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After reading some of the recent posts here, it's occured to me that I have a potential quandry.

I've been contributing to my employer's 401(k) plan. However, they do no match. The company is small and the plan is one of the dreaded plans from ING (formerly Aetna Financial). The choices are limited and the expense ratios are high. Also, there's an associated annuity -- which I will likely never use -- but thankfully my employer is picking up the cost of that rather than pass it on to the employees.

In short, I think The Plan stinks. It could be worse; but I could do much better outside The Plan. And that's where my quandry lies.

I make too much money to contribute to both the 401(k) and a conventional IRA and still be able to deduct the IRA contribution. But as I understand it, I'm not considered to be eligible to participate in a voluntary deferred compensation retirement plan, unless I actually opt to make a contribution sometime during the tax year. My spouse only makes involutary contributes to the state's TRS plan, which is done in leu of FICA, so I believe that if I stop my 401(k) contributions, I would be able to deduct my IRA contributions.

That's where my dilima lies. If I act tomorrow, I can probably stop my first 401(k) contribution for the year. If I do this, I should still be able to contribute $3,000 to a conventional IRA and $3,000 to a Roth IRA, yes? Last year I only contributed about $5,500 to my 401(k), so these limits shouldn't be a problem.

Why did I contribute so little if I make so much? Well, I was contributing a lot more; but after 9/11, my employer decided to cut everyone's pay. Mine was cut about 17%. I cut back a little on spending; but mostly I cut back on my savings. I no longer contribute to any post-tax accounts and my efund has actually fallen about $1,000 since the pay cut back in November 2001.

Some time this year I can hope salaries will finally be restored; but nothing is certain. If payroll is restored, the IRA contribution limits will be a thorn; but if I decide to make this switch, I have to stick with it for the entire year.

So, does anyone want to share their opinions?

BTW: Yes, I understand I could contribute to spousal IRAs in order to effectively double the contribution limits; but bear in mind that my spouse and I are separated. Of course, it will all be divided as community properly in any future divorce, so I suppose I could still consider it even so.

- Joel
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