I don't understand the purpose of putting money into 401k or roth (new grad-ish here)
Why should I put money into 401k that I cannot take out until im 65? Because it is not taxed?
So I will have millions in my 401k but I will be 65 years old so what is the purpose? Especially if I plan on retiring around 40-45.
Even with my employer (google) 50% match, I don't see the benefit.
Why don't I put 0% of my paycheck, and instead invest in a fund that will give me 5-10% per year? I can quite literally become a millionaire by 40 simply by investing this way, and I won't have to wait until 65 to get my money and enjoy it. What is the benefit of putting money away in 401k???
why have millions of dollars but no youth to spend it on?
#personalfinance #investments
edit: thanks guys for the explanations below! I get it now! Going to quickly max my 401k and roth!
edit2: Blind is really full of people who think they are geniuses huh, thank you to all the people who genuinely answered and helped, I will continue to learn and make sure I become a multi millionaire by 40!
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You should be putting in 2x that + most equity and bonus into after tax savings.
Instead of jumping all over them, just say you don’t know and move on. Obviously, if you knew you would have answered the question instead of being a pretentious arse.
401ks are liked because of the company matching and typically they are perceived as less risky.
Like many said on here you don’t have to use it but it’s a benefit and sort of like leaving money on the table when you don’t use it. You also can borrow from yourself instead of banks. But if you think you can make more and retain it for the long haul do so. You can also elect to get on your company’s 401k at any point.
No 401k questions in Leetcode huh?
You put x dollars in 401k
Google matches 50%, so you get 1.5x
If you need money now, you withdraw and pay 10% penalty+taxes. 1.5x*(1-0.3-0.1)=0.9x
If you were to take the money as salary, you would've gotten 0.7x
Max federal contribution = 19500
19500*(0.9-0.7)=3900
Easiest 4k bucks you'll ever make
If you don't need the money now, you also get the benefit of pre tax growth
You put x dollars in 401k, get 1.5x after match
After a little while they grow (suppose) 10%, so you get 1.65x
If you withdraw them, after penalty and taxes, you end up with 1.65x*(1-0.1-0.3)=0.99x.
If you were to take the money as salary, you would've gotten 0.7x. After 10% growth it would've been 0.77x. After you pay taxes on growth that's 0.77x-0.07x*0.3=0.749x
On 19500, your win is 19500*(0.99-0.749)=4699.5
Note that this is 20.5% more than you would've gotten if you withdrew immediately because the pre-tax amount was growing
A month? Or a year?
If it's a year, is it worth the hassle just to get 4k?
It’s free money from your employer.
Seems pretty obvious to me.
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