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Subject:  Re: 401K vs Roth vs Taxable investment Date:  4/20/2010  6:34 PM
Author:  warrl Number:  66973 of 96307

I spoke with a financial advisior a few days back. I'm currently maximizing my 401K and Roth. I was somewhat surprised that she recommended I consider reducing the 401K and starting a taxable [account]. Her logic was that capital gain taxes may ...

Let me fix that for you. Her logic was that she doesn't get commissions on money going in to your 401k, but she does get a commission on whatever she can convince you to buy in a taxable account - opened up with her, of course. The more she can convince you to put into that taxable account, the larger her commission will be. Did she by chance suggest moving your Roth IRA account to her institution?

There is a good chance that ptheland is correct about your advisor's motives. However that doesn't necessarily make the advice bad.

Some 401K plans have high fees and poor investment options. If that's what you have on offer, what probably makes the most sense is to put exactly enough into the plan to get the maximum match your employer offers - and no more. (You almost certainly want to put that much into the 401K, no matter how bad the plan is. Whether you want to put more than that in... variable.)

Also, if you are a long-term investor - the sort that your 401K administrator wants you to be - you may find that it's better to invest OUTSIDE the plan, paying standard income tax rates on the amount of earnings you put into a taxable account and then long-term-cap-gains rates on profitable sales, than INSIDE the plan and then pay standard income tax rates on all withdrawals. The goal is not to pay the least tax; the goal is to have the highest level of sustainable after-tax withdrawals in retirement.

(In my 401K I have a number of machinations to keep my trading under their threshold where they start imposing restrictions and penalties. I stay under their radar even though I am a short-term trader.)
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