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.

jb

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.

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

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

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.

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

I don’t put in $5,000 lump sum, but I will put in large chunks. A couple of reasons…

1) Most funds require a minimum investment, most are $1,000 and some even $4,000+.
2) When I do purchase a fund (or stock), there is a trading fee. I know there are free brokerage firms, but I chose a brokerage that allows me flexibility of choosing a wide variety of funds. So with that in mind, I make larger purchases to absorb the fees.
3) I make more money in my high interest savings account than the money market fund my broker uses.

Along your same lines, I do budget a certain amount to retirement, I just don’t find it necessary to do it in pieces during the year.

Stupidly Yours,

Matt

It works out for me because I keep investing and after a while, I have lots accumulated which makes me happy

After we max out both my wife’s and my rIRA (currently $5,000), we only contribute enough to our 401k to get the full employer match. No reason to throw away free money.

While I’m no investor ‘guru’ I pride myself in at least beating the market. Even though I do my research in choosing the best funds the 401k allows, my returns have always been better in both our rIRA’s.