I was surprised to learn recently that my brother, who’s otherwise financially frugal and savvy, contributed nothing to this 401(k) account, opting to rely on his own means to grow his after-tax savings. Though this is probably because his last employer made a terrible mistake when rolling over his 401(k) to an IRA that resulted in taxes and a penalty for disbursement, I still wanted to convince him that contributing to his current 401(k) in lieu of putting the amount in a savings account would be better.

The differences come from the following:

• 401(k) contributions decrease the salary upon which your income tax is calculated because they’re pre-tax
• If your employer matches any part of your 401(k) contribution, it’s free money you’re missing out on if you’re not doing it
• Your 401(k) grows tax-free while an account you contribute to with your after-tax dollars is taxed at the capital gains tax rate of at least 15%

Thanks to Moom (see below) for noting that when 401(k)s are withdrawn later in life, they are taxed at whatever effective income tax bracket you are in at that time, which can negate the first and last points above. (Though then you might be able to argue the time value of money…but since in the end it all largely depends on whether your tax bracket is higher now or in the future, it becomes a bit complicated to analyze.)

And so, voila, another excel calculator to put it all in black and white.

Download the 401(k) contribution calculation spreadsheet by right clicking on this link and choose “Save target as…” or “Save link as…” from the menu items.

Description: A simple MS Excel template (Office 2003) you can use to calculate the difference in savings between contributing to a 401(k) plan versus putting the same amount of after-tax dollars into an account with the same return over 1 and 5 years.

Instructions on how to use the little spreadsheet are included. Feel free to tell me of any corrections or feedback you’d like to see. (I’d have included a 10-year savings period but the calculation in excel is a bit of a pain to put in since it’s a geometric series.)

I was thrilled to see that during the week I was gone, gas prices for premium gas in the SF Bay area had shot to $3.41. And wouldn’t you know it, our new car requires that octane. Wondering how things looked for the rest of the country (in TN where I was, premium is still below $3), I went to the EIA, or Energy Information Administration, a.k.a. the official government energy statistics of the US government, to check out the data.

Turns out of the major metro areas listed, average gas prices in San Francisco has actually grown the least over the last 3 years. The most? Houston. Check out the graph below:

Keep in mind that this is probably because SF prices already started way high. Here’s a summary table of the starting and ending gas prices in the four metro cities I plotted:

Read the rest of this entry »

Sorry for the hiatus in posts — I just returned from a trip to the rural South to visit family. Now that I live in the SF Bay area, it’s near impossible to convey to people living in other parts of the country how high the housing costs are here. On the Peninsula, a 2b/1br house built in the 50s or 60s with around 1000 sq. ft. of space averages $750,000. You’re lucky if you get a smidgen of a yard. We’re renting said house for less than $2000 a month. A similar house in the region where my family resides would run less than $100K!

The housing situation in the Bay area and elsewhere and whether there’s a housing bubble are discussed all over the place, but one resource anyone moving here should consider are rent vs. buy calculators (a google search lists tons). Here’s a java-based housing cost calculator that shows a little more than simply “rent” or “buy”. In short, even the tax shield you receive on interest payments doesn’t justify buying a house here in most cases, and definitely not if you’re not looking to stay a long, long time. These calculators also don’t take into account the maintenance costs of a house. I’m not saying renting is the best way to go, but it seems like the better of two costly options right now. For anyone who’s interested, here’s an excellent in-depth article analyzing renting vs. buying in global housing.

Does anyone know of a service besides Thomson Research that extracts and allows you to download full historical financial statements from 10Ks (income statement, balance sheet) in an Excel or other raw data format? I’m looking into different options and prices for any services that do this. Thanks in advance!