Can somebody explain 401ks to a brainlet?

Can somebody explain 401ks to a brainlet?

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Ponzi scheme to fund the retirement of boomers.

national lottery where whoever lives longer takes the money of the dead

Literally this; fpbp

Imagine that 401k is a safe. Every time you get paid, some of your money goes into that safe. The safe remains locked for 40 years with all your money that you keep depositing. If you want to open that safe before the 40 years are up then you must pay a big tax otherwise you don't pay anything on your money after the 40 years.

jewish Ponzi scam

why not just keep all the money and not put it into a 401k then? wow i get my money back in 40 years cool

Also don't forget that after the 40 years are up and you take the money out, that money is taxed

It's a bit like warcraft but in the far future.

For typical 401ks you need to recognize distributions as ordinary income, that's true whether you take distributions at 30 or 59.5 years. The catch is if you take yours before 59.5 years the government takes an extra 10% on top of that. You get to deduct contributions from your taxable income, which is the whole point of them.

You're thinking of Roth 401ks where you get your Roth bags tax free at 59.5 yrs but can't deduct them from your income while you're making contributions.

I don't know much about 401k since I'm not American but that's my understanding. There's some incentives which I can't understand such as your employer matching your 401k, whatever that means. I think the main incentive is that you don't pay much tax which isn't bad but not great either.

Wait, so you still pay some tax anyway? I thought it was tax free if it's taken after the 40 yrs

because what you put in your 401k isn't taxed until you take it out when you presumably have a lower tax bracket

employer matching 401k means that they'll match what you contribute up to say 5k a year. so you put in 5k and they give you 5k in addition to your normal pay

Both a 401K and an IRA are retirement funds. You can put money into these funds before taxes, but it is taxed when you take it out. If you take money out before age 59.5, there is an additional 10% penalty on top of taxation. Anything with "Roth" in front of it (i.e. Roth IRA) is backwards as in you pay taxes up front, but don't pay taxes when you take money out. 401Ks and IRAs will increase in value over time as they are invested in stocks and bonds.

A 401K is offered by an employer. They will often "match" a certain amount on top of any dollar you put in (sometimes 100%, as in they double your investment), up to a certain amount of your gross pay (rarely more than 10% of your gross pay). If this is offered, you should at least contribute up to the maximum match for the simple fact you would otherwise be throwing money away. There also might be "profit sharing", which I don't understand, but sometimes I see a deposit of $700 in my 401K so it must be neat.

I personally only contribute to my 401K to get the match and profit sharing. I don't see the point in them if you're always going to be taxed no matter what, and all it does is add restrictions on where you can spend it. Otherwise, it's just a fund.

agreed and checked

So obvious, but if you tell normies this they reeeeeeee

how does buying stock for your own personal account fund boomers

Thanks everyone. The employer matching seems like the most immediate advantage.
As far as the taxes go, say I'm in tax bracket A, the money I put into the 401k would move me down a bracket therefore being taxed less correct?
Also what happens to a 401k if I quit a job?

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Literally

It's not, that guy's misinformed. All it is is a way to invest with some tax advantages, but with some strings attached.

401k is literally the biggest fucking scam there is.

The whole catch is that your employer matches the money you put into your 401k to some extent. You don't pay taxes immediately but you do after it's locked away for 40 years.

It is advertised as "free money", which should raise eyebrows instantly.

Here are the reasons why its a shady boomer jewnazi scam.

1- Your money is locked away for 40 years and heavy penalties apply if you try to withdraw before.

2- Not paying tax right now might seem appealing, but here's the catch. With the way economy is going chances are VERY very likely that taxes will be much higher than it is now in let alone 40, in 10 years.

3- You have control over your money, but most of the time they "advise" you to put this money into some kind of a fund where rich wall street cocksuckers "manage" your money to "multiply".

Aka gamble it away on shitty stocks, get commisions like fuck and once it's gone blame it on you for taking on "risky investments"

4- Are you even going to be alive in 40 years? Like seriously. If you start putting money in your 401k when you're 25 you'll be able to withdraw at 65. Many things can go wrong until then.

Honestly just say fuck you to that shit and save your money on your own. Put 2-5% of your income into bitcoin, real estate, enterpreneur shit whatever.

You're an idiot, if you really feel that way you can take advantage of the tax benefits of 401k and instead of buying stocks with you 401k money you can just buy bonds or leave it in cash.

Wait seriously? That's all it is? That's retarded. I'm going to get a job soon with a 401k. Can I refuse it and just keep more of my paycheck?
I mean I can research how much money is "saved" but I'd rather just try to invest that shit.

say you earned 50,000 last year
however you contributed 5,000 to your 401k

that means you'll be taxed on 45,000

you're thinking of tax brackets wrong. it's a stairstep
like 15% for first 20,000
20% for next 25,000

>2- Not paying tax right now might seem appealing, but here's the catch. With the way economy is going chances are VERY very likely that taxes will be much higher than it is now in let alone 40, in 10 years.
the government also gets to tax what you have after 40 years accumulating interest vs what is being put in.

yeah it's voluntary

>3- You have control over your money, but most of the time they "advise" you to put this money into some kind of a fund where rich wall street cocksuckers "manage" your money to "multiply".

that's the whole reason 401k's were created. to phase out pensions and pad the assets under management of mutual funds so they can skim your money through "fees"

My employer matches dollar for dollar up to 5% of my gross pay. Other employers offer a fraction of every dollar up to as high as 10%. Some don't match at all.

