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Subject:  Re: Retirement Fund Date:  6/30/1997  3:51 PM
Author:  pauliboy Number:  89 of 88511

On Sat, 28 Jun 97 15:20:55 -0600, TMFPixy wrote: <<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 ca
n 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.

Dearar Pixy,

Thank you or your quick response.
Re: 14% matching contribution. My employer contributes another 14% above my gross income to a retirement fund. The 401k fund is
optional,however, I felt is was in my best interest to make the max contribution.
This adds up to about 24% of 114% of my monthly income going in two funds managed together.

Re: Form 8606. I guess leaving the money in the funds is the best approach because it allows me to invest about $17,000 annually; the 401k is not assessed for fed. income tax, and the 14% dap is money given to me above my salary.

Does this mean that any account set up post tax will be taxable every year for any gains made in the fund through the sale of stock? If I elect to use Form8606 how does this reduce tax on the fund? I thought that any initial investment is not taxable by definition; only gains are taxed and losses become a deduction.
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