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Thread: Question for Americans: 401k, IRA, 529s??

  1. #21
    Join Date
    Jun 2011
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    Shanghai, China
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    78

    Cool

    Quote Originally Posted by Super_BQ View Post
    If the US 401K plan is a hoax, then how does that compare to NZ's "Kiwi Saver" scheme?
    I would be really interested to learn about the Kiwi Saver, since we are not there yet, but our current plan is to opt out. The company matching somehow makes me think of someone walking into a casino, and being given a $1000 voucher if he/she buys $1000 worth of chips - doesn't mean you will walk out having more than $1000.

    The next question, is then, how safe is your money in the stock market? And how many people actually made out eventually from the market? But that will be way too much for this topic...

    I read that year after year, consistently only 5% of the Wall Street fund managers outperform the S&P 500. Can't find any reason why I am able to do better than the professionals. However, if that is true, I guess they make a living by charging their clients lots of fees.

    It will be great if someone who has experiences with Kiwi Saver share with us how it works...maybe there is a good reason to participate.

  2. #22
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    Jun 2011
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    New Zealand
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    Wink

    Quote Originally Posted by dragonrides View Post
    I read that year after year, consistently only 5% of the Wall Street fund managers outperform the S&P 500. Can't find any reason why I am able to do better than the professionals. However, if that is true, I guess they make a living by charging their clients lots of fees.

    This is a good point. So why not invest in S&P 500 index or other even more broadly diversified index funds in your 401k / Kiwi Saver?

    Good luck being able to retire on CD or bank rates. Its all about risk versus reward. Put your money into LOW COST index funds in your 401k or Kiwi Saver, forget about it for a few decades and you will be fine. My 401k is 100% index funds.

  3. #23
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    Jun 2011
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    Post

    Quote Originally Posted by ScottNZ View Post
    Put your money into LOW COST index funds in your 401k or Kiwi Saver, forget about it for a few decades and you will be fine.
    I used to think that's true but after doing the calculation, I am not sure if that will be the case for sure.

    First of all, the fees, say 1%, can easily eat up all of your profits over a long horizon, unless you are able to pull it out from the administrator with a high fee structure and put it in Vanguard. How many of us actually know the fees that are being charged???

    Secondly, none of us have any idea what the taxes will be when you are ready to take out the money.

    At last, index funds don't necessarily beat the CD rates.

    What sucks is there's not a whole lot of options out there to invest. In China, you can actually buy solid pure gold (bars or coins) at market rate easily but that's not possible in the US, no idea how that works in NZ. The best thing to do about money maybe is just to spend it on things that bring joy to one's life.

  4. #24
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    Jun 2011
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    Wink Clarification

    Sorry I just realized that we are not talking about the same fees. The fees for individual funds you are talking about can be found easily online, but the fees 401K administrators charge is so hard to find out (just try)...and that's really the killer. However, none of the fees are shown on your statement since everything is bundled in.

    Anyway, I don't know if any traditional investment vehicles can get us to the "retirement" that we define. I know people retire from their pensions (btw, that's not available for our generation by the time we turn 60 or 70) but don't know anyone who retires from his/her 401K, as far as I know, they are all working, regardless of age.

    High Risk = High Return, seriously doubt that Wall Street propaganda is valid, like any other scheme these genius came out to steal the money from the working class...especially in a recession like what we are experiencing right now.

    Throwing in the double taxation, it's concerning. I am just hoping that kiwis are not that into money.

  5. #25
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    Jul 2011
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    Default

    Quote Originally Posted by ScottNZ View Post
    At any rate, regardless of age having all one's retirement money in CDs seems overly conservative as this would not even keep pace with inflation.
    You are correct. However, CDs will most likely perform better then 401(k). So you will begin to see how the working class people are getting screwed as the people who run the show continue to take more and give back less. And now they are coming for your social security (USA).

