments are
For assistance in investing strategies, you can send me a DM I’ll respond.
Lol if you invest in S&P 500 index then chances are ver y less .. FXAIX if that fund looses then you are saying Apple etc won’t survive .. but good question ..
that's what I've been hearing, investing in S&P 500 index, especially the US one's very strong and continuously increasing - unlike Korean one lol. Thank you.