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Author: goodjoan One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75632  
Subject: A few newbie Fool questions Date: 8/6/1999 3:21 AM
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I am fairly new to the Fool, please be gentle!

My husband recently got a new job that puts us in a position to finally start saving, investing and generally be more responsible with our money. Because I'm the one who seems to care, it's become my job to do the investing and make the investment choices for our family.

The job he just left had a retirment savings plan that he has to cash out in a lump sum. We'll get taxed as well as pay a 10% penalty. We'll be using that money to open 3 education IRAs for our kids and payoff the remainder of our credit card debt. Anything left from that we might invest in a Roth IRA. Also, we will now have $500-$1000 each month to invest. (it was a BIG raise in pay!)

My questions:
The new job offers a 401(k) but does not match funds. Are we better off investing in the 401(k) or in a separate IRA where we can use the Foolish 4 and perhaps get a better return? They plan to start matching funds in the future, obviously then it's the better option.

Is there any benefit to splitting the max contribution over more than 1 retirement plan (401k, ira, roth) other than being able to self direct a separate account?

And finally, we will be opening the education IRAs with the max yearly contribution of $500 each. Thats too little to Foolish 4 with and too little to put in a Vanguard 500 (which I seem to read as the next best option) Does anyone recommend a decent index fund that we could put the money into until it's big enough to withstand the Foolish 4?

We will be opening the accounts with either Seibert or Waterhouse, probably Waterhouse, as soon as we cash out the retirement system account.

Thanks for your help!
GoodJoan
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Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12880 of 75632
Subject: Re: A few newbie Fool questions Date: 8/6/1999 7:50 AM
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The job he just left had a retirment savings plan that he has to cash out in a lump sum. We'll get taxed as well as pay a 10% penalty.

Why can't you roll the lump sum into an IRA and save yourself the 40% hit (taxes and penalty)? The money will stay there tax-deferred, until you withdraw it at retirement.

If you need the money to pay off credit card bills, go to the Credit Card board for information. Your new cash flow will make it that much easier to pay the debt off.

The new job offers a 401(k) but does not match funds. Are we better off investing in the 401(k) or in a separate IRA where we can use the Foolish 4 and perhaps get a better return? They plan to start matching funds in the future, obviously then it's the better option.

I would suggest contributing the minimum allowable amount into the 401k, so that you can vest in any matching funds as soon as possible.

One advantage to contributing to a 401k, is that the money comes off the top, making the salary look less than it is. This can lower the AGI enough to make a deductible IRA feasible.

If you work for a company that has no retirement plan, 401k, SIMPLE-IRA, or SEP-IRA, you can contribute to a deductible IRA, on your own merit.

we will be opening the education IRAs with the max yearly contribution of $500 each. Thats too little to Foolish 4 with and too little to put in a Vanguard 500 (which I seem to read as the next best option) Does anyone recommend a decent index fund that we could put the money into until it's big enough to withstand the Foolish 4?

We will be opening the accounts with either Seibert or Waterhouse, probably Waterhouse


I know that Waterhouse will let you open an Education IRA. Since it is so late in the year, why not put the $500 into the MMF and wait until the end of the year. Then, in late December, buy the highest ranking RP stock, and in early January, contribute another $500 and buy the then highest ranking RP stock that you don't own. You will have, effectively, created an RP2 portfolio. I realize that at $12/trade, you are talking about a 2.4% hit. But this is temporary, and in the long-term, inconsequential.

Zev

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12884 of 75632
Subject: Re: A few newbie Fool questions Date: 8/6/1999 9:27 AM
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Zev is RIGHT ON target. ROLL IT ALL OVER completely tax free, then if you need some cash take just that much out of the RollOver IRA, but there must be better ways to pay off the credit cards, as he suggests. Even the CC debt isn't as bad as the taxation and penalties and they will withhold on top of that!!! Why tax and penalty the whole amount just to turn most of it around into tax free accounts? ROLL IT OVER on a DIRECT AGENT TO AGENT TRANSFER---NOT through or to you where they deduct 20% withholding!
Waterhous is excellent choice. $12 /trade
Bag the Education IRA, at least for now. Max your own and then decide if you would be better off using your own Roth for this than losing (some) control of the funds in the future. Congrats on your good fortune. Ed

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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12892 of 75632
Subject: Re: A few newbie Fool questions Date: 8/6/1999 11:54 AM
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1) As others have said you should be able to rollover or direct transfer you husbands retirement plan to a rollover/traditional IRA.

2) You should avoid the $12 trade fee (at least for now). If you open an EIRA with T.Rowe Price (for example) ALL of the $500 can be put into a mutual fund, either index (PREIX) or large growth (TRBCX). Then after the EIRA has grown to a larger sum >$1,200, you can transfer the funds (without penalty) to Waterhouse (or another) where the commissions will then be 1% or less.

jbw

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