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Work2fish (Mike) brought up retirement planning in another thread. I have a question for the smart folks on the forum -

Which should you contribute to retirement first - a 401(k) or regular IRA, a ROTH IRA, or should you just buy and hold investments (stocks) until retirement?

Here's the part you have to think carefully about.....

Upon retirement 401(k) and regular IRA contributions are taxable as ordinary income. If your in the 28% tax bracket, you're going to pay Federal income tax at 28% on any distributions you take from the IRA (if you make more than $25k per year you will pay the same on social security).

Upon retirement ROTH IRA contributions are not taxed. The money is tax free upon retirement provided they are qualified distributions.

During any time of your life, long term capital gains (stocks or bonds held for greater than 1 year) are taxed at the long term capital gain rate of 15%.

So what are your thoughts?




I personally think you should contribute to your 401(k) up to any employer match - so you get that extra 3% or 6%.

Then, I think you should max out your ROTH IRA contribution (currently $5,000 per year).

Then, you should either go back and think about adding more to your 401(k) or you should think about investing in quality, non-dividend paying stocks to hold outside of retirement accounts (value investing - companies like Google, Oracle, Berkshire Hathaway, etc.).
 

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The 401 with a decent match is a good option if you have a choice of where your money is going.
I worked for ADT/TYCO that limited my choice to Fidelity Mutual fund choices. Plus they had a stock purchase plan. The CEO stole lots of money and the mutual funds were very average in forecasting the economic future.
I have converted all my 401's to Roth IRAs and invested in stuff that maintain value during inflation and pay dividends.
Dividends are taxed at less then capital gains and give you the flexibility to reinvest or buy fishing gear.
I am retired US Army and enjoy a 90% disability retirement. My example might not work for you.
Read some good economic history that includes inflated currency. Germany, Argentina, Zimbabwe and recent Euro and United States currency values. I like books by Jim Rogers and William Bonner for starters.
If you can invest in opportunities that reflect future trends based on history you should be ok.
 

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I am not a financial adviser but the information below has worked well for my wife and I.
You might want to take a look at some of the annuity programs offered by people like AXA or ING. My wife and I set up our retirement back in 2003 with these plans and are very thankful that we did. They are not cheap as regards fee's but it sure was nice to have our portfolio go up over 40% from 2003 to 2008 then the market tanked. With the (GMIB) guarnateed minimum income benefits, this market crash did not affect our accounts at all........we are guaranteed 100% of the original investment will be paid back plus the high water marks hit when the market was good are added to our available funds. We are guaranteed income for as long as we live and anything left when we croak goes to our estate. This coupled with Social Security has worked out quite well. The only thing you pay tax on is the amount you've earned over and above your contribution. If you have a decent CPA you shouldn't have to pay any taxes unless your pulling out a lot, ($75,000 or so) a year assuming you have deductions such as property taxes etc.

Hope this helps,

Bill
 

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Weird Al Yankafish said:
I keep it simple. My retirement planning involves the Colorado Lottery.
Somebody won the damn lotto, 11+ million,..and it wasn't me! :mad:
Mine is in a regular IRA, took the tank a couple years ago like everyone else. I would love to convert to a Roth, if I had the money to pay the taxes.

To my fellow cf'ers who are under the age of 25. Invest now, in whatever plan you can, even $25 a week. I wish I had done it when I was that age.
 

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Maximizing 401K contributions and managing them, trying to save something extra besides that, and carrying zero debt is the formula that works for me.

The first part has been my standard operating procedure for going on 15 years.

I got to the third objective a few years back, in some measure due to the second objective.

I get it that mortgage payments and car payments are the reality for many--They were for me, too, not so long ago. Housing and transportation are things we need. Half a million dollar houses aren't needs. Neither are $60K vehicles. And toys such as ATVs, boats, RVs, and snowmobiles aren't needs either.

My advice is to not get highly leveraged, especially with regard to wants, as opposed to needs. Get the wants when you can write checks for them.

Or, if you prefer, go get another loan from the credit union for that next new toy.
 
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