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Subject:  ESOP and 401(k) Date:  1/16/2000  5:03 AM
Author:  madmarv Number:  25167 of 128039

My employer's ESOP is distributing shares equal to ~20% of my AGI. They also want us to have some flexibility
in our retirement planning so they are allowing us to contribute up to 4% to our 401(k) (w/ no matching
contribution from my employer).  I was wondering if contributing anything to the 401(k) is wise or Foolish. 

My initial reaction was to max out my 401(k), but after thinking it over, it's a close call and I think
I may be missing something.  

After crunching some hypothetical numbers once I came up with this:
Base pay           25,000
Less 4% to 401(k)   1,000
AGI                24,000

ESOP distribution   4,800

Total = 24,000 taxable + 5,800 tax deferred.

Running it again w/ no 401(k) contribution:
Base pay           25,000
ESOP distribution   5,000

Total = 25,000 taxable + 5,000 tax deferred.

Only a difference of $200 but looking at it from a tax point of view it is more like a $1000 difference.
Using the same percentage that my employer uses for my witholdings, the after tax portion will come out to
about $730 which will go into my Roth.  I am leaning towards the latter option but I keep hearing this
warning bell in the back of my head.  My reasoning for going the latter route is that I can direct my Roth but 
I won't have any control over the 401(k).

Does this seem Foolish?

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