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I am considering opening a Roth IRA at a discount on-line brokerage and would appreciate any tips.

My main dilemma is this:

I already have a 401k with my employer where I am investing 7% of my salary. My employer matches 66% of the first 6%. I just got a raise that will give me an extra $250 a month (after tax) and would like to contribute most of this to retirement investment. My question is would I be better off contributing more to my 401k at a tax deffered status (the 401 will allow up to 16% of my salary) or putting the money into a Roth IRA. I know that I have until April 15 to make contributions for 1999 and believe I could squeeze the first thousand in by then and then contribute the $250 a month for the rest of the year for my y2k contribution. My 401k is currently invested in a Foolish index fund, but I would like to try the Foolish Four to get my feet wet in trading my own stocks and then later invest more aggressively. I am 24 years old so the implications of small differences in returns from 401k vs. Roth will greatly impact my bottom line @ retirement. So I see my options as this:

1. Max out my 401k contributions tax deferred, then when resources allow start a Roth.

2. Put $3000 in a Roth over the next year ($1000 of which would be 1999 contr.) and then increase my 401k by $100 per month in 2001.

I am leaning towards the Roth because it would allow greater flexibility in my investments (not sure if this would be foolish or Foolish!)

Any Foolish advice would be appreciated.
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Greetings, Matthewgoss, and welcome. You wrote:

<<I already have a 401k with my employer where I am investing 7% of my salary. My employer matches 66% of the first 6%. I just got a raise that will give me an extra $250 a month (after tax) and would like to contribute most of this to retirement investment. My question is would I be better off contributing more to my 401k at a tax deffered status (the 401 will allow up to 16% of my salary) or putting the money into a Roth IRA. I know that I have until April 15 to make contributions for 1999 and believe I could squeeze the first thousand in by then and then contribute the $250 a month for the rest of the year for my y2k contribution. My 401k is currently invested in a Foolish index fund, but I would like to try the Foolish Four to get my feet wet in trading my own stocks and then later invest more aggressively. I am 24 years old so the implications of small differences in returns from 401k vs. Roth will greatly impact my bottom line @ retirement. So I see my options as this:

1. Max out my 401k contributions tax deferred, then when resources allow start a Roth.

2. Put $3000 in a Roth over the next year ($1000 of which would be 1999 contr.) and then increase my 401k by $100 per month in 2001.

I am leaning towards the Roth because it would allow greater flexibility in my investments (not sure if this would be foolish or Foolish!)>>


After you have obtained the maximum possible match from your employer on anything you contribute to your 401k plan, it is often better to invest elsewhere to include using a fully taxable account. BUT -- That depends on the alternatives you are considering. Thus, you must evaluate your 401k options against your alternatives elsewhere on a tax-equivalent basis. Only you can run that analysis. For an idea on how to do so, see Step 4 of my 13 Steps to Foolish Retirement Planning at http://www.fool.com/Retirement/Retirement.htm.

Regards..Pixy
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