  6. #26
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    Jan 2007
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    Chch, NZ
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    Default

    Sorry I just realized that we are not talking about the same fees. The fees for individual funds you are talking about can be found easily online, but the fees 401K administrators charge is so hard to find out (just try)...and that's really the killer. However, none of the fees are shown on your statement since everything is bundled in.
    In finance (when I was at uni in Canada) we studied the vast different fees that mutual funds were involved in (the more common 'front loading' & 'back loading' fees were disclosed). But the fee you are referring to is called "Trailer Fees" and is quite clear that most people selling these funds to clients do not disclose. Kinda like a sales commission on selling a car, this is the fee that the person setting up your mutual fund gets and as the more clients they sign up, the more kick backs they get, year after year. This is so they can attract new investors to buy their fund over another fund and I find it's against the interest of their clients because these fees come off the performance of the fund.

    I tell people that before you go see these 'financial advisors', you must make sure to ask them "If this investment is good enough for me, then how much of your own $ is invested into this managed fund???"

    In NZ there's this guy name Gareth Morgan who has been touted as the finance guru of NZ. He manages his own fund (which hasn't been performing at all compared to the index) but boy does he ever put on a good show when he's on TV or on the radio trying to sell his managed funds.

    Compare that to someone like Warren Buffet where he says that if the fund does not beat the index, then there should be NO administration / management fee taken off because quite simply, "The managers haven't done their job when the investor could of just bought the index". The fact is, the majority of managed funds can not beat the market index - AND FINANCIAL ADVISORS AREN'T SPELLING THIS OUT TO THEIR CLIENTS!

  7. #27
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    Default more on Kiwi Saver

    I looked it up the definition of Trailer Fee on morningstar.com:
    "A trailer fee is the annual service commission paid by the mutual fund company to the mutual fund sales representative.

    This fee is paid as long as you hold units in the fund. These fees generally range between 0.25% and 1% and are paid out of the fund's management expenses.

    A trailer fee is a service commission. This means the salesperson should be providing the purchaser of the funds with ongoing services such as answering any questions you may have about the performance of your fund(s), and other related matters.
    "

    I agree with what you said, but I still don't think this is the fee I was talking about. I was referring to the 401K administrator charges to the account owner, it's not a commission, the amount is determined by the contract your employer signed with the administrator (Fidelity, Hewitt, etc.). Say your 401K account balance is 100K, they take 1% (this varies depending on the individual contract) of the total account balance, which is 1000 each year, regardless of the performance of your portfolio. Therefore, Fidelity and other providers make money no matter what, they do not need to perform! And it is in addition to the trailer fee, and many other fees between the fund managers and mutual fund company that are eventually charged to your account.

    The idea behind this, is the mechanics were set up in such a complex way, that the account owner puts full faith in the scheme (some even think it is government guaranteed???) with no question, and all they can find is confusion when they start asking questions.

    The youtube video clip "The Truth Behind 401K" does a great job explaining the fee structure, up to 14 different types, that can be bundled into an individual plan. Kickbacks between sales and fund companies, between employers and administrators...but one thing is for sure, the participants are paying for all of it.

    I did some reading on the Kiwi Saver on their official site last night, there's no mentioning of the details of the risks - the fee structure, who are the administrators even though they did say it's private firms who are managing, all it showed was the tax credits and other benefits, there was simply not enough information to determine if it's a good deal. However, it clearly stated that Kiwi Saver is not guaranteed by the government, and you CAN'T OPT OUT if you chose to join, and you are investing at your own risk. You also only have a short window between 2 ~8 weeks to opt out after the automatic enrollment.
    http://www.kiwisaver.govt.nz/new/about/summary/

    Looking it at a glance, like the 401K, Gareth Morgan, Kiwi Saver could be just another hoax, to pull money from investors in order to pump up the stock market. A few people may get lucky winning, but the vast majority of the people will find out they are not millionaires when they retire, only it's 30 years later.

  8. #28
    Join Date
    Oct 2018
    Location
    New Zealand
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    1

    Default

    Hello Bozeman,
    I am interested in your comment where you say "Unless accumulated as part of an employment plan, your 401k, IRA and 529 gains
    are all considered taxable income by the IRD. My retired NZ resident American partner has an IRA which was born out of an employer subsidized 401k. Does this mean that her IRA gains will not be considered taxable income by the IRD? Can you suggest where we could go
    or look to get further information?

  9. #29
    Join Date
    Feb 2008
    Posts
    37,235

    Default

    You are posting on a thread that was 'live' in 2011, so the same people may not still be around to see your question.

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