Are 401k's a good investment vehicle?

[taubel]

DH and I each have 401k's at work. I'm contributing 10% to mine (and getting the full match, etc.) and DH is contributing 10% to his.

Our balances are invested in low-risk stuff so we rarely lose money. We make some money on them, but not a ton.

I am still trying to decide whether I should pay off my $7500 car loan. I am paying $289/month on this. If we paid it off, we could take that $289/month and each of us could "use up" that money by contributing a higher percentage to our 401k's. 

Doing this would lower our taxable income, and we could halt the contributions if we needed that $289/month as extra money - like the to buy the larger house I want!

Would you do this? Or would there be a better scenario? 

I remember somebody gave a list, in "order" of what to do with/invest extra money, but I can't find that thread now. 

Thanks!

[zebra15]

I dont have a lot of time but 401k's are long term investing.  The gains and losses you are seeing are on paper only.  Those gains/losses are only realized when you take money out of the account.  401k's are for retirement planning.

I would ask if you have an IRA account as well?

How are your other savings accounts?

What are your other debts?

All of that is something to think about!

[MsFortune]

If you get a match, don't stop putting in your 401K.  That would be like turning down free money.

[rhiandmoi]

Originally Posted by MsFortune 

If you get a match, don't stop putting in your 401K.  That would be like turning down free money.

This totally. Always put in as much as you can afford towards the matching limit. Then depending on your age, you might want to not be so conservative in your investments. Or do one of them conservatively, and one for growth.

[velochic]

Contribute to the limit of the match.  Anything beyond that, a Roth IRA is actually a better investment vehicle.  It's less restrictive in all ways.  You can withdraw your contribution (not gains) at any time and you can invest in anything you want (not just what your company chooses for you to invest in like in a 401(k).)  I think these advantages outweigh any small advantages you would gain from lowering your tax liability.

Edited by velochic - 3/9/11 at 3:50am

[taubel]

Thanks for everyone's input. I should have made this more clear, but I am already getting the full match. If I contributed more money, the match would not go up.

That said, it looks like the Roth might be the better option for us. My short term goal is to buy another house, so I do want to keep a lot of "liquid" cash on hand. But of course, we might not buy a house for two more years, so I don't want the money to be sitting there idle in the meantime.

My financial institution offers a short term certificate (I think about 24 months) that's currently getting 1.10%. I have to look into it further, but supposedly, you can withdraw up to $2500 each month, or you're allowed one large withdrawal over the term. So if we found a house 10 months from now, we could conceivably withdraw all the money at once.

[MsFortune]

Then the Roth is probably a good idea.  Or paying off your existing debt. 

[rhiandmoi]

If the goal is to purchase a house, most 401k's you can withdraw funds to buy a primary residence without penalty too.