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Subject:  Re: Poll: Did your 401k recover from the 2008 de Date:  12/27/2010  7:25 PM
Author:  madbrain Number:  67971 of 98508


Re: post 67965

My paychecks are every 2 weeks, both with previous employer and current one. And the match is paid on each paycheck. With both employers there was a true-up match due the next year if the match was not maximized, ie. by maxing out the contributions before the last pay period over the year.

The balance would most likely be less than $216,796.70 today if I had not added any new money in 2008, 2009 or 2010. There are multiple ways of accounting for the new money being added - either assuming zero new contributions in those years, or assuming that the new money would have been sitting in a money market and earning the prevailing rate of return for those years. Since I'm 34 and not retired, I think the later method makes a little more sense for me than assuming zero new money. Also, a lot of money would have been taxed upfront if I didn't contribute since I'm ineligible for deductible IRA contributions, and the earnings on the money market interest would also have been taxable.

Re: post 67968,

The reasons for me not investing all of the additional money in aggressive stocks immediately are not just taxes - my asset allocation was skewed nearly 100% equities already which really killed me in 2008, and the market had gone up quite a bit in 2009 and 2010. At some point there will be another market decline. Having a little cash sitting on the side isn't a bad thing, at least for now. I might use some of the cash to invest additional money on the way down, or in bonds after rates go back up a little. This my way of limiting risk a little, and my way of timing the market.

As for why not to invest all the money aggressively in stocks immediately, it comes down to timing of the taxes :

1) if the value declined significantly before the rollover to Roth, I might have a large capital loss. Possibly larger than the $3000 that I can deduct annually. I have zero capital gains to offset since all my investments are in retirement accounts, so having capital losses doesn't do me much good and might spill over to another year. Maybe to a tax year during which my income and tax bracket would be lower and the capital loss wouldn't be worth as much.

2) if the value increased significantly before the rollover to Roth, I might have a paper gain, and I would have to pay the taxes on that gain at a high rate of 38% combined federal/state immediately at rollover time. This would be a short-term gain (less than 1 year) since I plan to do a rollover to Roth of my after-tax contributions every year.
Then the money would go to Roth in similar investments (aggressive stocks). If the value then declines afterwards, there is no possibility of ever taking a loss on those. Or is there ? I can't imagine the government letting you have it both ways, not ever taxing you on any Roth gain, but letting you take a capital loss if there is one. Am I wrong ? I plan to only withdraw the money at retirement time anyway, during which I presumably will be in a lower tax bracket so the capital loss by then wouldn't be worth as much as the taxes that were paid upfront. However in the long run, hopefully there wouldn't be any loss at all.

I haven't done all the math and feel free to poke at my arguments, I enjoy your comments. Basically I'm willing to forego the earnings for one year of after-tax contributions to have the benefit of never paying any taxes on them at all and not having any short-term downside risk. I might change my mind once my overall asset allocation changes.
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