questions about 401k?

questions about 401k?
I really don't know much about 401k plans, but I have a question about the employer's matching 100%. My boyfriend just got a 401k and has an automatic deduction coming out of his paycheck to be deposited in the 401k and the employer will match that (I get that part). But he is talking about putting extra cash in the account and his employers matching that, too. Because we have a savings goal that we could reach in 2 years, I'm thinking we should open a 24 month CD (I checked with my bank we need 1,000 to open it) @1.35% compounding interest paid monthly in both of our names so in case anything happens, we split it 50/50 when it matures. He thinks we can put the 1,000 in HIS (my name not on it? Ha! Not happening) 401k and his employer will automatically match it with another 1,000 that we could "borrow" from after the 2 years. It seems like it would work that way, but something makes me think that they only match direct deposits. But like I said I don't know much about it. For the sake of argument, which would work out better? Oops, it wasn't just the $1,000, that's just the minimum to open the account, we would each add $100 to it a month, I figured by the end of the 24 months (starting this October) the balance will be $6,095.00 or so. And I want it to be tied up for 2 years because I don't wanna get into it! lol


Answers:

Chosen Answer
Judy:  The money will have to come out of his paycheck. To me - that is his money - he should put the maximum he can by law away. He cannot take cash out of his wallet (or accounts) and just put it in a 401K. It has to come out of his income directly with the company- he never sees the money. Do this..... You work right? Don't depend on him for saving - and don't tie your money together until you are married It is NOT a good idea. If you work you can put away money in your own 401K, or if your company does not offer this, you can open a ROTH ira at a discount broker and put away up to $5,000 a year - IN YOUR NAME ONLY. If you make more than 5K a year - Open up a roth account TODAY and start saving on your own. /
2010-08-11 11:44:18
stanp6:  Every plan is different so you have to check with the employer. The plans I am familiar with will match your contribution, up to a certain amount, say 6% of the salary. You can contribute beyond that, but the employer won't match the extra contribution. Putting money into a 24 month CD is a very different thing. The CD is tied up for whatever period is arranged, 24 months in the case you've described. A 401K plan is much more restrictive. Except for certain purposes you can't take the money out, without a penalty, until your boyfriend becomes 59?. There are a couple of exceptions to this. You can take the money out without a penalty if your boyfriend dies, becomes disabled, has medical expenses above 7?% of his salary or a few other emergency type situations.
2010-08-11 11:52:46
Kenny:  With the CD it is probably 1.35% apr, which would mean 0.1125% monthly. But compounding is very good. You should find an amortization schedule calculator, or ask your bank, to know what will be there after the 2 years. Then double check on the 401K rules. Sometimes those don't match money you put in but transfer from another 401K or similar. Then determine how much you will pay in penalties for early withdrawal. Next is how are you going to manage that 401K? What if the market crashes and you have only half that money in there in 2 years? Without reading all of the paperwork for both scenarios I can't determine which is "better". I can say that CDs have a fixed rate of return, and hold your money for a fixed time also having penalties for early withdrawal. In 2 years interest rates may be way up and you are getting robbed of money you could be making elsewhere, but it is safe money. The stock market moves up and down with no guarantees for either. So I guess my answer is you need to decide your level of risk, how bad you need this money and if you are going to to need it before 2 years. Do you have other savings you can dip into in an emergency? You don't want your money tied up that you may need. Good luck.
2010-08-11 11:58:44
All Inclusive Blog:  He should put enough money into his 401K to get all of the matching funds available. You just can't beat an instant doubling of your money. As for short term savings goals, don't plan on taking money out of the 401K until retirement. There are huge penalties for taking the money out early.
2010-08-11 11:59:17
zuma:  It's obvious which option is better... If you intended to use the money/CD to get Married, or set-up house,etc...... Then your option would make sense.
2010-08-11 12:05:47
muncie birder:  If it were my money, I would under no circumstances put it in his 401k account.
2010-08-11 13:31:54
Ralph C:  Don't use your - or his - 401k for anything other than a straight retirement savings account. Anything else should be done in the confines of a traditional JOINT money market account. I would not do a CD right now - if you are talking about $1,000 for 2 years, a CD paying 1.35% is $13.50 per year where a savings account would make maybe $5 a year. That's a difference of $8.50 x 2 = $17 which is not worth tying your money up for 2 years. Also, since this is $1,000 all the gyrations your boyfriend is talking about doing with a 401k are ridiculous.
2010-08-11 14:04:05