IRA Rollover

Posts Tagged ‘ira’

Question: 401k Vs. IRA?

My company doesnt match 401k until 1 year of service and that will be end of July next year. I am currently contributing 75% of my semi-monthly paycheck into 401k. Is this smart? I heard its smart because I avoid federal taxes. My take home pay sucks but I dont really need the money right now. The investment options I have are stock, mutual funds (large/medium/small cap etc) and also a stable fund (not much interest).

In my Rollover IRA account from my previous employer, only a small amount is invested, but it’s a life-cycle fund (where it will go until the year I retire) and the ROI is high and I can do that since I am young.

Should I stop investing in 401k and contribute my money to my life-cycle fund/IRA account ($4k max per year) which has a higher interest rate? or should I keep 401k, keep avoiding taxes, and contribute 60% to company stock based on my deductions and 40$ to the Bond investment (stable fund)? Thanks I’m trying to make my money work hard for me.

Answer: When you company matches your contribution, maximize the 401k to the point you get all the matching funds.
If you still have money to invest, start a new IRA with a low cost outfit like vanguard or fidelity. You can just open a new one, you don’t need to fund the rollover IRA.
The question then is traditional IRA or Roth. I say have your cake and eat it to. There are reasons for both. Since your 401k is pretax and it sounds like your income is already low, I would put the remaining in the Roth IRA.
The next question is what to put the money in the Roth into. Until you have $100,000, put the money in a total market fund that tracks the wilshore 5000, like VTSMX. you can expect 10-12% dollar cost averging over the next decade.