In a recent dialog on The Simple Dollar, I focused on the fact that MMA appears not to address whether or not one receives any type of matching funds in their 401(k). First, let’s talk a bit why this is so important.
Many employers offer a match of your contribution, as high as dollar for dollar on the first 5-10% of your income deposited. In dollars, this can mean $8000 company match when you put in your $8000. But remember, the 401(k) is funded with pre-tax dollars, so you see about $6000 (I assume a 25% tax bracket) less in your pocket, but now have $16000 in the 401(k) account. You can see that over a few years, the money adds up quickly.
Yet, there are those who oppose even something that would seem so obvious. The poster whom I was engaging with offered, “Do you guys not realize that there are people today who have less money in their 401(k) investments than they did 3 years ago even with matched company funds? That’s less net money. Got it?” Yes, I got it, alright. I got the fact that most MMA users are so fixated on their one and only goal, to pay down the mortgage as fast as they can, that they will ignore what we all view as ‘free money.’ As I discussed on Tuesday, one should not confuse the tax deferred account with the potential investment choices contained inside it. Those who were properly diversified are certainly ahead, when the match is included.
Until next week.
Joe
Recently I’ve read articles calling for either reform or dismantling of the retirement accounts known as 401(k). I understand Enough of human nature to know that in times when the market is shooting higher and higher there are those who will lobby for putting the Social Security Trust Fund into the stock market. Now that we are down nearly 50% depending on which index you follow, the finger is pointed at the 401(k) account. The one single point I wish to make today is that all 401(k)s are require to offer multiple investment options, one of which must be a short term bond type fund. So the choice is with the employee as to how to invest. Remember, the 401(k) is just an account designation, it’s the employee who mush choose among the available funds. I’ll revisit this thought on Thursday in my Money Merge Account Analysis series.
Joe
It’s nearly a year since I first became of the Money Merge Account and ten or so months since my first post on this program. One aspect of MMA that I’ve not discussed is the fact that the program is part of an MLM (Multi-Level Marketing) sales structure. Why does this matter, you may ask. It would appear that this is the origin of the claim that there are no/few complaints on file with the Better Business Bureau or government agency. Most users have been coaxed not only into buying the program, but into becoming agents themselves. Considering the $3500 cost of the program itself, what’s an extra $175 to sign on as an agent? Clients are sold on the fact that they can ‘help others’ and after selling 5 or so more people into the program can pay off their original investment. One reader of my blog told me that when he wrote an agent for an analysis and advised a very tight budget, she offered to include $450/mo as the income he could make selling just one new client every two months, and proceeded to include that in the projections. As Tracy Coenen offers on her Fraud Files blog, United First Financial broker numbers and earnings, the number of sales of MMA is barely twice the number of agents, so each agent has an average of one sale, enriching those at the top, but making little for themselves. Twice scammed, unfortunately.
as summarized in a word cloud, courtesy of wordle.net and the NY Times transcript:
(note, you may click on it for a larger copy or to print.)
This only gives a hint at the content of the speech, of course if you missed it live you should read a transcript of it when you have a moment.
Joe