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YOU WROTE:

Option 1) I can roll it into a new 401(k) with my new employer. They offer a 50% match up to 6% of my income. In a given year, I could contribute $3900 and my company (bless their little hearts) would contribute $1950. However, my company's 401(k) does not contain an index fund. So I'd probably be choosing among the actively managed Kemper funds that are in the program.

Option 2) I can roll that money into an IRA...probably Roth. I am 26 and expect this money to sit for 25-30 years. My IRA would likely be a Foolish Four portfolio, so I'd only have to make modifications every year and a half.

Here's what I want to know:
1) Which option would you choose with your retirement money at my age?
2) Really important: Why?
3) What kind of return should I expect from these two options: I was theorizing 10% and 17%, respectively.

MY ANSWER:

1. ROLL THE MONEY INTO AN IRA, THEN CONVERT TO ROTH AND PAY THE TAX. WHY? ALL FUTURE GAINS ARE TAX FREE IN THE ROTH.

2. MAXIMIZE ON THE 401(K) TO GET ALL THE FREE MONEY FROM YOUR EMPLOYER. REVIEW THE KEMPER FUNDS HISTORY FOR BEST RETURNS, LOWEST COSTS. REMEMBER THAT THEY WOULD HAVE TO DO PRETTY AWFUL TO CHEW THROUGH THE 50% EMPLOYER FREE MONEY. EVEN IF THEY UNDERPERFORM THE MARKET THE FREE MONEY WILL MORE THAN MAKE UP FOR IT.

3. WHAT KIND OF RETURN CAN YOU EXPECT? HOW GOOD IS YOUR OR KEMPER'S CRYSTAL BALL? THIS GOES BACK TO ANSWER 1. DO YOU HAVE STOCK PICKING SKILLS? IF NOT THEN TAKE ADVANTAGE OF THE THING YOU HAVE THE MOST OF...TIME. I WOULD TAKE THE ROTH MONEY AND EITHER PUT SOME IN A VANGUARD INDEX (CHEAPEST IN ADMINISTRATION COSTS) AND SOME IN A TECHNOLOGY INDEX FUND. THE OTHER ALTERNATIVE IS TO SET UP THE ROTH WITH A DISCOUNT BROKER AND BUY SPIDERS (SPY), THE EQUIVALENT OF AN S&P INDEX AND (QQQ) (THE NASDAQ TOP 100). FINALLY KEEP MAKING CONTRIBUTIONS ANNUALLY TO THE ROTH IF YOU QUALIFY. AT YOUR AGE, WITHOUT TOO MUCH RISK, YOU WILL HAVE A FABULOUS PORTFOLIO AT 55 IF ALL YOU DO IS MATCH THE MARKET.

BTW, I THOUGHT ALL THE REPLIES WERE GOOD ADVICE.

HAVE FUN!

BILL
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