The company is offering its worker free money as long as the money goes to retirement. People that don't contribute to a 401K when their company matches are simply giving up money.

The only catch is that the match is always kept in a separate compartment than the money the employee contributes, which limits what the employee can do with that money until they retire, such as take it out early.

If you quit your job, you can "roll over" your 401K into an IRA, which is the same thing without being offered by an employer. I've never done this, but I understand it can be a tedious process.

Be careful though. Your company probably has restrictions based on how long you've been there.

Thanks. Like I said I'm a brainlet trying g to learn to not be a wagecuck poorfag.

The match is what is advertised as free money, and it is. By not contributing to the maximum match amount, you are giving up free money.

Well whatever it is you're getting interest on is going to get taxed anyway. Doesn't matter if its in a 401k or not.

The thing is that money is locked away for 40 years.

40 FUCKING YEARS.

I don't think anybody truly wants to work until 65 and retire and need to take viagra to fuck underage girls at Thailand or someshit.

Instead work hard and retire before you are 40. Simple as that.

Many things can go wrong until you're 65.

Also if you change jobs as far as I know someshit also happens to your 401k. Chances are high likely you ain't gonna work at the same company for 40 years.

my advice though is max your 401k because it is real free money assuming you don't die before 55 and that the government taxes aren't higher then.

if you think either will be the case then you're better investing it yourself. use vanguard. buy the SPY which is the S&P 500 index and you'll do well with it and no fees.

ITT: Room temp IQ brainlets

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Triggered the normies. It's designed to create illiquid bagholders

>Wait, so you still pay some tax anyway? I thought it was tax free if it's taken after the 40 yrs
401k is taxed when you take it out after 40 years
You can do a Roth IRA instead which is not taxed when you withdraw it, but the catch is that the money is taxed when you put it in instead

>Here user have some free money
>Oh btw you can't use it for 40 years LOL
>OH also by "matching" the amount you put into your 401k we're getting deductions on the amount of tax we pay on our business.
>Oh and also the amount that is getting deducted is two times the amount we're matching your pay
>Sooo enjoy your "FREE" money! It's a deal you just can't refuse!

It is only free money if you put them into a bond or someshit with 1% annual interest and pray to god that taxes are the same or less than what it is now (Highly, highly unlikely. Almost impropable at this point)

Like I said before, just be smart, save 2-5% of your monthly income and put it into bitcoin. I bet my left testicle that you'll be more profitable than the shitty 401k, and you'll have access to your funds whenever you want, and even better, government has no control over it!

oh also did I mention that you'll only be able to spend a dime at 65 years old?

>retire early
>convert your traditional to roth (you'll pay your fees here)

literally of zero value to the average brainlet on this mongolian basket weaving forum

This is amazing. You are going to end up old and poor. Enjoy social security and dog food.

You forgot the part where the match is bad for me.

You are paying for my social security stupid zoomer.

401cuck aka i dont think i can make it so ill wageslave like a good goy

...

You lock your money up for 40 years for muh minuscule tax benefits, you could just open a normal a normal stock account without having to lock up your money

Thank you, so many morons ITT. I think people are confusing 401ks and IRAs with social security (which IS going to become insolvent just like the corporate and municipal pensions these same idiots cry about).

The government isn't going to "confiscate" your 401k because it's your fucking assets, you can cash them out at any time with a 10% penalty in the worst case and 0% if you plan correctly. I'll take the 10% hit in the unlikely event that some bullshit legislation comes through.

If you seriously think socsec is gonna be sustainable by 2050 wew lad are you in for a surprise
Alpo dog food is ok my dog prefers iams though just a tip

Seems to me all these core system bubbles like the real estate bubble and social security schemes demand eventual hyperinflation to deflate the bubbles without dropping the nominal prices. You will have millions in your pension but it will be just enough to buy milk so you can make dogfood cereal. Only real things like productive farmland, gold and memes are worth anything.

how much does it suck to "roll over" the money if I do leave my job (which I very well might)?

I am fully vested, so whatever money they matched is mine now, but I've been thinking about maybe even getting in the door to another place with 401k (well, I have a particular one in mind which I really want to work at, and another that would be acceptable just to gtfo here) or someone mentioned rolling it over into an IRA

because of this and the govt doesn't trust your average normalfag to actually save their money, im not even joking

I do both idiot. with the 401k i have a guaranteed 100% gain up to 5%. why would I not put in 5%?