Financial Peace Wednesday

We at New Season Church are in the midst of the video series of studies by Dave Ramsey called Financial Peace University. Leading up to this study and during I have been sharing some of what I have been learning as it pertains to managing the resources God has given me stewardship over. Today I wanted to share about the 401k (or the non-profit equivalent of the 403b).

Here is what I am learning:

• The 401K is a great investment tool for saving for retirement as your contributions can be pre-tax (meaning you do not pay taxes on what you contribute on the front end) and they grow tax deferred (meaning you don't pay taxes on the growth while it is happening).
• If your employer has a program where they match your contribution to your 401K take full advantage of it as this is free money. Max out your match.
• Don't dip into your 401k except to avoid repossession of your car or foreclosure (these things drop atom bombs on your credit score). When you dip into your 401k you are giving the government a great gift. You pay a 10% penalty and then you pay your marginal tax rate on what you take out. In the end you can pay 40% in penalties and taxes on what you take out. Is it worth that to go on vacation?
• Don't take a loan on your 401k either. If you leave the company they often require FULL repayment of the loan amount and you could be up the creek without a paddle and quickly visiting the parasitic loan sharks at the pay day lending store.
• If you are young and do not have an employee match available for a 401k consider investing first in a Roth IRA which grows completely tax free! There are income limits to this (i.e. if you make above a certain amount of money you cannot do a Roth IRA- we must penalize those evil people that have succeeded!). There are also contribution limits.

Please consult your professional adviser for how best to invest and allocate your hard earned money so you do not have to rely on Social (In)Security as your sole source of retirement income.