Are 401K's safe?

[Madison320]

What do you think the chances are that 401Ks (or any retirement account) gets raided when the dollar starts to crash? I think it's a numbers game. A lot of voters with retirement accounts would get seriously pissed off. On the other hand an even greater number of voters will have their government handouts reduced if we don't raid retirement accounts.

 

[Acala]

I think it is likely that IRAs and 401ks will, by increments, be pushed into government bonds "for your protection". The banks, who administer those accounts will comply instantly. And by the time most people realize they have been ripped off, it will be too late to do anything about it.

 

[pcosmar]

Define "safe".

When the US Dollar crashes. and IMF (or whoever) takes over,, they will do whatever they damn well please.

The money is all fake anyway.

 

[oyarde]

I still have some in mine ,have closed out the Mrs. , but safe ? No , I do not think so.

 

[Lucille]

It's already been proposed. Cash out.

Nothing is safe from this desperate, insatiable, all-consuming govt. Nothing. Not your life, not your liberty, not your property.

 

[angelatc]

What do you think the chances are that 401Ks (or any retirement account) gets raided when the dollar starts to crash? I think it's a numbers game. A lot of voters with retirement accounts would get seriously pissed off. On the other hand an even greater number of voters will have their government handouts reduced if we don't raid retirement accounts.

The liberals have already started pushing to take the money. There have been Senate hearings on the topic. Once they get an idea, it's only a matter of time until they succeed in implementing it.

 

[Tod]

I still have some in mine ,have closed out the Mrs. , but safe ? No , I do not think so.

When you say "closed out", you mean you paid the 10% penalty in addition to the taxes?

 

[MoneyWhereMyMouthIs2]

I think you're safer with an AR-15.

 

[Zippyjuan]

One person testifying at a Senate hearing proposed the idea which was immediately shot down (though some like to suggest that it is bigger than that and maybe a done deal- it is not). IRAs and 401ks are not going to be seized. Will their value move up and down and be risky for that reason? Yes- all investments will do that.

If the dollar is worthless then all things denominated in dollars -all bank acounts, and investments like IRAs and 401ks- will also be worthless so there will be nothing to "seize" anyways.

 

[The Free Hornet]

When you say "closed out", you mean you paid the 10% penalty in addition to the taxes?

I thought the penalty ends up being like 20% or more. Additionally, cashing out means losing future employer contributions (and I thought I would have to quit my job too - not gonna happen). Maybe Acala is correct, they might incrementally push people towards "safe" investments that favor TPTB. But raising taxes would be the easiest way to get 401 money.

More so, the 401 is tax deferred so cashing out now will increase the war chest. Maybe in 40 years we will have come to our senses or the fake money is all gone as pcosmar suggests.

For now, I'm happy with my hands, and Uncle Sam's, off that account.

 

[Zippyjuan]

When you say "closed out", you mean you paid the 10% penalty in addition to the taxes?

That could be expensive. Say you had $10,000 in one. Ten percent penalty knocks you down to $9000 and then it counts as ordinary income for you. If you are in a 25% tax bracket, you could lose another $2500 (not sure if the tax applies to amounts before or after the penalty is applied) or $2,025 which would drop your $1000 down to about $6500. They keep 20% as withholdings against the taxes. You just lost $3500. Now if you wanted to put that into a different investment, it would have to go up by 46% just to break even (ignoring costs of the new investment) with what you had in the 401k (to get the $6500 back up to $10,000). That is a big return you need. And that assumes that the 401k didn't grow at all in that time- otherwise you need even more growth to simply break even with keeping the account.

If you are seriously worried (and I am not), I would not close the account but perhaps put any new money into something else and leave the money you already have in the 401k.

 

[ghengis86]

That could be expensive. Say you had $10,000 in one. Ten percent penalty knocks you down to $9000 and then it counts as ordinary income for you. If you are in a 25% tax bracket, you could lose another $2500 (not sure if the tax applies to amounts before or after the penalty is applied) or $2,025 which would drop your $1000 down to about $6500. They keep 20% as withholdings against the taxes. You just lost $3500. Now if you wanted to put that into a different investment, it would have to go up by 46% just to break even (ignoring costs of the new investment) with what you had in the 401k (to get the $6500 back up to $10,000). That is a big return you need. And that assumes that the 401k didn't grow at all in that time- otherwise you need even more growth to simply break even with keeping the account.

