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Greetings, Retirebyage40, and welcome.

<<I am a new Fool. I like what I see in the Foolish four and other investment strategies which beat the market. Here is the problem: Two thirds of my invested money is in my company's before tax 401K plan in which we can choose from several mutual funds including, amazingly enough, a S&P500 index fund. Now being a new Fool, I would like to be able to do better than the market average! Can some of my money in the 401K be shifted into my IRA? If not should I borrow from the 401K and invest that money in a Foolish way? >>

In general, while you're working for the company that sponsors the 401k plan you cannot transfer those monies to an IRA. Depending on the plan and the employer, sometimes you can transfer the employer's matching contribution (but none of your personal contributions) provided the money has been in the 401k for at least two years. You'll have to check with your employer to see if that option is available.

I'll leave the decision as to whether you should borrow from your 401k and invest the proceeds up to you. Just keep in mind that if you follow that route, then the money must be repaid with interest within five years. It will be repaid in after-tax dollars (i.e., you'll get no deduction from your gross income for the repayment). The interest is paid to your account in after-tax dollars as well, but it will be taxed again some years later when you withdraw it from that account. That's the best illustration of double taxation going today. If you leave your job while the loan is outstanding, it must be repaid in full immediately. Fail to do so, and the outstanding balance and interest due will be considered a distribution to you at that time. It will be taxed and, if you're under age 59 1/2, penalized an additional 10 percent for an early withdrawal.

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