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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75859  
Subject: Re: ISO] advice w/ large end-of-year 401K invest Date: 12/7/2004 3:02 PM
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I believe that this concern is not a problem for 401K's...

You are correct--there are no tax implications in a 401K for 'buying a dividend'. I hold an S&P500 mutual fund in my 401K and it NEVER distributes dividends--I assume they reinvest them, therefore the NAV does not decrease as a result of dividends.

BUT if I am putting in a large chunk of money (>$3K, see below for reason) into my 401K plan in December is there anything I should be aware of taxwise or investment wise?

Some folks are more comfortable 'dripping' larger amounts in over time. IOW, you could mark the Dec. contributions to a money market account, and use 1/12 of the $3200 each month to 'drip' into equity funds. Others might suggest doing the same over a 6 month period. By doing this you would be using a form of dollar-cost averaging, which offers less risk (i.e. what if the market goes down 20% during the first half of Jan?), but conversely, you might gain less reward (i.e. what if the market goes up 20% in the first half of Jan?)

When I have been faced with this decision I chose to invest it all in December. It is really up to you to determine what you are comfortable with.

Instead of modifying the amount of tax withheld from my check to catch up in the last month of the year....I increased dramatically the amount of money I was putting into my 401K in the month of December ($1600 will go into 401K plan on Dec 15th and 30th). This will lower my taxable earnings and leave me square with the IRS. Instead of giving them more tax dollars why not give myself more retirement

Good thinking! Great move!

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