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I am an independent contractor and have no defined benefit program other than an existing IRA account that I've had for quite some time.

I have a part-time job that has a 401-K plan that I've contributed 15% to over the past 2.5 years. I've just been notified that the company will not vest their 5% contribution to my plan since I don't work enough hours (<1000 hrs.)

My DW has a 401-k and she contibutes 16% to that. She also has a self-directed IRA outside of that.

Neither of us has a Roth IRA.

Neither of us make contributions to the existing IRA's.

Should I continue making the 15% contibution to the 401-K? I could make a 40% contibution, the highest allowed under the plan without a problem.

Or, should I take the money earned from the part time job and make Roth contributions instead?

BTW, the 401-K that I have is through a big mutual fund company and IMO has some lousy investment choices.
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BTW, the 401-K that I have is through a big mutual fund company and IMO has some lousy investment choices.

I think you have just answered your own question.

Since you are getting no vested match from the company in the 401k, why not put as much as you can in an IRA and/or ROTH IRA first, then contribute to the 401k. You'll have better investment control over the IRA's including some good index funds.

Rick Meigs
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Your 401k will be taxed as regular income when you take it out. There will be no taxes on a Roth IRA as long as you follow the rules. A rule-of-thumb is that if you expect to be in lower bracket when you retire that you go with the tax deferred rather that the tax-free. Even if you will be in a lower bracket it may be a better to go with a Roth.

You can use a lot of online calculators to predict what your savings and retirement packages (include social security and pensions) will be at your present rate of saving. Generally people stay in about the same bracket.

But think about it. By paying the taxes now you effectively get to put more money in the account. Say you have a regular IRA worth $100,000 when you retire and you have been and will be in the 28% bracket. That money is worth only about $78,000 (or less if it pops you into a higher bracket) when you withdraw it because of taxes (and don't forget about state taxes). A $100,000 Roth is worth $100,000 regardless of how much you take out. So by contributing to a Roth you have effectively increased your contribution by 28% plus and applicable state taxes.

About the 401k having lousy investment choices, my plan does have crappy choices also. However, my plan does have a bond fund and a money market. Instead of keeping my retirement bond and cash investments in my taxable savings I keep them in the 401k. It does get hard when the 401k becomes a large part of your retirement. Furthermore, for stocks that will have long-term capital gains, I try to keep in my taxable accounts because they will be taxed at or less than 20%, which is even better than a tax deferred account.

I would fund the accounts in this order

1. The matching portion of the 401k (usually a 50% return)
2. Then Roths (this could be first depending on the 401k match)
3. Then any other tax free and then deferred plan you can afford.
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