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I am trying to decide whether to invest in my company's 401K or a Roth IRA. My company matches half of the first 6% that I invest in the 401K so it is a given that 6% of my income will go into my 401K. My quandry is where to invest money over and above the 6%. With the Roth IRA I get no up-front tax break but get no taxes on distributions at the end. With my 401K I will get the up from tax break (like a traditional IRA) but distributions at the end will be taxed as ordinary
income. I am 45 and will start taking distributions at 60. Running this through a formula tells me that the Roth IRA will actually provide my with more distributions when all is said and done. However, I have a concern that at some time in the next 15 years that the federal government will find a way to tax Roth IRA's thereby removing the advantage of the accounts? What do you think I should do?
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I would:

#1. Fully contribute to your 401k up to the limit that your employer will match. (Free Money!!!! Yeah!!!!!)

#2. If you think you will be in a higher tax bracket at the time of retirement, then fully contribute to your Roth (if you're financially eligible) so that you can have that money tax free at that time. Besides that, you have the option of picking any fund, and any fund company you want...you're not confined to the funds your company picks. You can go Vanguard... Fidelity... TIAA-CREF.... it's your show.

#3. If you still have money left over (God, how I wish!) then go back to funding your 401k over and above your employer matching contribution, and fund as much as you can until you've reached the limit for the year. (I'm not sure what that is...I don't have a 401k, but I think it's in the 10-11k range.

If you can do that, you'll be cruisin'.

Good Luck,
Caat
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<<< However, I have a concern that at some time in the next 15 years that the federal government will find a way to tax Roth IRA's thereby removing the advantage of the accounts? What do you think I should do? >>>

I agree with the previous post.

Do not deal in suppositions about future tax changes. It's a waste of time and is futile. Mearly play the game by the rules you currently have.

JLC
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Do not deal in suppositions about future tax changes. It's a waste of time and is futile. Mearly play the game by the rules you currently have.

Besides, who's to say they won't change the tax laws for 401ks! Both vehicles are pretty popular nowadays, so while you never know, I'd say it would be politically difficult to start taxing them.

At the risk of stating the overly obvious, you *really* want to be maxing out both if you can, especially with only 15 years to go.
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Greetings, Jcarey52, and welcome. You wrote in part:

I am trying to decide whether to invest in my company's 401K or a Roth IRA.

In addition to the great thoughts expressed by CAAT, you may wish to get some further tips in my article "When NOT to Use Your 401(K)" at http://www.fool.com/retirement/retireeport/2000/retireeport001023.htm

Regards..Pixy
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Jcarey52,

>However, I have a concern that at some time in the next 15 years that the federal government will find a way to tax Roth IRA's thereby removing the advantage of the accounts? What do you think I should do?<

I wouldn't worry too much about this. It would be political suicide, I think, to change the rules for those that started a Roth under the current rules - and used those rules to decide if it was more suitable over some other retirement account.

However, what I would worry about is the gov't doing away with or changing the rules for the Roth account for new investors going forward. For this reason, it would probably be wise to open a Roth while you still can even if you only contribute a minimal amount.

Randall
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