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Author: ProudToBeAFool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: How About This??? Date: 2/11/1998 1:42 PM
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I am now 27 years old with a wife of 30 and a baby of just under 9mos. My employer offers only Fidelity mutual funds for our 401k. They match the first 5% of my "input" 75 cents to the Dollar and as it stands right now I put in the maximum 15% allowable. This is allocated 100% to the Fidelity Growth Company Stock Fund.

My question is this... With the Roth IRA's now available, should I cut my 401k contributions to 5%, put as much as possible into a self-directed Roth and, if anything is left over, put the rest back into the 401k?

All comments welcome... Thanks Fools!
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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: 1734 of 75339
Subject: Re: How About This??? Date: 2/11/1998 4:42 PM
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Greetings, ProudToBeAFool, and welcome.

<<I am now 27 years old with a wife of 30 and a baby of just under 9mos. My employer offers only Fidelity mutual funds for our 401k. They match the first 5% of my "input" 75 cents to the Dollar and as it stands right now I put in the maximum 15% allowable. This is allocated 100% to the Fidelity Growth Company Stock Fund.

My question is this... With the Roth IRA's now available, should I cut my 401k contributions to 5%, put as much as possible into a self-directed Roth and, if anything is left over, put the rest back into the 401k?>>

Possibly. Definitely go with the 401k up to the maximum match. Beyond that, you need to make a comparison of returns as well as the effect of losing the tax deduction on the Roth contributions. If your returns in the 401k and the Roth are exactly the same, the tax-equivalent contribution to the Roth will be a wash. If you can get a better return in the Roth, it will win hands down. If you elect to go with the Roth, when it's fully funded, extra money should probably go back into the 401k. The only time it wouldn't is if a taxable alternative gives you a better result than you can get with the tax deferral.

Regards…..Pixy


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Author: rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1739 of 75339
Subject: Re: How About This??? Date: 2/11/1998 11:29 PM
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<<With the Roth IRA's now available, should I cut my 401k contributions to
5%, put as much as possible into a self-directed Roth and, if anything is left over, put the rest back
into the 401k?>>

Yes. Go after the company match (take all the free money you can get!), then go after the tax-free growth in the Roth, then capture the balance of the tax-deferred savings.

You might want to change things around to go with an index fund in the 401k, and go for higher growth individual stocks (Keystone, Formula90, UV4, etc.) outside of the 401k.

Regards,
Ray

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