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Subject:  Diff between 401K,regular IRA, brokerage account Date:  3/31/2008  4:16 PM
Author:  makumar11 Number:  62075 of 75335

Hello,
I am currently maxing out on my 401K. I was looking at my portfolio options being offered by my company, which are:

BGNMX - American Century Ginnie Mae
BOGRX - American Century Income and Growth
PEOPX - Dreyfus S&P 500 index
NPRTX - Neuberger Berman Partners
OAKMX - Oakmark 1
JAWWX - Janus Worldwide

I chose to put 70% of my monthly deductions into NPRTX, and 30% into PEOPX, as I did not like the other options.

So currently my portfolio is 100% Large Blend. I have atleast 30 years for retirement. I want to create a supplement for my retirement investments, so I was looking into opening a regular IRA account. I already have a roll-over IRA account.

My CPA informed me that adding to a rollover IRA creates confusion when its time to start making withdrawals during retirement. For withdrawals from 401K, you pay federal tax, but for withdrawals from a regular IRA, you pay federal and state taxes.

For a rollover IRA, because the money came from a 401K, you pay only federal taxes on withdrawals during retirement. If you add money to a rollover account, then, unless you keep track of the sources throughout the life of that account, what happens is that you will be taxed state and federal taxes when you start taking withdrawals. So, for that purpose, its better to separate a rollover IRA with any other IRA accounts.

Does this sound right ?

My other question is regarding opening a regular IRA account, compared to a regular investment account. If I want this to be a long-term investment plan, opening an IRA will force me to use it just for retirement (I don't like to borrow money from my investment accounts), but having a regular brokerage account will give me the flexibility to use the money if I need to, while still treating it as a long term investment vehicle.

Are there other differences between a regular IRA and a brokerage account as investment vehicles for long term ? Of course, I understand that the money in IRA will grow tax-free, that is, the dividends and capitals gains do not get taxed. So if you reinvest the dividends, you will be increasing the value of your investments, but not pay taxes when its growing in an IRA.

Thanks,
Mallika.
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