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Subject:  Re: Retirement Fund Date:  6/28/1997  3:20 PM
Author:  TMFPixy Number:  88 of 88532

Greetings, pauliboy, and welcome.

<<I am an employee of a large transportation company. I have both 401k contribution and a 14% gross income contribution from the company going in to a retirement fund managed by benefits express, an investment firm. We are limited to a wide array of Mutual fund portfolios.

Is it possible for me to establish another retirement account with say Datek,and defer the tax on Capital gains until I begin drawing from the fund at age 60.>>

If you're looking for a tax deferred retirement account in which your contributions are tax deductible, the answer to your question is no. You are covered by a qualified retirement plan through your employment, and you are not self-employed. Therefore, that rules out any tax deductible IRA or self-employed retirement plan (i.e., SIMPLE, Keogh, or SEP-IRA). That only leaves you the option of a non-deductible IRA contribution of $2K per year or a regular taxable account or both.

If you elect the IRA, the earnings will accumulate tax deferred until the money is removed, presumably some years hence when you retire. Between now and then, you will have to file Form 8606 each year you make a contribution to the IRA, and you will want to hang on to that form forever. The contributions have already been taxed, and your Form 8606 becomes your proof that it has when you start IRA withdrawals. After all, you don't want to pay taxes on that money twice.

I'm not sure what you mean by that "...14% gross income contribution from the company." If that's some kind of match against what you are putting into the 401k, you certainly want to contribute enough to collect the maximum match possible. That's an immediate return on your money (untaxed and risk-free) that's tough to beat regardless of the poor performance of the investments within the 401k. It will take you years to offset that immediate return in any other taxable alternative. In fact, unless you can get at least a 17% return consistently on a taxable investment, even a tax deferred return of 8% will win for 30+ years with most company matches. Think twice before you spurn such an arrangement.


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