UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: 401k or Foolish 4? Date: 10/23/1997 10:50 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Greetings, Hank, and welcome to Fooldom.

<<My employer does not match my 401k contributions, so there's no free money to be passing up. The only advantage to maintaining a 401k then would seem to be for the immediate tax savings -- in addition to the potential that exits to borrow from this fund for a mortagage (is this type of borrowing also possible with a self-directed IRA?). >>

No, you may not borrow from an IRA. Effective in 1998, though, you may take up to $10K from an IRA to pay for first-time home purchase expenses. While you'll pay ordinary taxes on that sum, you will not be assessed any 10% excise tax for being younger than age 59 1½ If this is not the first purchase of a home, though, you can't use that option.

<<Is it advisable to abandon the 401k for a self directed IRA, where I could implement 2,2,3,4,5? If so, this raises other questions, like isn't there a rather low ceiling on annual contributions to an IRA, which would limit the growth I might expect from the Foolish 4?>>

Only you can answer that one based on your personal circumstances. I know that in the absence of an employer match, though, my first $2K would definitely go into a self-directed Roth IRA at a discounter. At $8 per trade such as that charged by Ameritrade, I could easily begin a Foolish Four portfolio that will pay off handsomely years later. Beyond that amount, I would weigh the advantages of 401k returns and current tax deferrals against taxable alternatives and favorable capital gains rates. I would probably use some combination there, but not necessarily. My bent is to use the taxable alternative given the better returns and capital gains treatment in that option.

<<If I should not abandon the 401k, and just accept the Vanguard Index growth of 10.5%, and whatever growth comes from the Crabbe Huson small cap fund, what advice would you have about starting a Foolish 4 portfolio? Inside an IRA? Not inside?>>

The nice thing about the 401k is it's automatic because of the payroll deduction. Although I might and probably would fare better in a taxable FF portfolio, if I fail to invest that money through a lack of discipline, then I would be better off in the 401k.

Regards……Pixy
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
2013 Feste Award Voting Begins!
Who will win the 2013 Feste Award? Vote now for the Fool that most exemplifies the Fool Community mission of Learning Together!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Tax Strategies

TMFPMarti-Feeling Good
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement