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Author: lckrypel Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Alternatives to a 401K Date: 5/29/1998 6:58 PM
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I have recently changed jobs and my new employer has a 403B plan where I can contribute after-tax dollars that are matched by dollars that earn tax-free interest. What can I do to replace the 401K plan that I had at my old job? I already fund my IRA but I want to contribute the maximum amount possible ($10,000 this year) and have the money grow tax-free. Do I have any alternatives?
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3526 of 75340
Subject: Re: Alternatives to a 401K Date: 5/29/1998 8:10 PM
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Greetings, Ickrypel, and welcome.

<<I have recently changed jobs and my new employer has a 403B plan where I can contribute after-tax dollars that are matched by dollars that earn tax-free interest. What can I do to replace the 401K plan that I had at my old job? I already fund my IRA but I want to contribute the maximum amount possible ($10,000 this year) and have the money grow tax-free. Do I have any alternatives?>>

Sorry, but I don't understand the question. The 403b and the 401k are substantially similar plans. Read this link to see the differences:

http://www.fool.com/Retirement/RetirementPlanPrimer.htm

The way I see it, you've simply gone from a 401k to a 403b. As far as the old 401k goes, you can transfer that to an IRA or leave it where it is to continue the tax deferral.

If you will be clearer in your question, perhaps we can be of more assistance to you.

Regards....Pixy

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Author: lckrypel Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3539 of 75340
Subject: Re: Alternatives to a 401K Date: 6/1/1998 6:40 PM
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Sorry for the confusion.

I used to contribute $10,000 (15%) of my gross to a 401K plan. This reduced my tax liability while the contributions grew taxfree until withdrawal. My employer also contributed $4,000 (up to 4% of my gross until I hit the $10,000 limit).

Now I can contribute 6% of my aftertax earnings and my employer makes a contribution of up to 4% of my gross. Since this is aftertax it does not reduce my tax liability.

So, in comparison, if I contribute $10,000 to the 401K plan I save $2,800 in taxes (assuming the 28% tax bracket) but in the 403B plan I end up paying taxes on the $10,000 because the contribution to my 403B does not reduce my gross income.



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Author: TchrP Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3541 of 75340
Subject: Re: Alternatives to a 401K Date: 6/1/1998 8:37 PM
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It is legal to make 403(b) contributions by salary reduction, if your employer wants to allow it.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3545 of 75340
Subject: Re: Alternatives to a 401K Date: 6/2/1998 8:21 AM
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Lckrypel,

<<I used to contribute $10,000 (15%) of my gross to a 401K plan. This reduced my tax liability while the contributions grew taxfree until withdrawal. My employer also contributed $4,000 (up to 4% of my gross until I hit the $10,000 limit).

Now I can contribute 6% of my aftertax earnings and my employer makes a contribution of up to 4% of my gross. Since this is aftertax it does not reduce my tax liability.

So, in comparison, if I contribute $10,000 to the 401K plan I save $2,800 in taxes (assuming the 28% tax bracket) but in the 403B plan I end up paying taxes on the $10,000 because the contribution to my 403B does not reduce my gross income.>>

Comes the dawn. Your plan obviously does NOT include an option for salary deferral. How utterly antiquated and passe of your employer. Are you sure you really want to be employed at a place so out of touch with modernity? <g>

This being the case, you won't be able to do much. You can urge your employer to adopt a salary deferral provision within the 403b. If your AGI is low enough ($50K for joint filers and $$30K for single), you can use a deductible traditional IRA. Otherwise, you're stuck with regular taxable investments or a nondeductible IRA. As to the latter, the Roth will be the best for the ultimate tax free withdrawals.

Regards….Pixy


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