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Old 01-04-2007, 11:10 AM   #1  
Che Guevara
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Default Roth IRA vs. 401k

I'd like to know what the difference is between IRAs and a 401k. With the traditional IRA and 401k you pay proior to putting money in correct? However a 401k allows an employer to match funds?

So a Roth IRA allows you to pay tax on the money going in but not on the money coming out while a 401k doesn't correct?

Also lets say you do regular IRA vs Roth IRA. Can anyone tell me the percentage you'd have to make going in that would offset the interest you'd pay at the end? I was reading where if you put in 2% of a check and made a high percentage and took someone else who put in 5% making medium percentage. THe person who put in 5% would come out way ahead. So could doing a regular IRA be better since you can put more in. By putting more in I'm stating you have $3k total to put in and have to pick one. The regular IRA would allow you to put in $3k while you'd be taxed on the $3k in the Roth. Would the additional money put in the regular be worth more than the taxes paid at the end?
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Old 01-04-2007, 02:57 PM   #2  
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Duck, my darling, you have the most esoteric questions on these forums!

This is not a case of a rose is a rose is a rose. A Roth IRA is very different from a Traditional IRA, and both IRAs are different from a 401(k) plan. It's like a duck is not a goose or something.

A 401(k) is generally an investment vehicle that a company makes available to its employees. [For employees in universities or research facilities, the plan is called the 403(b), based on the particular IRS code section]. In a 401(k), the employee contributes a percentage of his income, and the company may or may not match those contributions. The money is invested in a variety of places of the employee's choosing. For example, many plans work with the big players like Fidelity or Vanguard so that employees can invest in the funds managed by those firms. The company HR types will let you know the maximum amount you can withhold. This money is intended for your retirement although many people "loan" themselves their own future. If and when you separate from the company, the portion of your own contributions are yours to keep. The company's portion is also yours depending on vesting rules. You do not have to keep the 401(k) with the company when you leave. The smart advice is to transfer the whole thing into another account.

The Traditional IRA (not the Irish Republican Army, hee hee) is a personal retirement savings plan whose tax advantage comes in the front end as opposed to the back end for the Roth. Depending on your income, Traditional IRA contributions (up to a maximum set by the IRS) are tax deductible in the year in which the contributions are made. Any withdrawals (termed "distributions") later on will be taxed at your tax rate then, which hopefully is lower than during the years of your highest earning power.

The Roth IRA is a slightly different twist in that contributions (again up to maximums set by the IRS nazis) are not immediately deductible, but contributions are not taxed either.

I am not sure I understand your last fact pattern. Most people (and particularly poor CFIs and regional FOs) do not have much money to invest in anything, let alone invest in both Traditional and Roth. If you have that much, can I ask you for a loan? hee hee. The general rule is that the more money you put away, regardless of Traditional or Roth, the better off you will be come retirement.
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Old 01-04-2007, 03:23 PM   #3  
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lol I don't have enough for both and yes my questions are in part esoteric because I knew you'd be hopping by.

However a 401k can be invested in on your own if you're not in a company. But then it's the same as a regular IRA except it has a max of $15k vs the lesser.

So if you don't work for a company that offers a 401k what is the diff between the 401k and the IRA besides the cap? Both tax the same correct?
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Old 01-04-2007, 03:42 PM   #4  
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Default investing...

http://www.consumeraffairs.com/news0.../roth_ira.html


There are a lot of different schools of thought out there...Do lots or reading and ask lots of questions...

What I do and what works for me: I max out my Roth with one payment on 10 January every year. Since I'm in the military I get no 401K w/ match. I have a TSP (www.tsp.gov) - I have it set up to invest 10% of my paycheck per month into a target retirement fund (present allocation is 90% stocks and 10% bonds - in 2040 the allocation will be 60% stocks and 40% bonds. Once I leave the military I can roll-over my TSP into a 401K with my civilian company)...I also put $$$ into vanguard S&P index fund.

