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Author: drcote24 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75642  
Subject: Roth IRA Vs. 401k Date: 3/3/2007 9:48 PM
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I'm looking for a little retirement investment advice.

Currently I'm putting retirement money into my 401k at work. I've put enough to get the maximum company match, and now I'm wondering what would be the best avenue in which to continue retirement investing:

1) Up my contributions to my 401k.

2) Contribute money to a Roth IRA until I max out the Roth IRA.

Any feed back is welcome, I bet this is more complex of a question than I'm making it out to be so any addition information that is necessary, I will try to do my best to provide.

Any explanation of the how's and why's would be welcome to, so that I can start to understand the in's and out's.

Thank you.
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Author: dougdoogle Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56113 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/3/2007 10:30 PM
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I'm looking for a little retirement investment advice.

Currently I'm putting retirement money into my 401k at work. I've put enough to get the maximum company match, and now I'm wondering what would be the best avenue in which to continue retirement investing:

1) Up my contributions to my 401k.

2) Contribute money to a Roth IRA until I max out the Roth IRA.


The kneejerk response is to suggest you fund your 401k high enough to get the match. Then fully fund your IRA. And then fund the rest of your 401k to the max. If you still have some change in your pocket, consider holding it a cash account and pay taxes on gains yearly. There's still tax benefits for dividends and long term capital gains.

Doug

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56115 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/4/2007 10:48 AM
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I'm looking for a little retirement investment advice.

Currently I'm putting retirement money into my 401k at work. I've put enough to get the maximum company match, and now I'm wondering what would be the best avenue in which to continue retirement investing:

1) Up my contributions to my 401k.

2) Contribute money to a Roth IRA until I max out the Roth IRA.

Any feed back is welcome, I bet this is more complex of a question than I'm making it out to be so any addition information that is necessary, I will try to do my best to provide.

Any explanation of the how's and why's would be welcome to, so that I can start to understand the in's and out's.

---------------

I'll make general comments/suggestions because I don't have information that is specific to your financial situation:

1) First, and of primary importance, Set your asset allocation (Stock Funds/Bond Funds/Cash) based on your age, risk tolerance, investment horizon, available funds, etc. Diversification/asset allocation is the only thing that investors have total control over and it is critical to your long-term success. Keep your plan as simple as possible.

2) Only have one portfolio in your Investment Plan which includes your 401k, IRAs, Taxable Accounts, etc. If you are married, it would also be advisable to consolidate your separate portfolios into just one. Having multiple portfolios is much harder to manage and usually ends up in a lot of overlap, excess funds, additional costs and an asset allocation plan that never gets fully executed.

3) Invest in the following order:
---- 401k up to the match to take advantage of the "Free" Money.
---- Roth IRA to take advantage of the Roths many advantages and to diversify amoung tax-deferred (401k), tax-advantaged (RIRA), and taxable accounts. This will help you stay within your asset allocation by making an abundance of funds available to you where your 401k may not.
---- Return to your 401k and max it out. That is if it has quality, low-cost funds that you need and you have the additional funds available for investing.
---- Taxable account. This type of account can be helpful also because your tax-deferred and Roth IRA accounts need to be utilized for tax inefficient investments like Bond Funds, REITS, Stock Trading Accounts and High Yield Bonds. The Large Cap Index Funds are very tax efficient and could be used in a taxable account. Also any tax-managed accounts would do well in this account.

Regards,
Bill





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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56120 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/4/2007 1:59 PM
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I completely agree with Bill.
However, whether you go back to your 401(k) for the remainder of your retirement investment should also depend on the expenses associated with the 401(k). Some of these carry high annual expenses and account fees. And I'm seeing more individuals going to taxable accounts instead, holding their tax efficient mid-cap and large cap growth allocations in ultra low cost ETFs. The advantage of this route is the low cost, more favorable tax treatement on future withdrawal and full flexibility. The drawback is that these taxable accounts are not protected from creditors as your retirment accounts are.

BruceM

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56126 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/4/2007 4:57 PM
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2) Only have one portfolio in your Investment Plan which includes your 401k, IRAs, Taxable Accounts, etc. If you are married, it would also be advisable to consolidate your separate portfolios into just one. Having multiple portfolios is much harder to manage and usually ends up in a lot of overlap, excess funds, additional costs and an asset allocation plan that never gets fully executed.


While the intent of consolidation makes sense, the legal hurdles prevent this from happening.
1. Remember, the 'I' in IRA refers to Individual, so a husband and wife couldn't consolidate their two IRA accounts.
2. The 401k can only be funded from your paycheck monies (though I understand some 401k plans will allow rollover IRAs/previous 401k plans monies).



Hohum

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56127 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/4/2007 5:12 PM
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While the intent of consolidation makes sense, the legal hurdles prevent this from happening.
1. Remember, the 'I' in IRA refers to Individual, so a husband and wife couldn't consolidate their two IRA accounts.

-----------------

You have to look at the consolidated portfolio of a couple from an asset allocation standpoint. Once you determine what your allocation is going to look like, you select the funds to fit that allocation and then decide which investment vehicles (401ks, IRAs, Taxable, etc.) should hold which funds. It does not mean that each vehicle should hold the exact same funds.

Regards,
Bill


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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56133 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/4/2007 10:42 PM
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While I agree that it's a good idea to diversify your retirement investments between Roths and 401ks, I wrote a post last year pointing out why Roths aren't always better than 401ks: http://boards.fool.com/Message.asp?mid=23643279

The bottom line is that if you are currently in a high marginal tax bracket (25%+) and you don't plan on having much income during retirement (pension, real estate, etc.), you could easily pay a higher tax rate on a Roth than a 401k.

OTOH, if you have a couple decades before retirement, the uncertainty of future tax rates make a Roth look more attractive.

-murray

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Author: gubydala One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56181 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/9/2007 1:27 PM
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MurrayS,

IIRC one thing you didn't consider in your post is this: What if you need a large lump sum for some purpose? If you take the money out of the 401k because that's all you have, you'll push yourself into a higher tax bracket. If on the other hand you keep the regular 401k withdrawals low and use the Roth for spikes like medical bills and so forth the calculations could work out very differently. Even just the comfort of knowing you won't throw yourself into a more complex tax scenario if you have a big expense could be worth something.

Or what if you're in a situation where you want to stay at the same company and work part-time? Maybe taking Roth money to pay off the house would make that possible. I don't think you can withdraw from a 401k until you leave the company.

If you're just looking at the 4% withdrawal then maybe the 401k wins. But life isn't always that simple and IMO it's good to have money in a lot of different pots.

Guby


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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56183 of 75642
Subject: Re: Roth IRA Vs. 401k Date: 3/9/2007 5:57 PM
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Guby-

Reread the first line of my post. I didn't say Roths were bad, I merely pointed out that a 401k has a good chance at beating a Roth tax wise. I think this is an important point because it's common for people to believe a Roth is much better because you pay NO taxes on earnings.

-murray

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