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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75616  
Subject: Re: 401k problems Date: 12/7/2004 5:51 PM
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1. My employer does NOT match funds at all. And currently has no plans to do so.

IMO, that is a strike against the 401k since they are not really offering any options that appeal to the strategy/plan that you have in place. Only you can weigh the benefits of having more tax deferred money invested in subpar options versus the potential for slightly more in upfront taxes with investments of your choice.

2. I was under the impression that I could only contribute $2000 per year in an IRA.

If you are under the age of 50 (I believe that is the cutoff but would have to check to be sure), you are permitted to contribute $3000 to an IRA for the 2004 calendar year. In 2005, that limit goes up to $4000. If you are over age 50 (again needing to verify that age is correct), you can contribute $3500 for 2004 and $4500 for 2005. If you are married, you can make the same contribution for your spouse.

3. Isn't a ROTH IRA an account with Taxable $$? What is the disadvantage to not having money taken out of my paycheck before taxes here? We are talking $12,000+ per year...

Yes, contributions to a Roth IRA are made with after-tax dollars. However, the big benefit is that those investments will grow tax free! If you were lucky enough to contribute $3000 and turn it into $3 million, you would not pay any taxes on that $3 million as you made your withdrawals.

The Traditional IRA can allow for tax deductible contributions but the ability to deduct the contributions depends on your mAGI and whether or not you are eligible for an employer sponsored plan. For purposes of determining deductibility, one thing I am not certain on is whether or not you have to simply be eligible for an employer sponsored plan or actually enrolled in the plan? Maybe someone here or at Tax Strategies can answer that question.

The disadvantage to not having the money taken out before taxes is that you will be paying more in taxes. Your mAGI will be higher without the $12k tax-deferred investment. How much an impact that will have will depend on your tax rate as well as any other adjustments to your income. Is it more important to you to have the money invested pre-tax or to invest in a vehicle that fits your strategy/plan?

Personally, I do not have a 401k as an option and convinced my employer to offer a SIMPLE-IRA plan. That allows me to contribute $9000 this year with a match from my employer at a percentage of my salary. However, my first year with this employer that plan was not offered so I was only able to make IRA contributions for myself and DW, as far as tax advantaged vehicles are concerned.

If you are not happy with the options, can you talk to your employer? How do other employees feel? If enough people are unhappy, maybe you can initiate an effort to request a change.

dt
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