You may not remember what happened to Enron's employees but I do. When the company went out of business all its employees lost their life savings in their 401(k) plans. Now the Enron plan was extreme because the employees were required to invest a lot of their retirement money in the company's stock. I don't think companies can force employees to do that any more.
But the Enron fiasco convinced me that 401(k) plans are a really risky retirement strategy. No matter how good your company's plan may look, you don't control your money. They do. And if you have to take your money out of the plan you either pay a 10% penalty plus tax or you have to pay the money back within five years. But what happens if you lose your job?
I don't want to put my money in a 401(k) plan for other reasons. For example, if the plan doesn't give you many funds to choose from you may be stuck with a lot of losers. I have seen that in some 401(k) "menus", where all the major funds are losing money.
The best way to invest money is to save it up in a liquid asset fund (like a money market account) and then to buy large blocks of shares in mutual funds that are moving up. But I have seen some 401(k) plans that did not let you do this. You had to allocate your money directly into mutual funds regardless of whether you wanted to buy them. You may not even have a liquid asset or money market account.
When you want to borrow money from your 401(k) plan it sells off shares in your funds if you don't have enough money in your liquid asset. You may get a chance to move the money around first but it's a real pain to have to sell out of a mutual fund when the share price is down. The fund administrators don't even try to help you save the value of your investments.
But the worst part is that 10% penalty. I don't know who thought that was a good idea but I hope they rot in hell. How is penalizing someone 10% incentivizing them to save money? When you have an emergency you have to get the money from somewhere and they didn't write enough emergency conditions into the law to make it worthwhile.
Why can't we just pay tax on the money we permanently withdraw? And why do we have to wait until we're retiring to pull it out anyway? The government gets its tax at current rates and we get our money. That is the way it should work.
I gave up on 401(k) plans several years ago. They are terrible investment plans, horrible savings plans, and almost useless in an emergency. I will never invest any more money in a 401(k) plan again.
I don't want to put my money in a 401(k) plan for other reasons. For example, if the plan doesn't give you many funds to choose from you may be stuck with a lot of losers. I have seen that in some 401(k) "menus", where all the major funds are losing money.
The best way to invest money is to save it up in a liquid asset fund (like a money market account) and then to buy large blocks of shares in mutual funds that are moving up. But I have seen some 401(k) plans that did not let you do this. You had to allocate your money directly into mutual funds regardless of whether you wanted to buy them. You may not even have a liquid asset or money market account.
When you want to borrow money from your 401(k) plan it sells off shares in your funds if you don't have enough money in your liquid asset. You may get a chance to move the money around first but it's a real pain to have to sell out of a mutual fund when the share price is down. The fund administrators don't even try to help you save the value of your investments.
But the worst part is that 10% penalty. I don't know who thought that was a good idea but I hope they rot in hell. How is penalizing someone 10% incentivizing them to save money? When you have an emergency you have to get the money from somewhere and they didn't write enough emergency conditions into the law to make it worthwhile.
Why can't we just pay tax on the money we permanently withdraw? And why do we have to wait until we're retiring to pull it out anyway? The government gets its tax at current rates and we get our money. That is the way it should work.
I gave up on 401(k) plans several years ago. They are terrible investment plans, horrible savings plans, and almost useless in an emergency. I will never invest any more money in a 401(k) plan again.