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Hi, I'm a regular viewer of the posts on this site, and I appreciate the information and ideas I have gotten here.

Now that I have a question which other posters may have, I thought I would sneak out of the woodwork to ask it and hopefully not clutter this space with a silly question.

my wife and I are each 28 years old, we each are 2 years into our roth iras (hers in VIGRX, mine in a relatively balanced portfolio consisting of sunw, pfe, wag and wmt). we have around $2000 in a savings account and $10,000 in a money market earning 4.9%

my wife recently switched jobs and must now decide what to do with her 401(k), which presently has approximately $6,000.00 in it. her new employer's plan does allow her to contribute until after her one year anniversary, and at that time, they will match 50 cents on every dollar contributed. her plan is managed by mass mutual and has various fund options ranging from their own (with high fees) to fidelity funds (lowest fees are .42). my employer does not offer a 401(k) (grrrrrr)

here's my question:

since she cannot contribute for a year, is it better to (1) roll her existing 401(k) into her new one, not pay any taxes and let it sit and accumulate in the new program until the anniversary, and then start contributing, ... or

(2) convert the existing 401(k) into either her existing roth ira or create a new one, pay the tax and then have the ability to put those monies into better funds with lower expenses (either VIGRX of VFINX).

I am pretty sure my thinking is correct that she can take approach number 2 even though she already made her FY2000 roth contribution, and she is absolutely going to withhold as much as possible from her pay when she can start making contribtuions to the 401(k) so as to take advantage of the employer matching (free money!!!!).

I (oops, I mean she) is just confused about what to do now. (I guess it's relevant to note that we are in the 31% tax bracket, are expecting an approximate $2000 tax refund and have no problem saving around $1,000.00 per month)

Thanks a bunch in advance for any ideas.

DFrank11 (young and trying really hard to retire early)
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From a tax point of view, the very best plan out there is the Roth IRA. Earnings in that account are completely tax free at retirement. 401K money is merely tax deferred until retirement.

So if you can afford to pay income taxes on the money now, I would rollover the old 401K into an IRA and then convert it to a Roth.

Because expenses of 401K are often subsidized by your employer, they are often lower in cost than IRA or Roth IRA accounts. Most 401Ks also allow penalty free distributions at age 55 (if you leave the employer after age 55) rather than 59-1/2 otherwise or with IRAs. However, in either case an SEPP payment plan can get you your money earlier if you decide to retire early.

Most people think the wide array of investment choices and the ability to move your account freely to another custodian make IRAs and Roths highly preferred over 401Ks in most cases.
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