IRA, 401K, ect.

[JollyGG]

My husband just started a new job. He found out yesterday that he is not eligable to contribute to his new companies 401K until July 2008. At his old job he contributed 3% with an employer match of 3%. He can roll his old 401k into a new one at his new job, he just can't contribute yet. Once he can contribute they offer a match up to 4%.
We don't want to take a year off of retirement investing so were wondering what some of the more investment savy out there suggested.

[FilingOnMyOwn]

Goto www.Zecco.com and open a commission free IRA account.

[SinkingFast]

If you have a fair amount of money in the acct, I'd check out Fidelity and see what they have to offer for a rollover Retirement IRA.

We made the absolute most money in any plan we've ever had with Fidelity. They had much more profitable accts than anyone we were with before or since.

[CATCHMEIFYOUCAN]

Up Since January 2007 !

Fidelity is Great and it all depends on your company and what funds they offer from Fidelity .. I can't explain what I did, but I think I'm doing well ! Maybe a more experienced investor will chime in here, I have them take out 6% of my salary. Sometimes 7-8% throughout the year.

Personal Rate of Return from 01/01/2007 to 04/17/2007 is 4.9%

Investments by Asset Class
Balance Shares
or Units NAV Change Per

Share or Unit ($)

Stock Investments

DAVIS NY VENTURE Y $1,152.82 28.297 $40.74 +$0.01
FID DIVERSIFIED INTL $2,706.51 68.037 $39.78 -$0.03
FID GROWTH COMPANY $3,694.11 50.827 $72.68 -$0.10
GS CORE US EQUITY $1,555.88 98.849 $15.74 +$0.02
VANGUARD INST INDEX $2,170.32 16.129 $134.56 +$0.28

Blended Fund Investments*
FID FREEDOM 2040 $2,618.01 261.278 $10.02 $0.00
FID FREEDOM INCOME $1,076.65 91.708 $11.74 +$0.01

Beginning Balance as of 01/01/2007 $13,336.63
Your Contributions $625.36
Employer Contributions $152.94
Loan Repayments $190.32
Loan and Withdrawal Fees -$15.00
Change In Market Value $684.05
Current Balance as of 04/17/2007 $14,974.30

Personal Rate of Return from 01/01/2007 to 04/17/2007 is 4.9%

[JollyGG]

We were thinking about rolling his old 401k into an IRA and contributing 6%. Then once he can contribute to the new companies 401k he will contribute the 4% they match and contribute 3% to the IRA (assuming he gets a raise between now and then). Does that sound like a smart plan?
Should it be a Roth IRA or a traditional IRA?

We've spent so many years trying to pay of the credit card debt that we have never really educated ourselves on investing.

Oh yea. If it makes a difference in how we should invest we are both in our 30s.

[CATCHMEIFYOUCAN]

Honestly I don't understand anything about investing, ROTH IRA / Traditional IRA is like a "savings account," to me with growing interest, whereas spreading my monies into diff accts through 401k plan (investing), overtime goes up and down HOPEFULLY UP, sometimes down. I see my monies growing more with that type of investment. When I quit my other job, I had the option of a full withdrawal or a rollover. With a full withdrawal I would have only gotten back $2000, with the rollover $13,000. SHREWWW, I'm glad they explained that to me!

Best of Luck CMIYC

[CATCHMEIFYOUCAN]

Roth IRAs vs. 401(k)s

Found this on CNNMoney.com ! ! !

Roth IRAs vs. 401(k)s
Our expert offers guidance to one young saver on what to consider when picking his retirement mix.
By Walter Updegrave, Money Magazine senior editor
April 18 2007: 4:08 PM EDT
Sign up for the Ask the Expert e-mail newsletter


NEW YORK (Money) -- Question: I'm 25 and recently switched employers. Although my new company provides a lucrative profit-sharing plan that everyone is automatically enrolled in after one year of work, my new employer does not offer a match in the 401(k). I can budget approximately 20 percent of my income for retirement savings, but I'm confused about how to allocate those savings.

Should I max out my Roth IRA and then put what's left in the 401(k)? Should I put 10 percent of income in each? Or is there something else I should be thinking about? - Scott H., Denver, Colo.

Answer: First, let me say that in the grand scheme of things, the most important decision for a person in your position isn't how you divvy up your savings between your 401(k), Roth IRA and any other options. It's that you start saving and investing on a regular basis. The fact that you've decided at the tender age of 25 to sock away 20 percent of your income shows that you've aced this first test.

No matter how you allocate your savings, you're going to do just fine as long as you keep socking away a good portion of your paycheck.

That's not to say that the issue of where to put your savings isn't important. It is. But unless you have a crystal ball that tells you what tax rate you'll face in the future, there's no way to know for sure in advance what the optimum mix is anyway.

That said, however, given what you've told me and assuming that you're a 25-year-old with good career prospects ahead of you, I'd say you should probably first make sure you max out the Roth - which means investing up to $4,000 in 2007 and $5,000 next year, after which the maximum increases in $500 increments depending on inflation - and then stick whatever else you can into your 401(k).

If you hit the limit on your 401(k) and still haven't put away 20 percent of your income at this point - or if you can afford to set aside more - you can move on to tax-efficient investments like index funds and tax-managed funds. (For more on those options, click here.)

