Should I invest into a 401K?

General question (and not just for YMOYLers):
"How much should I put into my 401k (or 403b, or equivalent)?"

General answer (to quote Jonathon):
"Do the math."

Joseph:
Many employers will match a portion of your 401K contributions.  This is
essentially free money for you.  Many employers vest those contributions over
a period of years.  Both these need to be taken into account.

Once money goes into the 401K, it cannot come back out again, unless you
withdraw it after you hit 59-1/2 years old, or you pay a 10% penalty and
treat the withdrawal as ordinary income.

The IRS has means of letting you avoid the 10% penalty but it gets pretty
involved.  (How involved depends on the method.)  Essentially, you have to
commit to withdrawing a certain exact amount of funds for at least five years
or until you reach 59-1/2, whichever is LATER.  Three different calculation
methods are acceptable, detailed at the Retire Early Homepage at URL
http://home.earthlink.net/~intercst/reindex.html.  Not surprisingly, there's
some paperwork involved no matter what you do.


Many people doing YMOYL can work out how to be financially independent well
before age 59-1/2;  for them, putting money into 401K slows their progress to
FI.  Some of us have substantial pre-YMOYL capital sitting in 401K plans;  we
need to figure out whether it's worthwhile tapping the money now, or waiting
with a large lump of cache to appear later in life.

My take is that I'll leave the 401K money as cache, because I have
no better use for it right now.  That might change.  Your mileage may vary.


Jonathan:
"That depends on your goals of course. If your goal is Independence, then
harvesting the maximum amount of your employers matching funds with a minimum
of your own funds while you accumulate interest bearing investments after tax
is a reasonable strategy.  If you plan to work after FI, then some happy
medium each one chooses is best. 

"Another strategy (and mine btw, I have future goals that will require post-FI
money making) is to buy T-bonds until FI. Then, work past FI but invest in
accrual instruments (EE and I bonds, some munis) that don't throw off any
interest until such time as I decide to convert/cash them -- reducing my
income by maximizing 401K account contributions during this period doesn't
materially change the date my net worth hits the level I want. This strategy
gives me the flexability to determine my future income based on my needs [then].