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Subject:  Re: Roth IRA vs. 401(k) Date:  9/23/1997  9:58 AM
Author:  TMFPixy Number:  370 of 88051

In reply to message number 389 by jvanscoy :

Greetings, Danny, and wecome to Fooldom.

<< <I would contribute to the 401K what ever is necessary to
get the company contributions. Then I would use a self directed IRA for additional investments.>

Is it this simple? For example, if I wanted to retire next year, I would want to maximize my 401k contribution to reduce taxes this year, esp. if my contribution+company's exceeds the 9500 limit, since I'll get the extra contrib.
(which is taxable) next year when my rates will be lower.

Or am I misunderstanding 401k? >>

No, you're not musunderstanding the 401k. However, things are never as simple as they may seem. When considering whether to invest in a 401k, a deductible IRA, a non-deductible IRA, and/or an after-tax regular investment account, one must evaluate all factors. Those include net (i.e., after-tax) rates of return, investment period, and marginal tax rates -- both today and after retirement. Sometimes it makes sense to invest in a 401k beyond an employer's matching level, and sometimes it doesn't. There is no pat answer applicable to everyone. IMO, though, one should almost always invest enough in a 401k to get the maximum employer match. It's an immediate, risk-free return that will take years to beat -- if it's ever -beaten -- even after you consider all tax aspects. Even so, even that advantage can pale in some instances to an alternative. It all depends, and everyone must look at his/her options individually.
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