This is the correct math for the most part (consider what portion is basis and gain). But people lost a lot more percentage wise in the 2008 crash. And 'losing' $3,500 is better than losing it all.

But your math is good enough and should be considered by anyone who is wanting to cash out.

 

[Zippyjuan]

The 2008 losses hit nearly every investment and were out of your control. You do have control over the losses from closing or not closing a 401k. Those are self-inflicted and can be avoided.

 

[Madison320]

That could be expensive. Say you had $10,000 in one. Ten percent penalty knocks you down to $9000 and then it counts as ordinary income for you. If you are in a 25% tax bracket, you could lose another $2500 (not sure if the tax applies to amounts before or after the penalty is applied) or $2,025 which would drop your $1000 down to about $6500. They keep 20% as withholdings against the taxes. You just lost $3500. Now if you wanted to put that into a different investment, it would have to go up by 46% just to break even (ignoring costs of the new investment) with what you had in the 401k (to get the $6500 back up to $10,000). That is a big return you need. And that assumes that the 401k didn't grow at all in that time- otherwise you need even more growth to simply break even with keeping the account.

If you are seriously worried (and I am not), I would not close the account but perhaps put any new money into something else and leave the money you already have in the 401k.

I'm seriously considering lowering my contribution from 15% to 4%, my employer matches 50% up to 4%.

 

[Zippyjuan]

Definalty take that employer match- free money! My employer doesn't offer me a match so I don't use our 401k plan (make my own investments outside of work including an IRA for tax purposes) but I do have (at least for now- who knows what the future may bring) a pension fund which are getting rarer these days.

 

[Madison320]

If the dollar is worthless then all things denominated in dollars -all bank acounts, and investments like IRAs and 401ks- will also be worthless so there will be nothing to "seize" anyways.

I'm wondering what will happen if we have hyperinflation. I sold all my mutuals funds and now own only individual, mostly foreign stocks in my 401K. Suppose I have 100 shares of Toyota in my 401K and the dollar goes to zero. I still own 100 shares of Toyota, correct? Would I be able to sell those shares in another currency?

That's one of the reasons I sold my mutual funds and bought individual stocks. If there's a crash it seems like it would be easier to handle an individual stock compared to a mutual fund. Especially if the investment company that manages the mutual fund goes bankrupt.

 

[Zippyjuan]

I am no stockbroker so I am guessing- but if you purchased the shares in US dollars on a US stock exchange, you would have to sell the shares and then take the money in dollars you get for them and convert that into foreign currency- paying costs for both transactions.

 

[Shredmonster]

Watch the govt. very very closely as changes have been discussed since 2003. They would start with forcing you to invest 3 to 5% in treasuries most likely.

If and when this happens that will be the very day I close my accounts out, pay the taxes and buy gold.

You really can't make money with the corruption, manipulation and computer algorhythm trading anyway. Believe me I follow this stuff. Check out ZeroHedge.com some time for starters. Basically you are just protecting capital if you are in cash in your account cause the market will eat you alive these days.

However, I look at it as making 30% on your money right off the bat as you don't have to pay taxes on that money. Where are you going to make 30% in this market without being an insider at Goldman Sachs or JPM these days ?

 

[The Gold Standard]

Depends on what you mean by safe. If there is any sense of law and order remaining then your money should still be there. Of course, it won't be worth anything. Maybe you could cash it out and buy a sandwich with it.

 

[Madison320]

I am no stockbroker so I am guessing- but if you purchased the shares in US dollars on a US stock exchange, you would have to sell the shares and then take the money in dollars you get for them and convert that into foreign currency- paying costs for both transactions.

With really high inflation, that's not a problem. When I sell my shares I'll get more more dollars, except they'll be devalued. But my purchasing power should remain about the same.

The interesting question is what happens with hyperinflation where the dollar actually becomes worthless and is no longer used? My hope is that I'd be able to trade my shares in "Toyota" for whatever currency is acceptable for both parties.