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Can anyone give me some details on an 801-K Investment Plan?
Can anyone link me to some places that can give me hard facts about the 801-K plan is really all about?
The TINY bit of info I was able to get out of a magazine article said that an 801-K Plan can be started with as little as $10.00 because any profits you earn are automatically reinvested in to the company which you have chosen to invest in.
It said that the down side is that you are putting all your eggs in one basket because each 801-K plan invests in a single company.
I'm wondering about the details of such a plan.
Do you chose the company you invest in personally or do you go to someone that invests the money in a company that they choose?
Since each 801-K plan is invested in a single company, can you have multiple 801-K plans without a tax nightmare?
Since I could potentially start an 801-K plan with $100.00 and just let it reinvest any gains for 30+ years, could you have 100 801-K plans that you just pop a few dollars here and there in to?
(I'm exaggerating with the number 100 but I'm trying to think "Worst Case Scenario" and 100 seems like a number high enough to bring out the worst consequences of any laws/taxes.)
With little money to my name, a plan where I can put what little I have in to start and build upon that seems like a decent deal...
I'm hoping that I will eventually be able to drop decent amounts in to a true long term investment plan but for the short term, I'm looking to get in to the market while we are crashing...
"Be hesitant while others are being bold and be bold while others are being hesitant"
and
"Now is when future millionaires are made!"
1 Answer
- enoriverbendLv 61 decade agoFavorite Answer
"801K" is just a marketing term for DRIPs (dividend reinvestment plans). Many publicly owned companies offer DRIP plans for their stockholders. Typically you have to own at least one single share of the company (or more, of course) to start in the DRIP -- you could buy the starting shares in a brokerage account.
DRIPs are a fine way to invest, and as you mentioned you would normally set up a DRIP at a single company that offered a DRIP plan. You could have multiple DRIP plans at different companies.
However, DRIP plans were originally a better deal when brokerage fees were very high. (And at that time, DRIP plans would typically not charge any fee or a very low fee.) Now, brokerage fees have gotten much lower and some DRIP plans charge high fees, so the advantage of DRIPs has diminished to a degree.
So you may find it more straightforward to just open a brokerage account at a discount low-fee brokerage. If your investment funds are small, you could also consider a brokerage account that supports fractional shares (like Sharebuilder), which will allow you to diversify quicker.
Of course, it's even easier, and to some degree more sensible, to pick a broad-based stock index like Vanguard's Total Market Index mutual fund and invest that way. It's considerably less trouble and you get low fees plus instant diversification.
