Comments on: A Down the Trenches Look at Traditional IRA vs 401k

By: vwilli

vwilli — Thu, 19 Aug 2010 02:17:47 +0000

I invest about 12 percent of my check in my 401k and about 3 percent in a Traditional IRA that give me 15 percent to save and the rest I live off on. Have about 13 years before I recah 59 1/2 years.

By: MoneyNing

MoneyNing — Tue, 11 May 2010 00:55:34 +0000

Investing is all about long term, but cash flow is all about immediate needs. You should only contribute to retirement accounts to a point that doesn’t affect your cash flow, as it’s the life blood of your investments.

By: cashmere

cashmere — Tue, 11 May 2010 00:47:01 +0000

I read your post on IRA’s I want to ask this with the current economy and the future projections with the baby boomers is it still wise to invest heavily in our market? I as a business owner prefer more control of my cash flow. Do your agree?

By: Jim Blankenship, CFP®, EA

Jim Blankenship, CFP®, EA — Fri, 15 May 2009 02:56:52 +0000

Two additional benefits to having a 401(k) plan:

1) Access to the account without penalty if you separate from service on or after age 55, due to §72(t)(2)(A)(v). This is only allowed in a CODA plan, not in an IRA.
2) A vehicle to receive a rollover of after-tax contributions and growth in an IRA that has both before- and after-tax contributions when attempting to make a tax-free conversion to a Roth IRA, consisting solely of after-tax contributions.

Granted, these two provisions alone would not be good reasons to contribute to a 401(k) over an IRA or Roth IRA – but rather simply good reasons to have an account in your name.

By: Don

Don — Fri, 27 Feb 2009 01:42:04 +0000

Help:
I started contributing to the Employee Savings Plan at Work in December, instead of waiting until January, and am facing an extra $1500 tax bill for 2008 as a result. I am looking for a way to reduce that extra tax.

I put $6000 into a 2008 IRA in April 2008, when I was a contract employee and not covered by a Employer’s Savings Plan or Retirement Plan. In late September I gained new employment and became eligible for my new Employer’s savings plan starting in December. So 3% was deducted pre-tax from my December paycheck only and my 2008 W-2 was marked indicating I was in a Savings Plan (401K).

Instead of being able to deduct the $6000 IRA, I am ineligible to claim it because our combined AGI exceeds $105,000 — (using the IRA Deduction Worksheet for line 32 of form 1040). We also started an IRA for my wife at the same time, and since she is not covered by a Savings Plan, we can claim her complete deduction. So I’m facing extra taxes due to contributing to a Savings Plan for only one month in 2008.

By: MoneyNing

MoneyNing — Wed, 25 Feb 2009 18:13:38 +0000

AKP: From what I can tell, what you contribute to your 401k is irrelevant for your IRA, which is only based on the salary limit. So yes, you can do both.

By: AKP

AKP — Wed, 25 Feb 2009 17:56:02 +0000

Hi,

I have a question related to 401k and traditonal IRA.

Can a person contribute the maximum limit (i.e., $4000 for year 2008 to traditional IRA) as well as deduct 401k (say $12000 for year 2008). One person told me that we can’t contribute in both of them for the same year if the salary is around 100K.

Thanks,
AKP

By: Sandy

Sandy — Tue, 27 Jan 2009 00:00:22 +0000

The minimum investment is one reason why I follow the advice here, as well as many others to investing in an index fund instead of those high fee mutual funds.

My investment is down right now but I’m sure it will come back. I just have faith.

By: Stock Investing Guru

Stock Investing Guru — Mon, 26 Jan 2009 23:09:54 +0000

I think employer match is awesome. Everyone please take advantage if your company does that. It’s FREE money to your retirement.

Also, I would suggest starting an IRA as a side retirement vehicle to your 401k if you are legally allowed to do so. I have not looked into it that much as I am an independent contractor, not employee. You will thank yourself later for creating a second retirement reserve.

By: Rick

Rick — Mon, 26 Jan 2009 22:39:08 +0000

I wouldn’t look at it as an either or solution, because the contribution limits on an IRA are pretty low. I’ve always maxed out a Roth IRA, then contribtued to the 401K to get full match. Finally I adjusted the amount over full match depending on curcumstances.

Fund fees suck but I suspect taxes are an even worse drag… Actually a very useful follow up article would be: At what % fees would it make sense to forgo tax sheltering of a 401K?

You would have to make some assumptions about future tax policies, allot for some lower returns of tax efficient funds and pick some investment lengths like 10,20, 30 years…

-Rick Francis