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Subject:  Thoughts on IRAs and 401Ks Date:  1/26/1998  3:01 PM
Author:  stipple Number:  1477 of 88543

I've been thinking about these retirement "benefits" for some time, thought I'd throw out a few comments:

1. It's interesting how the gov't likes us to think of these things as benefits. Wouldn't it be nice if they just slashed the income tax rates significantly, eliminated cap gains, and just let people invest on their own without all the strings attached? Dream world, I know.

2. Sure, with a 401K, you get tax-free investments and usually employer matching, but it seems to me that this could all be wiped out if the tax rates are high when you retire. 401Ks and IRAs are sort of a captive pool of money (i.e. easily controlled), and politicians may have a hard time keeping their hands off as these assets continue to swell. I can certainly see a day when people who have significant 401K or IRA assets will be "means tested" right out of SS benefits (in other words, they paid 50 years of fica taxes for nothing). And, I can see a day when people who've Foolishly saved lots of money will see their 401K/IRA retirement monies taxed to "save" social security (again).

3. 401Ks make it a real pain to keep your asset allocations straight if you also invest individually. Usually, the selection of funds is also limited and includes mostly underperformers.

In sum, I'm not saying that people shouldn't contribute to these plans, but I wish they weren't seen as a "good deal." They're probably a better deal than the same tax code without them, but they certainly aren't ideal, and it's not really a "gift" that politicians let us keep the earnings from our savings. I personally contribute only to the matching limit, and no more. I invest the rest individually.

Just some quick thoughts...
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