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>> Complete fool here new to the ways of the IRS. >>

If your were a fool you wouldn't be here. Since you ae you are a Fool, not a fool. (g)

>>Can someone transfer out of their 401k with a
company (say they quit) to an IRA set up at a discount brokerage ? Is this done without penalty ? >>

Absolutely. When your former plan is ready to make your distribution they will provide you with a form on whcih you elect how to take your distribution. You will want to elect a "direct rollover". It will firther ask you where the receptacle account for the direct rollover is. You will indicate that it is your IRA account. They will then send it there automatically. Obviously for this to work you have to have already set up the IRA. This is a completely tax-free transfer.

>>As I understand it an IRA has a $2000 limit for the amount you can discount from your yearly income, as opposed to a 401k which is upto 15% of your income .... is there another simple mechanism outside of a corporation which allows for a better tax shelter...>>

It depends on your situation. If you are working for someone else then hopefully they will have a 401(k) that you can participate in. If you are self employed there are a variety of plans that will allow you to make tax-deducitble contributions, including SEPS, SIMPLEs, Keough's (profit sharing, money purchase and defined benefit). Which plan makes sense for you will depend on your particular circumstances.

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