5 Questions: Profit Sharing, Tradelines, 403B’s

We get a lot of listener questions, and sometimes we get the same question several times. When that happens, we know a five questions episode is in order! Today we bring you give questions on profit sharing, tradelines, 403Bs, 401ks, and paying off debt.

 Question One:

 Can you guys explain the difference between a regular 401k vs. profit sharing 401k? What’s the difference between the two and can you withdraw from both early?

 Profit Sharing is solely employer-funded. You’re not putting money from your paycheck into it like you would a 401k. It is your employer making contributions towards your retirement.

 Contributions are usually based on the percentage of salary – higher salary = higher profit sharing. As for withdrawal, the plan administrator has a lot of decision making power in determining pre-withdrawal requirements.

 For a 401k, the employee is the primary contributor to account. Some employers will match contributions, but not a requirement. Even if they match in given year, an employer can suspend matching in future years. Your contributions are wholly vested right away, but employer contributions can have vesting requirements such as having to work a minimum amount of years.

 There are certain circumstances where there are penalty-free withdrawals like for hardship, but most early withdrawals will cost you.

 Question Two:

 Are trade lines even a legit way to build credit? Or is it just a scheme? Im a late bloomer with my credit and I’m looking for a way to build it up. And where should I put money?  I am saving for a vacation. In a capital one 360 savings account, mix in with my betterment build wealth account, Acorns, or some other strategy?

 Tradeline is an industry term for an account or line of credit. If you Google tradelines all the top result are marketplaces for trade lines or credit accounts. So why would you buy a line of credit?

 Let’s say Andrew has a Capital One credit line that he has been paying on time for five years which puts the account in good standing. Thomas, on the other hand, has only one line of credit for a year with some late payments and now he wants to build his credit.

 In this case, Thomas can go to one of these tradeline marketplaces where Andrew is selling his good tradeline. This allows Thomas to purchase his credit line to help build his credit. Andrew would add Thomas as an authorized user. Then, Thomas would remove Andrew as an authorized user and viola, Thomas now has a five-year credit line in good standing and credit score increases.

 Yes, this is some shady shit, and we do not recommend this. There are many other ways to increase your credit.  Try applying for a secure credit card or use a third-party rent reporting service, so your on-time rent payments count towards your credit.

 As for the second question, if you are planning on traveling soon, there isn’t a need to put your vacation savings into an investing account. Any short-term savings are better off in a checking or savings account.

 Question Three:

 So I stopped my contribution to my 403b today (teacher) because the returns on it sucked a bag of dicks. I was getting guaranteed 3% and paying fees, which I’m confident I can improve upon by managing my investments myself. The money I’ve contributed thus far is less than $3,000, and I’ve been putting into it for a while. I’d like to roll it over into something else, but the company I have the 403b with, Great American) hits me with MASSIVE fees if I move the money before the contract with them is up, and I can’t move that money to anything other than another 403b according to the IRS. All that to say, I am willing to just cut my ties with that money for now, still have it in my tiny portfolio but just stop funding it.

 Now, I can spare about $150 to throw towards investments.

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