So how do I arrive at the suggestion that you do the Roth first and then the 401(k)? Well, to understand why, you need to know a bit about the differences between the way a 401(k) and Roth IRA work, and the implications of those differences.

Taxes: Pay today or pay tomorrow
With a 401(k), you invest pre-tax dollars and pay tax on your contribution and all earnings when you withdraw the money from your account, preferably in retirement. That means you escape taxes today, but pay them tomorrow.

When you do a Roth IRA, by contrast, you're investing after-tax dollars today and paying no tax on the withdrawals (assuming you meet the various requirements for tax-free withdrawals, which you can check out by clicking here). So with a Roth, you're paying taxes today and escaping them tomorrow.

This means that, generally, a 401(k) is a better deal than the Roth IRA if you think you'll face a lower tax rate in retirement than the rate you face during your career. The opposite is true for the Roth.

Note that I said "generally." For one thing, if you're willing to contribute the max, the Roth effectively allows you to shelter more money from taxes than the same sum invested in a tax-deferred account, which gives it a bit of an advantage all other things being equal. (The explanation for this advantage is too long and boring to go into right now, but if you want more details about it, click here.)

Special Report: Retire Young
The availability of employer matching funds can make a 401(k) the better deal, even if you expect to be in a higher tax bracket in the future. Your 401(k) doesn't have a match, but most do, which is why I typically tell people to first contribute enough to their 401(k) plan to get the maximum match and then consider a Roth.

Another complication is that it can be difficult, if not impossible, to tell whether you'll be in a higher or lower tax bracket in retirement. I would expect that a 25-year-old like yourself just embarking on his career would start out in a relatively low tax bracket and move up to higher tax brackets later on, perhaps even ending up in a higher tax bracket in retirement than the one you're in today.

And, indeed, I think young people whose incomes are likely to rise and push them into higher tax brackets are generally better candidates for a Roth than middle-aged or older people who are in or near their peak earning years and who may later slide into a lower tax bracket.

A strategy to consider
Given all the uncertainty, I recommend that people of virtually all ages adopt a strategy that I call "tax diversification."

As a practical matter, that means saving for retirement in a way that gives you several pots of money that receive different tax treatment. So, for example, the money you contribute to your 401(k) will eventually be taxed at ordinary income rates in the future. The money you put into a Roth won't be taxed at all.

To the extent you have money left over after maxing out 401(k)s and Roths, I think it's also a good idea to invest in vehicles (such as index funds and tax-managed funds mentioned above) that generate long-term capital gains that are taxed at long-term capital gains rates, which currently max out at 15 percent versus 35 percent for ordinary income rates.

By following this strategy, you'll hedge your tax exposure in retirement.

Money 70: The best mutual funds you can buy
You won't avoid taxes altogether. Even your Roth money has already been taxed. But by arranging things in advance so that all your retirement money isn't taxed the same way, you'll have given yourself some flexibility and maneuvering room for managing your tax bill in retirement. (For more on how this strategy works and how to adopt it, click here.)

If you think this strategy makes sense - as I do - then it's just a matter of how to carry it out. If you've got a 401(k) that offers a match, then the first thing you want to do is contribute enough to get the full match. After all, why give up free money?

Once you've done that, you can move on to a Roth. If you still have money left, then continue to contribute to the 401(k) until you max out that account. After all, why give up the tax break?

And if you've still got money to save, move on to index funds and tax-managed funds.

The only thing I'm suggesting that you do differently is that you begin with the Roth since you're not getting a match in the 401(k). Assuming you're willing to save 20 percent of your income and that you're making more than $20,000, you'll still money left over after contributing $4,000 to a Roth IRA this year that you can plow into your 401(k) and take advantage of the upfront tax break there.

So go ahead and fund that Roth and then move on the 401(k) and, if possible, index funds and tax-managed accounts. But, remember, the ultimate success of your retirement plan hinges not on finding the optimal mix of different types of accounts, but in remaining diligent in your resolve to save a nice hefty chunk of your income year after year after year.

Starting early for early retirement

When 401(k)s and IRAs are not enough

http://money.cnn.com/2007/04/18/pf/expert/expert.moneymag/index.htm

[JollyGG]

Catchme,

Thanks for the info. I feel like I am on the right track now.

However I am still confused about one thing and I hope some of the members with more understanding of this sort of thing can help me.

Can we rollover our 401k into a Roth IRA? I thought we could, but I am confused as to how that would work since the 401k and the Roth IRA have different tax structures. Would the 401k have to be taxed and then go into the Roth? Would we need to roll it into a traditional IRA wich has a similar tax structure?

I'm just confused. This will be the first 401k either my husband or I have had to deal with rolling over. I'm still with the same company I've been with since graduation from college (different possitions, same company). My husband just left his first real company since college. I mean we both have had jobs since we were teenagers but these are the first jobs with benifits, 401k, ect., ect.

[Frank]

An IRA is not a savings account. It's a retirement account. You put money in pre-tax and do not pay taxes on income you put in. That's not at all like a savings account where you pay taxes on the income used to fund the account and the interest earned on the account.

You want to roll over the 401k to a standard IRA. A Roth IRA allows you to take the money out tax-free when you retire. If you roll over a 401k into this, you'll have to pay taxes on the whole amount. Not usually worth it.