Maxing out 401k and early withdrawal
I don't plan to keep my money in 401k, I want to withdraw asap to fund other investments. But I've been told that maxing out 401k + company matching (LinkedIn matches 50%) would get me a few extra thousand dollars in my pocket. Simple math (assuming 30% tax rate): No 401k: 18k - taxes = 12.6k With 401k: 18k + matching - taxes - penalty = 15.5k Has anyone done this? How would I go about doing the math to confirm?
if people on blind really knew anything about managing money they would be on wallstreet not techies.
If you want someone to take your money and then lose it, that would be wallstreet. What he is asking isn't some technical aspects of stocks like beta , theta etc.
Yes. @msft This is basic personal finance stuff people should know. Big difference.
I did a withdrawal of my 401k. Had the same results : more money than if i didn't do it due to matching.
Op here is my suggestion: take the money put it in 401k up to the match and then do after tax 401k. Then move that after tax money to Roth IRA. In roth IRA you can take the principal you put in after 5 years (for re-characterized money ) For the 401k, you can take loan or pay penalty and tax or whatever and you will still be ahead, as others have pointed out . For the after tax, take the principal out after 5 years and the growth on it is tax free. Let's assume you are planning to buy a house in 3 years. Let's say you have an arm and it resets in 5 years. Then this money will be perfect, your 401k will go in to the initial payment and your ira principal will be ready for you when you need the liquidity when the arm resets.
Isn't there a limit of 10000$ per ira on first time home buying?
While that technically will get you more money than of you didn't contribute, why wouldn't you take advantage of tax deferred growth? (And sacrifice the penalty?) For an engineer at LinkedIn, you're likely in a great position to take advantage of a much better rate of return from your tax deferred 401k than a taxable investment
I think whether he can take advantage or not depends on his or her cash flow. When you buy a new house, for example, it puts you in a short period of low cash liquidity, unless you have planned enough for that.
Borrowing against 401k is a good way to make that money liquid... you 'pay' yourself back with no interest over time.
There was a 4% interest rate when I borrowed through Fidelity. Not sure if that's paid to myself or an operating cost for Fidelity.
It's paid to you but you're paying it with after tax money
If you are ok with waiting for 5 years, invest in Roth 401k. You can take out principal without any penalty.
Do companies match Roth the same way they do pre-tax 401k? Also, to make sure I understand correctly, you're assuming that future tax rate will be higher than today's, right?
Companies do match Roth same as pre tax. In your case, since you will withdraw after 5 years, the tax rate won't matter, assuming it is within 10% penalty rate.
Your math maybe off... consider the fact that the 401k withdrawal will occur on top of your income, if you’re in tech & have dual income this could easily push you into a higher tax bracket. Also don’t forget to account for state income tax, if any. And the last point, most 401k plans don’t allow withdrawals. U either need to change employers, or do a hardship withdrawal which requires proof & may be limited on how many times such withdrawal can be made...
What are you trying to invest in that’s outside of 401k? You can try asking on the personalfinance subreddit
Where are you planning to invest after withdrawal? Stocks?
I’d only put in as much as they match, use the excess funds into other markets. I️.e if they match 50% up to 6% that you put in, put in 6% cause that’s actually 9% you’re getting.
LinkedIn matches 50% up to IRS maximum 😃
Motherfucker Edit: But really, depending on your income it might make more sense to do a Roth 401k if they offer it. Pay the taxes now on your contributions as the tax rate will be lower than later in life when you pull out your traditional 401k.