Your mantra should be to ' invest, invest, and invest again for retirement'

Start early and keep investing...



I put money into my Roth in January so it can build interest for me longer. I could break up the payments to get the full match over the course of the year. However, I plan it out so I have the money waiting / ready in December to invest in January.

Financial planning takes practice, self-discipline, and most of all self-awareness. Don't get your ego tied into wealth or the investment game. Have a plan - written down on where you are now and where you want to go with retirement. If you don't are you really planning / investing for retirement or are you along for the ride...Ever notice how some people say they are taking their dog for a walk but if you look closely the dog is actually taking them? Investing is the same way...Except this dog will take you to the poor house at the wrong time...

Look at the numbers and rate of return on investments then do what you feel comfortable with.

PM me if you want to talk...

-LAFF
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Old 01-04-2007, 03:43 PM   #5  
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Where on God's green earth did you hear that you can contribute to a 401(k) without working for a company? Given that it is not a true statement, a 401(k) IS different from an IRA of any flavor.
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Old 01-04-2007, 04:25 PM   #6  
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I just read in several places about 401ks ect. I thought you could invest in them on your own and max at $15k. There is the difference then!
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Old 01-04-2007, 04:27 PM   #7  
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http://www.usatoday.com/money/perfi/...-04-23-net.htm


Here is a better article on 401Ks and IRA...

-LAFF
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Old 01-04-2007, 05:59 PM   #8  
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Well, this is one of the few safe havens on the forums anymore. Posters here are intelligent. We do not call others names, we do not make derogatory remarks, nor do we make physical threats to those with whom we disagree.

I see that you post here, too.
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Old 01-04-2007, 06:23 PM   #9  
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Quote:
Originally Posted by vagabond View Post
Duck, my darling, you have the most esoteric questions on these forums!

This is not a case of a rose is a rose is a rose. A Roth IRA is very different from a Traditional IRA, and both IRAs are different from a 401(k) plan. It's like a duck is not a goose or something.

A 401(k) is generally an investment vehicle that a company makes available to its employees. [For employees in universities or research facilities, the plan is called the 403(b), based on the particular IRS code section]. In a 401(k), the employee contributes a percentage of his income, and the company may or may not match those contributions. The money is invested in a variety of places of the employee's choosing. For example, many plans work with the big players like Fidelity or Vanguard so that employees can invest in the funds managed by those firms. The company HR types will let you know the maximum amount you can withhold. This money is intended for your retirement although many people "loan" themselves their own future. If and when you separate from the company, the portion of your own contributions are yours to keep. The company's portion is also yours depending on vesting rules. You do not have to keep the 401(k) with the company when you leave. The smart advice is to transfer the whole thing into another account.

The Traditional IRA (not the Irish Republican Army, hee hee) is a personal retirement savings plan whose tax advantage comes in the front end as opposed to the back end for the Roth. Depending on your income, Traditional IRA contributions (up to a maximum set by the IRS) are tax deductible in the year in which the contributions are made. Any withdrawals (termed "distributions") later on will be taxed at your tax rate then, which hopefully is lower than during the years of your highest earning power.

The Roth IRA is a slightly different twist in that contributions (again up to maximums set by the IRS nazis) are not immediately deductible, but contributions are not taxed either.

I am not sure I understand your last fact pattern. Most people (and particularly poor CFIs and regional FOs) do not have much money to invest in anything, let alone invest in both Traditional and Roth. If you have that much, can I ask you for a loan? hee hee. The general rule is that the more money you put away, regardless of Traditional or Roth, the better off you will be come retirement.
You left out roll-over IRAs...<grin>

-LAFF
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Old 01-05-2007, 04:50 AM   #10  
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http://money.cnn.com/2007/01/03/pf/e...ion=2007010314


Another good article on 401Ks vs. Roth IRAs


-LAFF
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